National Credit Code
The National Consumer Credit Protection Act 2009 (NCCP Act) is the law governing consumer credit in Australia and is designed to protect consumers’ interests. The NCCP Act includes the National Credit Code as a schedule to the Act.
The National Credit Code applies to credit provided to an individual (or a strata corporation) wholly or predominantly for household, personal or domestic purposes. The Code also applies to credit provided to an individual for purchasing, renovating or improving residential property for investment purposes (including refinancing this credit). The National Credit Code does not apply to credit obtained for commercial or business purposes.
Apart from this, the Code doesn’t apply to credit obtained for commercial or business purposes if the consumer has declared before entering into the credit contract that the credit is to be provided wholly or predominantly for another purpose.
Under the National Credit Code a customer can give their bank a verbal or written notification to their bank of their inability to meet their current or future obligations under their credit contract. This is known as a ‘hardship notice’.
If a customer gives a ‘hardship notice’, the bank may ask the customer for some information relevant to determining whether the customer is, or will be, unable to meet their obligations under their credit contract; and/or how to change the credit contract.
The National Credit Code requires a bank to decide whether to change the customer’s credit contract within certain time periods, and to provide the customer with a notice of their decision. However, even if the customer is not eligible for a change to their credit contract under the National Credit Code, the bank may still offer other forms of support and assistance.
Code of Banking Practice
The Australian banking industry has had its voluntary, self-regulatory Code of Banking Practice (‘the Code’) in place since 1993.
The Code of Banking Practice is the banking industry’s customer charter on best practice banking standards. The Code sets out the industry’s key commitments and obligations to customers on standards of practice, disclosure, principles of conduct and dispute resolution.
Importantly, the Code represents the commitment of the banking industry
to establish its own standards and contains a number of provisions which
provide customers with rights and protections which are either not
contained in law or which go beyond the requirements of the law.
Once a bank adopts the Code as a Code Subscriber it is a binding agreement as subscribing banks are contractually bound by their obligations under the Code. Importantly, any bank is free to adopt the Code, not just ABA member banks. All major retail banks currently subscribe to the Code. A list of Code subscribers is available on the ABA website here.
The 1993 Code originally only applied to individual customers, however coverage of small business under the Code was introduced in 2003, after recommendations of an independent review. Since 2003 the Code has covered both existing and prospective individual and small business customers and their guarantors.
The new 2013 code
Clause 28 of the 2013 Code contains new and stronger financial hardship provisions that Code subscribers must comply with when an individual or small business customer is experiencing financial difficulties with their credit facility. For example, Code subscribers will:
- With the customer’s agreement and cooperation, try to help a customer overcome their financial difficulties with any credit facility they have with their bank;
- Deal with an authorised financial counsellor or representative at the customer’s request;
- Respond promptly to requests for assistance;
- Not combine accounts or assign debts while the bank is actively considering the customer’s financial situation or a hardship arrangement is in place with the customer;
- Inform the customer about the hardship provisions of the National Credit Code and the Code of Banking Practice if the bank considers they apply to the customer’s circumstances;
- Inform the customer in writing of the bank’s decision whether or not to provide assistance to a customer in financial difficulty and the reasons for the bank’s decision;
- Provide the main details of an arrangement in writing if the bank agrees to provide assistance; and
- Ensure bank staff are well trained in understanding the bank’s financial hardship commitments;
Until 1 February 2014 when the 2013 Code commences, the 2004 Code will continue to apply to Code subscribers.
See the ABA’s media release here
The 2004 code
The 2004 Code contains a financial hardship provision which in summary provides: Your bank will, with your agreement, try and help you if you encounter financial difficulties with your loan or credit facility. For example, by working with you to develop a repayment plan.
The Code of Banking Practice can be accessed on the ABA’s website here.
The Code Compliance Monitoring Committee
The Code Compliance Monitoring Committee (CCMC) is an independent monitoring body and was established in 2003. The CCMC has responsibility for monitoring Code subscribers compliance with the Code and to investigate and make determinations on allegations of a breach of the Code. Importantly any person can make an allegation of a breach of the Code. For more information see our information on making a complaint.
Government’s Hardship Principles
In addition to the National Credit Code, and the Code of Banking Practice, all ABA member banks operating in Australia have signed up to the Australian Government’s hardship principles “A Common approach for assisting borrowers facing financial hardship”. The eight principles ensure that individuals and families finding it tough to pay off their mortgage are treated fairly by their credit provider and provided with support and assistance. The principles cover aspects such as temporary assistance options, identification of borrowers in hardship, staff training, timely and needs-based assistance.
For more information about the Government’s hardship principles, go to the Treasurer’s website.
Since the initial announcement about the major banks, other retail banks have also adopted the hardship principles, see ABA’s media release.