The NCCPA and NCC offer borrowers additional protections in relation to short-term lending and small amount credit contracts (also known as pay-day lending).

Section 5(1) of the NCCPA defines a “short term credit contract” (STCC) as follows:

Credit providers who hold an Australian Credit Licence (with the exception of an ADI) are prohibited from offering STCCs [s 124A]. An authorised deposit-taking institution is a Bank, a Building Society or a Credit Union.

Section 5(1) also defines a “small amount credit contract” (SACC) as follows:

There are restrictions on the fees and charges that may apply in relation to SACCs [s 31A]. The permitted establishment fee must not exceed 20 per cent and the maximum monthly fee must not exceed 4 per cent of the value of the loan.

Providers of small amount credit contracts have additional obligations in relation to responsible lending and disclosure which are described in more detail below. These additional obligations are intended to further protect borrowers who are most vulnerable in terms of their lack of ability to repay debts.

Some of these obligations, and additional protections, changed on 12 June 2023.

Prohibition on unsolicited communications and referrals

There is no longer any presumptions of unsuitability in relation to a SACC. However, there is now a prohibition on credit providers making unsolicited communications to a consumer inviting them to apply for, or offering them, a SACC in some circumstances [NCCPA s 133CF]. These circumstances include where they are, or ought to be reasonably aware, from initial inquiries that:

There is also a prohibition on some banking corporations from making referrals to credit providers who are not subject to the National Credit Code [NCCPA s 160G].

Information to be displayed and given

A credit provider who represents that they provide credit assistance to consumers in relation to SACCs must display information and give information in accordance with any determination made by the Australian Securities and Investment Commission [s124B]. This may include set information that must be displayed in certain places or at certain times in certain ways [NCCPA s 124B(2)].

Income and repayment requirements

The NCCPA [s 133CC] and the NCCP Regulations [reg 28LCA] also prohibit SACCs that do not meet income and repayment requirements. Any repayment or other amount due in a repayment period must now be either less than or equal to no more than 10 per cent of the consumer’s available income during the repayment period.

Lenders proposing to enter into a SACC must obtain and review information about each transaction on a prospective borrower’s bank statements, and the balances of the account for the previous 90 days, even if the borrower’s income is paid into a joint account (NCCPA ss 117(1A) and 130(1A)).

When a borrower wishes to have repayments deducted from wages, the NCCPA prescribes a form of notice to be given to an employer. The notice is designed to better inform borrowers about the terms of any arrangement to have repayments deducted from their wages and prevents lenders from requesting more than an authorised amount from the employer [NCCPA s 160E].

A credit provider must not enter into a SACC if the repayment periods and intervals are not equal [NCCPA s 133CD]. Further, if a consumer pays off their loan early, they are not liable to pay any further monthly fees for the remaining term of the loan [NCC s 31C].

Written record of preliminary assessment

Before providing credit assistance in relation to a SACC, a credit provider must document their preliminary assessment that a SACC is not unsuitable for a consumer, together with their inquiries and the verification of information [NCCPA s 124C].