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At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.

Personal Insolvencies Fall in September Quarter 2018

Tuesday, October 30, 2018 - Posted by Michael McCulloch

The Australian Financial Security Authority (AFSA) are reporting that personal insolvencies fell 9.7% in the July to September 2018 quarter.

The personal insolvency statistics for this quarter show that the number of new total personal insolvencies reduced from 8,194 to 7,400 with only NSW recording a rise of 0.4% The rise in NSW has been attributed to an increase in consumer Debt Agreement Proposals (DAPs) and Personal Insolvency Agreements (PIAs). Bankrupties were at a record quarterly low in South Australia with Tasmania also recording their lowest quarterly level of bankruptcies since 1989.

Business related personal insolvencies, where an individuals bankruptcy is directly related to his or her proprietary interest in a business, represented 17.8% of total bankruptcies filed Australia-wide with the Australian Capital Territory recording the greatest increase across all States and Territories of 8.33% over the last 12 months.

Further information about the statistics can be read online at Guide to Personal Insolvency Statistics.


Is It Time To Review Your PPSR Registrations?

Tuesday, October 30, 2018 - Posted by Michael McCulloch

Do you know when your interest on the Personal Property Securities Register (PPSR) is due to expire?

It can be one of the more challenging things that we come across in the debt collection industry. A customer has relocated several times over a number of years however the debt is believed to be secured by an asset which, if repossessed, may finalise the debt or may entice the debtor to enter into a repayment arrangement which is maintained. Upon conducting a search of the PPSR it's then found that the security interest has lapsed. You now have essentially an unsecured debt with very little or no bargaining power.

While many organations used to employ a specialists securities agents this role has gradually been phased out and is now considered a day-to-day role of administration staff who may or may not keep an accurate register and may not know or realise the implications of the interest lapsing especially where a debt has been written-off. If this sounds familiar did you know that if you have a PPSR login that you can generate a report called Registrations Due to Expire?

The report includes information such as:


  • the SPG (Secured Party Group Number);
  • registration number;
  • end date and time of the security interest;
  • collateral type;
  • collateral class;
  • serial number and serial number type; and
  • details of the Grantor

The Registrations Due to Expire Report may be an invaluable report to you to keep track of your interests on the PPSR with reports being available to download in CSV or XML format.

Debt Agreement Reform

Tuesday, October 30, 2018 - Posted by Michael McCulloch

The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 received Royal Assent on Thursday, 27 September 2018 with a majority of the amendments commencing on Thursday, 27 June 2019.

The reforms have been passed in an attempt at tighter regulation and greater protections for people entering into Debt Agreement Proposals (DAPs). The Bill was passed in with several key amendments including:

  • the prevention of a debtor from giving AFSA a DAP if the total proposed payments exceed the debtor's yearly after-tax income by a prescribed percentage;
  • doubling the current assets eligibility threshold from $113,350 to $226,700. This is in response to the growing value of the Australian property market and will allow more debtors to enter into DAPs that were previously not eligble owing to the lower asset eligibility threshold;
  • limiting the length of DAPs (in line with the current bankruptcy provisions) to 3 years however allowing debtors the flexibility to vary the DAP to a maximum of 5 years if there is unforeseen circumstances that are likely to prevent them from completing the DAP;
  • allowing debtors who own or have equity in their principal place of residence to propose a DAP up to 5 years and to exempt those debtors from the requirement to comply with the payment to income ratio;
  • providing the Official Receiver with the ability to reject a DAP that would cause undue financial hardship to the debtor;
  • the setting of stricter practice standards for Debt Agreement administrators including compulsory registration; and
  • the requirement for Debt Agreement Administrators to hold and maintain Professional Indemnity and Fidelity Insurances as a requirement for registration.

In a media release to the public Attorney-General, Christian Porter, said, "Debt agreements are an important and increasingly popular alternative to bankruptcy for individuals who are facing financial difficulty. But, over time, it had become clear that aspects of the debt agreement framework and some in the industry were putting financially vulnerable people at risk of entering into agreements which were not affordable – further compounding financial stress. The Coalition's reforms not only protect the interests of debtors and creditors by ensuring that debt agreements are reasonable and sustainable, but it will also improve professional standards in the debt agreement administrator industry. Debt agreement administrators deal with some of the most vulnerable people in our community, and the Bill professionalises the industry to reflect its important function."


AFCA Rules of Complaint Resolution

Tuesday, October 30, 2018 - Posted by Michael McCulloch

On Thursday, 1 November 2018 the new Australian Financial Complaints Authority (AFCA) will begin receiving complaints.

AFCA has released their Complaint Resolution Scheme Rules which you can download from our website which outline the types of complaints that AFCA can deal with and how it will handle complaints from consumers against financiers.

AFCA Jurisdiction

The graphic below depicts how AFCA will determine if a complaint falls within their jurisdiction -

AFCA Complaint Resolution Process

Section A
A.4 - Complaints that AFCA Considers

A.4.1 The Complainant must be an Eligible Person.

A.4.2 A complaint must be about a Financial Firm that is an AFCA Member at the time that the complaint is submitted to AFCA (even if not an AFCA Member at the time of the events giving rise to the complaint).

A.4.3 There are some additional requirements that must be met in order for AFCA to be able to consider a complaint. In summary:

a) The complaint must arise from a customer relationship or other circumstance that brings the complaint within AFCA’s jurisdiction.
b) There must be a sufficient connection with Australia.
c) Generally, there is a time limit within which the complaint must be submitted to AFCA.
d) If the complaint is about a Traditional Trustee Company Service that involve Other Affected Parties, the Complainant must get the consent of all Other Affected Parties.

Section B sets out these requirements.

A.4.4 There are some types of complaints that AFCA must exclude and some situations in which AFCA can decide to exclude a complaint.

Section C sets this out.

A.4.5 If AFCA excludes a complaint, AFCA will give written reasons to the Complainant and specify the timeframe within which the Complainant may object to this decision.
A.4.6 If the Complainant objects within the specified timeframe, AFCA will review the decision if AFCA is satisfied that the objection may have substance. If this is the case, AFCA will inform the Financial Firms involved in the complaint and provide them with an opportunity to make submissions before AFCA makes a final decision as to whether to consider the complaint.
A.4.7 Despite other rules, AFCA may consider a complaint if all parties to the complaint consent in writing and AFCA agrees to this. This does not apply to complaints about payment of a death benefit excluded under the time limits in rule B.4.1.3.

Section B
B.2 Relationship Giving Rise to the Complaint - Other Complaints
Section B.2.1

A complaint (other than a Superannuation Complaint) must arise from or relate to:

a) the provision of a Financial Service by the Financial Firm to the Complainant;
b) the provision by the Complainant of a guarantee or security for, or repayment of, financial accommodation provided by the Financial Firm to an Eligible Person;
c) an entitlement or benefit under a Life Insurance Policy that specifies or refers to the Complainant, whether by name or otherwise, as a person to whom the insurance cover extends or to whom money becomes payable under the Life Insurance Policy;
d) an entitlement or benefit under a General Insurance Policy that specifies or refers to the Complainant, whether by name, or otherwise, as a person to whom the policy extends;
e) a legal or beneficial interest of the Complainant arising out of:
(i) a financial investment (such as life insurance, a security or an interest in a managed investment scheme or a superannuation fund); or
(ii) a facility under which the Complainant seeks to manage financial risk or to avoid or limit the financial consequences of fluctuations in, or in the value of, an asset, receipts or costs (such as a derivatives contract);
f) a claim by the Complainant under another person’s Motor Vehicle Insurance Product for:
(i) property damage to an Uninsured Motor Vehicle caused by a driver of the insured motor vehicle;
(ii) non-financial loss as a result of claims handling by the Financial Firm that insured the motor vehicle, but only where a valid claim has been submitted by the owner of the insured motor vehicle (unless the claim is being made pursuant to section 51 of the Insurance Contracts Act 1984);
g) an investment made by the Complainant that was offered by a Financial Firm under a foreign recognition scheme to Australian resident investors, unless expressly excluded from access to AFCA or a Predecessor Scheme by the investment offer document; or
h) a Traditional Trustee Company Service where:
(i) the Complainant is entitled to request an Annual Information Return from the trustee; and
(ii) at least one co-trustee was at that time a current AFCA Member and all co-trustees that are not AFCA Members have consented to AFCA considering the complaint.
i) a breach of obligations arising from the operation of the:
(i) Privacy Act; or
(ii) the Consumer Data Framework.

B.3 Sufficient Connection with Australia
B.3.1

A complaint must arise from:
a) a contract or obligation arising under Australian law, including but not limited to privacy obligations;
b) an offer to invest that was received in Australia by a Complainant in relation to a recognised Foreign Collective Investment Scheme; or
c) a direct or indirect investment in a product through a platform which was offered in Australia.

B.4 Time Limits for Complaints
B.4.2 Complaints to Which the National Credit Code Applies
B.4.1.1

Where a complaint relates to a variation of a credit contract as a result of financial hardship, an unjust transaction or unconscionable interest and other charges under the National Credit Code, AFCA will generally not handle the complaint unless it was submitted to AFCA before the later of the following time limits:
a) within two years of the date when the credit contract is rescinded, discharged or otherwise comes to an end; or
b) where, prior to lodging the complaint with AFCA, the Complainant was given an IDR Response in relation to the Complaint from the Financial Firm - within two years of the date of that IDR Response.

AFCA Type of Complaint

Section C
C.1 Mandatory Exclusions
C.1.2 Exclusions Applying Generally

AFCA must exclude:

a) A complaint about the level of a fee, premium, charge, rebate or interest rate – unless:
(i) the complaint concerns non-disclosure, misrepresentation or incorrect application of the fee, premium, charge, rebate or interest rate by the Financial Firm having regard to any scale or practices generally applied by that Financial Firm or agreed with that Complainant;
(ii) the complaint concerns a breach of any legal obligation or duty on the part of the Financial Firm; or
(iii) the Complainant’s complaint is with a medical indemnity insurer and pertains to the level of medical indemnity insurance premium or the application of a risk surcharge (as defined in the Services Contract between the Health Insurance Commission, and the Commonwealth of Australia represented by the Department of Health and Ageing, and medical indemnity insurers).
b) A complaint that relates to a decision by a Financial Firm as to how to allocate the benefit of a Financial Service between the competing claims of potential beneficiaries, unless the complaint relates to a Superannuation Complaint or a Traditional Trustee Company Service.
c) A complaint that raises the same events and facts and is brought by the same Complainant as a complaint previously dealt with by AFCA and there is insufficient additional events and facts raised in the new complaint to warrant AFCA considering the new complaint.
d) A complaint that has already been dealt with by a court, dispute resolution tribunal established by legislation or a Predecessor Scheme, unless the Complainant has requested a stay on the execution of a default judgment on the basis of financial difficulty, and the Financial Firm has declined the Complainant’s financial difficulty assistance request, and the request has not previously been dealt with. For the avoidance of doubt, AFCA may consider a complaint by a Primary Producer about issues unresolved after a farm debt mediation.
e) A complaint where the value of the Complainant’s claim when the complaint is submitted to AFCA exceeds $1 million or higher amount that applies as a result of an adjustment in accordance with rule D.4.3. This jurisdictional limit does not apply to:
(i) a Superannuation Complaint; or
(ii) a complaint by a borrower arising from a credit facility provided to a Small Business (including Primary Producer); or
(iii) a complaint to set aside a guarantee supported by security over the guarantor’s primary place of residence.
f) A complaint where the Complainant is a member of a group of Related Bodies Corporate and that group has 100 employees or more. 
g) A complaint that would require review of a trustee’s exercise of discretion but this does not exclude:
(i) a complaint to the extent that an allegation is made of bad faith, failure to give fair and proper consideration to the exercise of the discretion, or failure to exercise the discretion in accordance with the purpose for which it was conferred; or
(ii) a Superannuation Complaint,
h) A complaint about professional accountancy services provided by an Accountant unless they are provided in connection with one of the following:
(i) a financial service within the meaning of section 766A of the Corporations Act or section 12BAB of the ASIC Act;
(ii) credit activity within the meaning of the National Consumer Credit Protection Act 2009; or
(iii) tax (financial) advice services within the meaning of the Tax Agent Services Act 2009.
i) A complaint about a:
(i) Privacy Act Participant that does not relate to a right or obligation arising under the Privacy Act; or
(ii) CDR Participant that does not relate to a right or obligation arising under the Consumer Data Framework.

C.2 AFCA's Discretion Not to Consider Complaints
C2.1

AFCA may in its discretion exclude a complaint, if AFCA considers this course of action is appropriate.

AFCA will not exercise its discretion to exclude a complaint lightly. The discretion will only be used in cases where there are compelling reasons for deciding that AFCA should not consider the complaint. 

Section D
D.3 Compensation for Complaints Other Than Superannuation Complaints
D.3.1

An AFCA Decision Maker may decide that the Financial Firm is to compensate the Complainant for direct financial loss. When calculating the value of such a remedy, monetary compensation and any remedy where the value can readily be calculated, such as the waiving of a debt, are included.

D.4 sets out the maximum amount that an AFCA Decision Maker can award for direct financial loss.

D.3.2

In addition or instead, an AFCA Decision Maker may decide that the Financial Firm is to compensate the Complainant for indirect financial loss. This is not the case if the complaint arises as a result of a claim:

a) on a General Insurance Policy that expressly excludes such liability; or
b) by the Complainant under another person’s Motor Vehicle Insurance Product.
D.4 sets out the maximum amount that an AFCA Decision Maker can award for indirect financial loss.

D.3.3

An AFCA Decision Maker may decide that the Financial Firm is to compensate the Complainant for non-financial loss:

a) for a complaint relating to an individual’s privacy rights - injury has occurred to the Complainant’s feelings or humiliation has been suffered by the Complainant; or
b) for other complaints – an unusual degree or extent of physical inconvenience, time taken to resolve the situation or interference with the Complainant’s expectation of enjoyment or peace of mind has occurred.
This type of compensation, however, is not permitted if the complaint arises as a result of a claim on a General Insurance Policy that expressly excludes such liability.

D.4 sets out the maximum amount that an AFCA Decision Maker can award for non-financial loss.

D.4 Monetary Limits for Complaints Other Than Superannuation Complaints -

AFCA Compensation Amount Limit

As indicated above, AFCA will apply a new definition for small business and will also introduce the following monetary limits and compensation caps:

  • small business is now defined as any business with fewer than 100 staff;
  • unlimited monetary jurisdiction for superannuation disputes;
  • a monetary limit of $1,000,000 and a compensation cap of $500,000 for most non-superannuation disputes;
  • a monetary limit of $5,000,000 and a compensation cap of $1,000,000 for small business credit facility disputes;
  • increased compensation caps for small business primary production producers; and
  • no monetary limits and compensation caps for disputes about whether a guarantee should be set aside where it has been supported by a mortgage or other securitised interest over a guarantor's primary residence.
Default Judgment

In accordance with the Complaint Resolution Scheme Rules A.7 Restrictions on Financial Firms During a Complaint AFCA have confirmed that while they are considering a complaint that legal proceedings cannot commence against a Complainant or any other party to the complaint while the complaint is being investigated. Furthermore AFCA have indicated that where proceedings have been commenced an application for Default Judgment must not be sought or to pursue debt recovery legal proceedings.

Where an application for Default Judgment has been filed AFCA are instructing financial firms to write to the Court requesting that the application not be processed. In the event of the application having already been lodged and processed by the Court the financial firm is to make an application to set aside Default Judgment, at your cost.

Despite Rule A.7.1 AFCA have confirmed that with their permission legal proceedings can be commenced where -

A.7 Restrictions on Financial Firms During a Complaint
A.7.2

a) begin legal proceedings if the legal limitation period for the proceedings is about to expire – but the Financial Firm may not pursue those legal proceedings other than to the minimum extent necessary to preserve the Financial Firm’s legal rights;
b) begin legal proceedings if AFCA agrees to allow the Financial Firm to treat the complaint as a test case and the Financial Firm meets the requirements set out in rule C.2.2(f);
c) exercise any rights it might have to freeze, preserve or sell assets the subject of the complaint;
d) continue with legal proceedings if the Complainant, anyone else joined as a party to the complaint or Other Affected Party took a step in defending those legal proceedings that went beyond lodging
a defence or a defence and counterclaim;
e) continue with legal proceedings about a Small Business (including Primary Producer) credit facility of more than $5 million; or
f) enforce a default judgment obtained in court.
In each case, the Financial Firm must comply with any conditions that AFCA imposes.

Mapping of FOS Terms of Reference, CIO Rules and AFCA Rules

To further assist financiers in making the transition, AFCA has released Mapping of FOS Terms of Reference, CIO Rules and AFCA Rules which provides a reference when attempting to locate a particular section of the new Rules. This has been released following feedback from submissions. You can read the 34 submissions online at the AFA Rules Consultation page.

As AFCA start receiving complaints and making decisions public we will endeavour to publish these via our blog and across social media to keep you informed as to the interpretation of the new Rules and how this may impact you.

Alternatively if you have any questions regarding the new Rules we urge you to speak with a qualified legal practitioner or speak with Collection Law Partners.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.


ASIC Provides Transition Relief for CIO Members

Tuesday, October 30, 2018 - Posted by Michael McCulloch

The Australian Securities & Investments Commission (ASIC) has provided transition relief for members of the Credit and Investments Ombudsman (CIO) who are currently awaiting membership certificates to be issued by the new Australian Financial Complaints Authority (AFCA).

In a statement to the media ASIC said, "ASIC understands that some licensees and credit representatives who are members of the CIO scheme have not yet obtained their membership to the AFCA scheme. ASIC understands that this includes licensees and credit representatives who: have lodged an application with AFCA Ltd, but membership has not yet been approved; and have not yet lodged an application with AFCA Ltd."

The initial deadline for licence holders was Friday, 21 September 2018 however ASIC said it would be giving transitional relief to prevent authorisations from becoming invalid due to circumstances however stressed to representatives affected by the changeover delays that they would only be granted relief as long as they ensure that their membership with CIO is maintained. A representative of ASIC went on to say that, "If you are not a member on 1 November, your authorisation will become invalid, and you will need to cease providing credit activities."

ASIC has recently sent a reminder to all financial services and credit licensees to join AFCA which combines the Financial Ombudsman Service, the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman.

Source: TheAdviser - September 2018


West Gladstone Teen Fined Over Debt Collection Gone Bad

Thursday, September 27, 2018 - Posted by Michael McCulloch

A 19 year old teenager in West Gladstone QLD has recently discovered that causing damage to someone's property is not the correct way to recover a debt.

The teenager was attempting to recover an alleged $700 debt when he attended the address which saw him kicking a metal screen on the front door of the property before smashing a glass window and smashing a TV he found at the side of the house.

Acting Magistrate, Jason Schubert, fined the teenager a total of $1,100 and ordered him to pay $335 in compensation.

It's not the first time we have seen some Unusual Debt Collection Techniques such as those we outlined in our September 2016 issue of Debt Collection News.

Source: The Observer - September 2018


ASIC Regulatory Guide 165 Internal and External Dispute Resolution [Reminder]

Thursday, September 27, 2018 - Posted by Michael McCulloch

In our June 2018 edition of Debt Collection News we published our article ASIC Regulatory Guide 165 Internal and External Dispute Resolution.

Regulatory Guide 139 (RG139) now appears to be out of amended draft form and can be download here with ASIC reminding Creditors that RG139 is only in place until all current disputes with the Financial Ombudsman Service and the Credit and Investments Ombudsman have closed -

Note (20 June 2018): In the transition to the commencement of the new, single EDR scheme—the Australian Financial Complaints Authority (AFCA)—on 1 November 2018, complaints made to the FOS and CIO schemes will continue to be dealt with under the relevant scheme’s terms of reference and rules that applied when the complaint was made. 
This guide provides the framework for those versions of the terms of reference and rules. It will remain in force until all those complaints are closed. At that time, we will withdraw RG 139. Regulatory Guide 267 Oversight of the Australian Financial Complaints Authority (RG 267) sets out how we will perform our oversight role in relation to the AFCA scheme.

As a reminder the Australian Financial Complaints Authority (AFCA) will start accepting complaints from 01/11/2018 with Creditors required to ensure that all final response letters and "delay" letters include reference to both relevant predecessor EDR schemes from 21/09/2018.

If you require clarification of the new requirements please contact Collection Law Partners on (02) 8923-1613.


Timeshare Lender Fined for Responsible Lending Failure

Thursday, September 27, 2018 - Posted by Michael McCulloch

A timeshare lender, Future Holiday Finance Pty Ltd (FHF) has recently been pursued by the Australian Securities and Investments Commission (ASIC) for breaches of responsible lending practices.

FHF provides finance for the purchase of membership in ULTIQA Lifestyle which is described as a points-based timeshare arrangement with many consumers being approached by employees of FHF providing scratch cards that tells them that they've won a free holiday. After attending a seminar, which is charged at between $20 to $40, consumers were being given the chance to sign-up to a timeshare scheme to enjoy cut-rate prices at major hotels. To be eligble consumers had to agree to enter into a Contract, with what appears to be a cooling-off period of 14 days, and paying between $12,000 to over $25,000 to secure their points and pay an ongoing yearly subscription.

In the action commenced by ASIC it was found that FHF signed consumers up to loans without assessing affordability and a review of the documentation attached to the loan identified potential unfair contract terms.

FHF has been fined and paid a penalty of $135,000 in response to 3 infringement notices and has been ordered to pay up to $3 million in compensation. FHF will also review loans provided to consumers between 01/07/2012 and 30/08/2018 and will provide refunds to customers where the loan was unsuitable. The refund scheme will be overlooked by an indepdent expert who will also assess FHF's compliance with future responsible lending obligations.

In a statement released to the media, ASIC Deputy Chair, Peter Kell, said, "Timeshare finance operators must ensure that they comply with their responsible lending obligations. 'Consumers should always take the time to consider upfront and ongoing costs of timeshare, including finance, given they are a long-term commitment and can be difficult to sell."

Consumers can get more information about the refund scheme by visiting the MoneySmart website.

Source: ASIC Media Centre - August 2018


Limitation Period for Body Corporate Debt Recovery

Thursday, September 27, 2018 - Posted by Michael McCulloch

There has been some anxious times recently for body corporates who have been eagerly awaiting the decision in the Queensland Court of Appeal in Body Corporate for Mount Saint John Industrial Park Community Title Scheme 18632 v Superior Stairs & Joinery Pty Ltd [2018] QCA 173.

In the District Court the Defendant, Superior Stairs & Joinery Pty Ltd (STJ) argued that the action by the Plaintiff, Body Corporate for Mount Saint John Industrial Park Community Title Scheme 18632 (Body Corporate), should be struck out after action was taken for the recovery of unpaid levies, recovery costs and penalty sums on the basis that the proceedings were commenced outside of the limitation period. STJ arguies that the limitation period for bringing body corporate debt recovery action was contained in Section 145 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (QLD) -

Part 4 Payment and Enforcement of Body Corporate Debts
s145 Payment and Recoery of Body Corporate Debts

(1) If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover each of the following amounts as a debt -
(a):  the amount of the contribution or instalment;
(b) any penalty for not paying the contribution or instalment;
(c) any costs (recovery costs) reasonably incurred by the body corporate in recovering the amount.
(2) If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2-year period, start proceedings to recover the amount.

STJ successfully argued in the District Court that the time limit for recovery of a debt by the body corporate was 2 years and 2 months pursuant to s145(2) however the Body Corporate submitted at the time that the time limit was 6 years from the date the levy became due and payable pursuant to Section 10 of the Limitations of Actions Act 1974 (QLD).

 The District Court agreed with STJ at the time however on appeal, the Court of Appeal, overturned the District Courts decision. In the decision Justice McMurdo, Justice Mullins and Justice Bond stated that the issue raised on appeal was not that of conflicting limitation periods but whether or not s145 prescribes a limitation period. The Justices concluded that s145 is to compel a body corporate to commence proceedings but cannot be interpreted as a limitation period and therefore s10 of the Limitiation of Actions Act is the governing legislation (ie 6 years from the date the contribution becomes outstanding).


ASIC Recommends Buy Now Pay Later Reform

Thursday, August 30, 2018 - Posted by Michael McCulloch

In our January 2018 edition of debt collection news we posted an article AfterPay and zipPay Post-Christmas Warning which indicated that Westpac was warning their brokers that these payment schemes must be assessed as a liability when assessing a persons capacity to service a mortgage.

This month the Australian Securties & Investments Commission (ASIC) has come out and released a report "Design and Distribution Obligations and Product Intervention Power"which recommends broadening their powers to cover the buy now, pay later sector which is not currently regulated by the National Credit Code. In the report ASIC noted:

  • providers may carry out limited inquiries of the consumers' financial situation prior to providing credit (noting the responsibile lending obligations do not apply);
  • some providers are funding high cost purchases (up to $30,000) over long repayment period;
  • consumers may lack understanding of what fees and charges are payable and when; and
  • vulnerable consumers may be using these products.

ASIC went on to say in the report that as those in the buy now, pay later sector do not charge fees or interest so therefore do not meet the definition of "credit" under the Code:

  • do not meet the definition of credit within the National Credit Code. Some providers extend funds without charging fees or interest and as such do not meet the definition of 'credit' under the Code;
  • meet the definition of credit but are exempt under s6(5) of the National Credit Code. Some providers rely on the continuing credit contract exemption under s6(5) of the Code as the only fee they charge is an establishment and/or account fee that does not vary according to the amount of credit provided and is set at a maximum of $200 in the first year and $125 every year thereafter; or
  • meet the definition of credit but are exempt under s6(1) of the National Credit Code: Some providers rely on the short term credit exemption under s6(1) of the Code which requires that the term not exceed 62 days and fees and charges not exceed 5% of the amount of credit.

A review however of the AfterPay website shows that late fees may be payable where an instalment was not paid by the due date:



With AfterPay reporting that late fee income increased 365% ($28.4 million) in their Annual Report, Consumer Action Centre's Senior Policy Officer, Katherine Temple, said in a statement, "Our financial counsellors report that we are receiving increasing numbers of calls from people with buy-now-pay-later debts, including Afterpay. Most people calling us for help who have Afterpay debts are juggling numerous other debts, such as credit cards, payday loans and utility bills."

We will continue to monitor for updates regarding the outcome of the report by ASIC and will post these as and when they become available.



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