Over the past decade or so, various forms of legislation and other measures have been taken in Australia to protect consumers when borrowing money from financial institutions.
In 1993 the Consumer Credit Code was introduced across the whole of Australia. For the first time, clear guidelines were established nationwide on the legal aspects of credit agreements. Under this Code, credit providers such as banks, credit unions, finance companies and business must specify to the consumer exactly what their rights and obligations are in relation to any type of credit arrangement, and must provide a written contract with full details of repayments and other charges. Financial institutions are also required, under the code, to ensure that they only recommend and issue loans that they are confident the customer can afford to repay. If a contract is thought to be unfair, it may be overturned by a court.
Under the Code, the contract issued to a borrower must include:
- The amount of the loan or credit
- The fixed annual percentage rate or in the case of a variable percentage rate, the lender must disclose where you can find that current rate
- The method of calculating the yearly interest rate
- The total amount, frequency, and total number of repayments that are required
- Any type of credit fees or charges
- Any type of provisions, such as a guarantee
- Insurance details
- All other charges and fees
The next important milestone in Australia’s regulation of its credit market was the establishment in 1996 of the Uniform Consumer Credit Code Management Committee. This Committee was set up to oversee the introduction of amendments to the Credit Code, to act as a regulator in the event of discrepancies from or disputes with the Code and to consider credit-related concerns raised by businesses or consumer groups. The Committee consists of a representative from each jurisdiction.
In 2000, Australia passed a law regarding the privacy rights of borrowers and the obligations that lenders have regarding the confidential and personal records of their customers. Under this law, all banks and creditors must follow the National Privacy Principals as set out in the Privacy Amendment (Private Sector) Act of 2000.
Legislation has also been passed requiring banks and lenders to disclose comparison interest rate schedules. This allows the consumer to compare the likely costs of similar types of credit products before making a formal application, thus avoiding multiple applications which can appear as a negative factor on their consumer credit report, and helping them to identify the product which is most suitable for them. Legislation introduced in 2003 now requires lenders to display the comparison interest rate schedules in all advertisements.
More recently, a Fair Trading Amendment called the responsible credit bill was brought to Parliament. First introduced by Sylvia Hale, this bill addressed the overwhelming use of promotions and offers to persuade customers to borrow money, leading many Australian families to experience financial hardship. After much debate, however, the bill was not passed, due to the arguments of the opposition that borrowing should be a matter of consumer choice.