House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 2: Buy Now, Pay Later

Outline of chapter

2.1 Schedule 2 to the Bill extends the application of the Credit Code to BNPL contracts and establishes LCCCs as a new category of regulated credit. LCCCs are continuing or non-continuing credit contracts for providing credit to consumers on a low cost basis. Most BNPL contracts will be regulated as LCCCs. Schedule 2 to the Bill amends the Credit Act to establish an optional modified RLO framework available to LCCCs. Schedule 2 to the Bill also creates new regulation-making powers in respect of LCCCs. The overarching aim of this measure is to provide appropriate and proportionate protections to consumers who enter LCCCs, while maintaining the benefits of consumer access to these kinds of credit products.

2.2 Schedule 2 to the Bill seeks to achieve this outcome by:

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requiring providers of LCCCs to hold and maintain an Australian credit licence and comply with the relevant licensing requirements and licensee obligations, with some modifications to ensure regulation is proportionate to the relatively low risk posed by LCCCs;

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modifying the existing RLO framework to create an alternative, opt-in framework that scales better with the risks posed to consumers and requires each LCCC provider to develop and review a written policy on assessing whether an LCCC would be unsuitable for the consumer;

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allowing LCCC providers and consumers to exchange information via mobile applications (apps) and other technologies; and

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engaging existing anti-avoidance prohibitions to prevent LCCC providers from structuring their business models to avoid regulation.

Context of amendments

2.3 Safe and well-regulated markets for consumer credit products are necessary for an efficient financial system. Credit products allow consumers to smooth the up-front cost of purchasing a good or service over a period of time, generally for a fee or charge.

2.4 Historically, credit regulation in Australia has focused on protecting consumers from deceptive or predatory lending practices and excessively high fees. This is reflected in the Credit Act, which does not apply to low cost continuing credit or low cost, short term credit products. More recently, credit regulation has focused on alleviating high cost debt burdens.

2.5 In recent years, advancements in technology have enabled credit businesses to build a profitable market for low cost credit and credit-like arrangements. These arrangements are currently covered by the low cost continuing and short term credit exemptions in the Credit Code.

2.6 New credit products, such as BNPL, can offer consumers a cheaper and easier way to access credit when compared to traditional forms of credit such as credit cards, small amount credit contracts, and consumer leases.

2.7 BNPL arrangements generally involve a third-party providing consumer finance to cover purchases of goods and services and the payment of bills. BNPL consumers generally pay no interest for the finance, but some BNPL providers charge a small fee. BNPL providers may also charge merchants a service fee for accepting BNPL transactions.

2.8 BNPL providers do not provide cash to consumers. Instead, they pay the merchant the value of the purchase upfront (less any merchant fee). Providers then collect repayments from consumers in instalments.

2.9 Many popular BNPL products facilitate general retail purchasing up to a spending limit of $2,000 or less. A smaller proportion of the BNPL market offers higher value finance for specific purchases, such as solar panels and other renewable energy home upgrades.

2.10 According to the Reserve Bank of Australia data, the value of BNPL transactions during the 2022-23 financial year was around $19 billion, equivalent to approximately 2 per cent of all Australian card purchases.

2.11 BNPL products have a range of benefits to both consumers and the economy. They also place competitive pressure on traditional forms of credit, reducing the cost of some products and triggering innovation in product design. BNPL has also generated increased business for merchants as consumers have been able to access credit to increase their purchasing power.

2.12 In some cases, this has increased levels of financial inclusion as consumers with limited access to mainstream, traditional credit have been able to access low cost credit through BNPL arrangements. A trend involving users of more expensive and more problematic forms of credit shifting to BNPL instead of, or in addition to, mainstream credit has also been observed.

2.13 BNPL arrangements are already covered by consumer protection provisions in the Australian Securities and Investments Commission Act 2001, including those relating to misleading, deceptive and unconscionable conduct. BNPL products are also subject to Product Intervention Power and Design and Distribution Obligation regimes under the Corporations Act.

2.14 Self-regulation has contributed to the development of BNPL industry standards. The majority of BNPL providers adhere to the Australian Finance Industry Association's voluntary Buy Now, Pay Later Industry Code, which came into effect on 1 March 2021. The Association estimates that adherents of the Code account for approximately 90 per cent of the BNPL market. Breaches of the Code are subject to monitoring, investigation and sanctions by the Buy Now, Pay Later Code Compliance Committee. Consumers can also obtain remedies against Code members from AFCA, or directly against members through contract law. However, the Code is not enforceable by ASIC and the failure of Code signatories to comply with their obligations does not attract criminal or civil penalties.

2.15 As noted above, BNPL arrangements are not currently regulated under the Credit Act because they typically fall under the exemptions available to certain types of credit in the Credit Code. Credit products that operate within these exemptions are not subject to RLOs or other Credit Act requirements, and providers do not need to hold an Australian credit licence.

2.16 The growth of the BNPL market sector was not contemplated by policy makers when the Credit Code exemptions were designed. While other forms of third-party merchant finance did exist at that time, innovation in technology and business models has resulted in new credit products operating under these exemptions with far greater accessibility, convenience, immediacy and volume than originally envisaged. In consequence, poor consumer outcomes are being observed at sufficient levels to justify regulatory intervention.

2.17 The key concerns that have been identified relate to unaffordable lending practices, unsatisfactory complaint resolution and hardship assistance, excessive late payment fees, and a lack of transparency in the context of product disclosures and warnings.

2.18 The industry is not homogenous; BNPL providers offer a range of diverse products. As a result, the nature and severity of the concerns vary from product to product, and from provider to provider.

2.19 Australian consumers and merchants have benefited from the rise of the BNPL industry. It is important to ensure, however, that these benefits are accompanied by appropriate mitigation of the risk of consumer harm.

Summary of new law

2.20 The key objective of Schedule 2 to the Bill is to regulate BNPL contracts under the Credit Act. This involves establishing LCCCs as a new category of regulated credit. BNPL contracts are a class of LCCCs. A BNPL arrangement is defined to capture an arrangement where the merchant is the initial lender, but the bulk of the credit is provided by another provider. However, the new framework does not cover entities that merely accept BNPL products or are engaged in their promotion.

The Credit Act

2.21 Schedule 2 to the Bill defines an LCCC as a BNPL contract or another kind of contract prescribed by the regulations, under which credit may be provided, and which satisfies prescribed requirements relating to fees, charges and other matters.

2.22 Credit providers are prohibited from engaging in behaviour that has the effect of restructuring their credit activities so as to fall outside the regulatory framework for LCCCs.

2.23 Because LCCCs are subject to the Credit Code, LCCC providers are required to comply with the licensing requirements in Chapter 2 of the Credit Act. They are required to hold and maintain an Australian credit licence and to comply with the relevant licensing requirements and licensee obligations.

2.24 LCCC providers that do not hold an Australian credit licence are required to obtain one. If an LCCC provider holds a licence to engage in a different kind of credit activity, they may be required to vary their existing licence. This is a matter for ASIC to determine.

2.25 If a credit contract falls within the definition of an LCCC but could also be characterised as a small amount credit contract or a medium amount credit contract for the purposes of the Credit Act, it is regulated as an LCCC only.

2.26 The Reference Checking and Information Sharing Protocol does not apply to LCCC providers. This protocol sets out reference checking and information sharing obligations for licensees and credit representatives in the mortgage industry. These obligations have minimal application to the LCCC business model.

2.27 Credit representatives of LCCC providers are not required to meet requirements relating to sub-authorisation and associated obligations to report to ASIC, provide credit guides and join AFCA unless they also engage in debt collection.

2.28 ASIC retains the power to suspend, cancel and vary an LCCC provider's Australian credit licence in accordance with Division 6 of Part 2-2 of the Credit Act.

2.29 LCCC providers can elect to either be subject to the modified RLO framework or to comply with the existing RLO framework in Divisions 1 to 4 of Part 3-2 of the Credit Act.

2.30 Both RLO frameworks require LCCC providers to take appropriate and proportionate steps to assess whether entering into a credit contract or increasing a consumer's credit limit would be unsuitable for the consumer.

2.31 Under the existing RLO framework, regulated consumer credit products are subject to principles-based obligations to make reasonable inquiries into, and ensure reasonable verification of, the financial circumstances of the borrower (referred to collectively as 'reasonable steps'), before assessing the suitability of any proposed credit offering. The scope of these reasonable steps, by implication, affects the level of rigour of the suitability assessment.

2.32 These provisions still apply to LCCCs under the modified RLO framework. However, the extent of these obligations will be influenced by consideration of a range of factors relating to the risks of unaffordable lending occurring and the expected harm mitigation if unaffordable lending does occur. These factors primarily relate to the risks arising from the product and target market, and the LCCC provider's documented processes to mitigate these risks and harms.

2.33 Broadly speaking, these factors are intended to reduce the scope and intensity of existing information gathering and verification requirements under Part 3-2 of the Credit Act. However, the modified RLOs may not have this effect if, for example, a provider has a particularly risky target market or offers poorly designed products.

2.34 In order to balance this increased scalability with consumer protection, the modified RLOs require LCCC providers to:

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comply with specific requirements, to be prescribed in regulations, before entering a new LCCC with a consumer; and

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have a written policy (known as an unsuitability assessment policy) that is formulated with regard to certain matters, is evidence-based and is regularly reviewed.

2.35 The ability to choose between the two RLO frameworks allows firms that offer both LCCCs and currently regulated consumer credit products to align responsible lending processes for both product types if they wish.

2.36 No new or additional penalty provisions are created by Schedule 2 to the Bill. However, LCCC providers will be subject to existing civil and criminal penalties for breaches of the Credit Act. In addition, all credit licensees are subject to a general obligation to comply with credit legislation. Breaching any part of the Credit Act may expose an LCCC provider to cancellation or suspension of their credit licence.

The Credit Code

2.37 The Credit Code is intended to apply to LCCCs and LCCC providers, with minor modifications. The requirements relating to interest rates and charges only apply to LCCC providers that charge interest for the provision of credit. LCCC providers are also permitted to prompt consumers to increase their credit limits, and to increase those limits with consumer permission.

2.38 To enable consumers to more accurately assess the relative cost of certain types of credit, Part 10 of the Credit Code sets out requirements relating to comparison rates. These do not apply to LCCCs. Comparison rates are unlikely to provide LCCC consumers with useful additional information, given the fact that all LCCCs are required to adhere to the fee caps prescribed in the regulations.

2.39 The default notice requirements in section 87 of the Credit Code are expanded beyond direct debit to cover a broader range of payment types, including creditor-initiated charges on a credit card and creditor-initiated charges via the New Payment Platform's PayTo service.

Comparison of key features of new law and current law

Table 2.1 Comparison of new law and current law

Detailed explanation of new law

2.40 Schedule 2 to the Bill amends the Credit Act to create a modified RLO framework that LCCC providers can opt in to for some or all of their LCCC products. If they do not opt in, LCCC providers (and the LCCC products they offer) are subject to the existing RLO framework in Divisions 1 to 4 of Part 3-2 of the Credit Act.

Defining low cost credit contracts

2.41 Schedule 2 to the Bill introduces definitions for the key terms 'buy now, pay later arrangement', 'buy now, pay later contract', and 'low cost credit contract'. These terms are set out in the Credit Code and referenced in signpost definitions in the Credit Act. [Schedule 2, Part 1, items 1, 5-6, subsection 5(1) of the Credit Act and sections 13D, 13E and 204 of the Credit Code]

2.42 The definition of 'low cost credit contract' provides that a contract is an LCCC if:

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credit is, or may be, provided under the contract; and

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the contract is a BNPL contract, or a contract of a kind prescribed by the regulations; and

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the period during which credit is, or may be, provided under the contract is no longer than the period (if any) prescribed by the regulations; and

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the contract satisfies any requirements prescribed by the regulations that relate to fees or charges payable under the contract; and

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the contract satisfies any other requirements prescribed by the regulations.

2.43 Although this definition only currently applies to BNPL contracts, other types of credit contracts (such as wage advance) may be brought within scope if prescribed by the regulations.

2.44 The reference in the definition of LCCCs to 'fees and charges' includes interest charges (including default charges), but excludes:

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any fees or charges that are payable to or by a credit provider in connection with a credit contract in connection with which both credit and debit facilities are available if the fees or charges would be payable even if credit facilities were not available;

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government charges or duties on receipts or withdrawals; and

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enforcement expenses.

[Schedule 2, Part 1, item 5, subsections 13E(1) and (3) of the Credit Code]

2.45 A 'buy now, pay later arrangement' is an arrangement under which a BNPL provider directly or indirectly pays a merchant some or all of the price of goods or services purchased by a consumer, and where there is a contract between the BNPL provider and the consumer for the provision of credit in relation to the transaction.

2.46 Certain arrangements or series of arrangements prescribed by the regulations are excluded. For example, there may be situations in which the merchant and the BNPL provider are separate but related entities, such that the arrangement more closely resembles a vendor finance model.

2.47 Certain circumstances are stated not to affect whether an arrangement is a BNPL arrangement. These include whether any fees or charges are payable by the consumer or the merchant in connection with the arrangement; when payment by the BNPL provider occurs; and whether the contract is a continuing credit contract. In order for an arrangement to meet the definition, it is not necessary for it to include a contract to which the merchant, consumer and BNPL provider are all parties.

2.48 The definitions of LCCC and BNPL arrangement operate in conjunction with any other criteria prescribed in regulations. It is intended that the regulations will prescribe maximum fees and charges payable under an LCCC.

2.49 A 'buy now, pay later contract' is defined as a contract between the BNPL provider and a consumer pursuant to a BNPL arrangement, under which the BNPL provider provides credit to the consumer in connection with a transaction between the merchant and consumer for goods or services. [Schedule 2, Part 1, item 5, section 13D of the Credit Code]

2.50 The definitions of 'short term credit contract', 'small amount credit contract' and 'medium amount credit contract' are amended to exclude LCCCs. [Schedule 2, Part 1, items 2, 3 and 7, subsection 5(1) of the Credit Act and subsection 204(1) of the Credit Code]

Extending the application of the Credit Code

2.51 Schedule 2 to the Bill amends the Credit Code to extend its application to the provision of credit either under a BNPL contract or an LCCC.

2.52 If the Credit Code already applies to the provision of credit under a BNPL contract or an LCCC, it continues to apply to the provision of such credit. [Schedule 2, Part 1, item 5, subsections 13B(1) and 13C(1) of the Credit Code]

2.53 The application of the Credit Code is extended to the provision of credit under a BNPL contract or an LCCC if provided by a constitutional corporation and if the exclusions in subsections 6(1) and (5) and paragraph 5(1)(c) of the Credit Code are disregarded. This means that the exemptions available to certain types of credit in the Credit Code, which would typically apply to BNPL arrangements, are disapplied. The effect of this is that all contracts that meet the definition of a BNPL contact are subject to the Credit Code. A contract that also meets the definition of an LCCC is regulated as an LCCC. A contract that does not meet the definition of an LCCC – for example, because the fees and charges payable exceed the limit prescribed by regulations – is not regulated as an LCCC, but remains subject to the Credit Code and may be regulated in some other way (for example, as a credit contract, small amount credit contract or continuing credit contract).

2.54 In the case of an LCCC, subsections 6(13), (14) and (17) of the Credit Code are also disregarded such that neither regulations nor an ASIC instrument can exclude an arrangement from the definition of LCCC. This is because an LCCC that is not a BNPL contract must be another kind of contract prescribed by regulations. Unless and until an arrangement is prescribed for this purpose, it is excluded from the definition of an LCCC, so additional specific exclusions would be redundant. [Schedule 2, Part 1, item 5, sections 13B and 13C of the Credit Code]

2.55 A consequential amendment is made to the note to subsection 160G(2) of the Credit Act to include sections 13B and 13C in the list of sections which set out the kinds of provision of credit to which the Credit Code does or does not apply. [Schedule 2, Part 1, item 4, note to subsection 160G(2) of the Credit Act]

Responsible lending conduct

2.56 As noted above, licensees that are LCCC providers are required to choose between complying with either:

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the modified RLO framework exclusively for LCCCs, which allows the requirements to expressly scale according to certain risk factors; or

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the existing RLO framework in Divisions 1 to 4 of Part 3-2 of the Credit Act.

2.57 However, regardless of their choice, all LCCC providers are exempt from compliance with Division 4 of Part 3-1 of the Credit Act (which relates to obligations on credit assistance providers before providing credit assistance for credit contracts). [Schedule 2, Part 2, item 10, section 115A of the Credit Act]

2.58 Section 128 of the Credit Act sets out the obligation to assess the unsuitability of credit contracts. Schedule 2 to the Bill clarifies how the operation of this section is to be affected by other provisions in relation to certain LCCCs. [Schedule 2, Part 2, items 11 and 12, section 128 of the Credit Act]

2.59 Schedule 2 to the Bill amends paragraph 133(4)(b) of the Credit Act to clarify that a responsible lending assessment can occur on the same day as credit is offered or credit limits are increased, so long as the assessment happens before either of those actions occur. [Schedule 2, Part 2, item 13, paragraph 133(4)(b) of the Credit Act]

Licensees that are credit providers under credit contracts

2.60 Schedule 2 to the Bill sets out additional rules relating to LCCCs, namely:

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the process by which LCCC providers can elect for the additional rules to apply;

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the additional requirements applying to licensees that have assessed an LCCC as unsuitable; and

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the requirement on licensees to have and regularly update an unsuitability assessment policy.

[Schedule 2, Part 2, item 14, Part 3-2BA of the Credit Act]

2.61 As noted above, Schedule 2 to the Bill allows LCCC providers to elect to be bound by the modified RLO framework in relation to some or all classes of their LCCC products. Elections must be in writing, and an electing licensee must keep a written copy until 6 years after the election ceases to be in force. An LCCC provider may revoke an election and must also keep a copy of the revocation for 6 years from the day of revocation. An election remains in force until it is revoked.

2.62 If an LCCC provider opts in to the modified RLO framework in relation to an LCCC product, each contract document must (while the election is in force) contain a statement that the credit provider has made such an election. This is intended to make clear which RLO framework applies to a given LCCC product. [Schedule 2, Part 2, item 15, subsection 17(15B) of the Credit Code]

2.63 The ensuing commentary relates only to LCCC providers who have elected to operate under the modified RLO framework.

Unsuitable low cost credit contracts

2.64 Division 3 of Part 3-2 of the Credit Act contains the core obligations of the existing RLO framework. These concern assessing the suitability of credit contracts and include requirements to:

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make reasonable inquiries as to the requirements and objectives of the consumer;

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make reasonable inquiries as to their financial situation;

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take reasonable steps to verify their financial situation; and

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subsequently assess whether the credit contract is unsuitable (including by assessing affordability and whether the credit meets the requirements and objectives of the consumer).

2.65 Under the modified RLO framework introduced by Schedule 2 to the Bill, LCCC providers are still required to perform the steps listed above before entering an LCCC or increasing a consumer's credit limit. However, the modified RLO framework:

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eases some requirements about the timing of inquiries and verification in relation to the assessment of suitability;

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provides that specified risk factors ('relevant matters') must be taken into account in determining what constitutes reasonable inquiries and reasonable verification (referred to collectively as 'reasonable steps');

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clarifies that a provider may conduct inquiries and an assessment for an amount of credit larger than that initially offered to the consumer, and that this assessment will also suffice for any subsequent credit limit increases up to that amount, up to a period of 2 years; and

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creates a rebuttable presumption that LCCCs with a credit limit of $2,000 or less meet the consumer's requirements and objectives for the purposes of sections 131 and 133 of the Credit Act.

•

[Schedule 2, Part 2, item 14, Part 3-2BA of the Credit Act]

2.66 Schedule 2 to the Bill modifies the operation of section 128 of the Credit Act, which creates an obligation to assess contractual suitability. LCCC providers are not required to undertake a preliminary assessment prior to informing a consumer of their eligibility for a credit contract or credit limit increase. However, although an assessment is no longer required to be undertaken before an unconditional representation is made, such a representation could still be found to be misleading. [Schedule 2, Part 2, item 14, paragraph 133BXB(a) of the Credit Act]

2.67 LCCC providers may satisfy the obligations in section 128 of the Credit Act to make an assessment of unsuitability and make inquiries and verification about the consumer within the period of 90 days (or other period prescribed by regulations) ending immediately before either entering into an LCCC, or increasing the credit limit of an LCCC. [Schedule 2, Part 2, item 14, paragraph 133BXB(b) of the Credit Act]

2.68 Schedule 2 to the Bill modifies the operation of section 130 of the Credit Act, which sets out the reasonable steps requirement, outlined above. In determining whether an LCCC provider has complied with the reasonable steps requirement, the following matters must be considered:

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the nature of the LCCC, including its terms and the type and amount of credit provided under it;

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if there is a target market determination for the LCCC, the nature of the target market as described in the determination;

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whether the consumer is financially vulnerable;

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the existence of, and compliance with, any procedures to reduce the risk of providing credit to a consumer on unaffordable terms or to mitigate the harm that may be caused if credit is provided on such terms; and

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any other matters prescribed by regulations.

2.69 These matters do not limit what may be taken into account in determining what is reasonable. Rather, consideration of these matters is intended to lower the scope and intensity of the inquiries and verification required under section 130. However, the relevant matters may in fact increase the requisite rigour of the inquiries and verification. This may be the case if products are poorly designed or attract especially vulnerable consumers. [Schedule 2, Part 2, item 14, subsections 133BXC(2) and (3) of the Credit Act]

2.70 When considering the nature of the product, relevant matters include: the amount of credit made available to the consumer; the basis on which it is made available; the amount of repayments; how much time is allowed to make repayments; fees and charges payable under the contract (including default fees and the circumstances in which they are payable); and other terms and conditions of the contract. [Schedule 2, Part 2, item 14, paragraph 133BXC(3)(a) of the Credit Act]

2.71 The reference to the 'target market' of an LCCC is to the target market as defined in the target market determination for that type of product, as required by the design and distribution obligation regime in Part 7.8A of the Corporations Act.

2.72 When considering the target market determination for an LCCC (if there is one), an LCCC provider may be able to augment their analysis by historical data they possess on the likely credit risks associated with the target market, including data on bad debt and arrears rates, hardship arrangements and complaints relating to unaffordability. These matters are relevant to determining how the target market for an LCCC impacts on what is required to meet the 'reasonable inquiries' and 'reasonable steps' requirements. Exclusion of higher risk customer groups from a target market would be expected to reduce the extent of the steps that need to be taken. [Schedule 2, Part 2, item 14, paragraph 133BXC(3)(b) of the Credit Act]

2.73 LCCC providers must consider an individual consumer's circumstances and whether those circumstances indicate financial vulnerability. [Schedule 2, Part 2, item 14, paragraph 133BXC(3)(c) of the Credit Act]

2.74 LCCC providers may have procedures that, while designed for other purposes, nonetheless have the effect of reducing the risk of unaffordable lending or mitigating harms of actual unaffordable lending. Unaffordability is not defined, but is broadly intended to refer to the same circumstances set out in paragraphs 131(2)(a) and 133(2)(a) of the Credit Act. Those provisions state that a contact or increase is unsuitable if the consumer will be unable to comply with their financial obligations, or could only comply with substantial hardship.

2.75 Examples of procedures to reduce the risk of unaffordable lending include: suspending access to credit in the event of customer arrears or defaults; undertaking supplementary real-time monitoring of creditworthiness during the life of an LCCC; or using specific protocols that govern when credit limits are to be increased or decreased. Harm mitigation strategies include the LCCC provider's approach to debt collection, hardship applications, and procedures for engaging with vulnerable consumers.

2.76 The existence of such procedures, and the provider's compliance with them, would be expected to decrease a product's consumer risk. The intensity of the requisite inquiries and steps would be proportionately reduced. [Schedule 2, Part 2, item 14, paragraphs 133BXC(3)(d) and (e) of the Credit Act]

2.77 Additionally, in making reasonable inquiries into, and taking reasonable steps to verify, the consumer's requirements, objectives and financial situation, any matters prescribed by the regulations must be taken into account. These may include the types of information the LCCC provider must use in the assessment of unsuitability; the content and level of detail of the information to be used; whether the information in the LCCC provider's possession is sufficient; and whether and to what extent an LCCC provider may obtain additional information from the consumer. [Schedule 2, Part 2, item 14, paragraph 133BXC(3)(f) of the Credit Act]

Assessments in relation to larger contracts

2.78 The modified RLO framework inserted by Schedule 2 to the Bill adjusts the existing assessment requirements to accommodate an assessment made for a larger contract than the LCCC that is actually entered. Schedule 2 to the Bill includes definitions of the terms 'initial contract', 'larger contract', 'protected increase', and 'protected period' for the purposes of this modified rule. [Schedule 2, Part 2, item 14, subsections 133BXD(1) and (7) of the Credit Act]

2.79 Schedule 2 to the Bill clarifies that an LCCC provider is taken to have satisfied their obligations to assess unsuitability under section 128 of the Credit Act if:

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they conduct an initial assessment for a larger contract (ie, a contract for an amount of credit larger than the credit limit of the LCCC);

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the provider subsequently increases the credit limit;

•

after the increase, the LCCC has a credit limit that is no greater than the maximum credit limit of the initial assessment; and

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the terms of the LCCC after the increase are otherwise substantially the same as were it terms immediately before the increase.

2.80 In these circumstances, the initial assessment will suffice for any subsequent credit limit increases up to the maximum credit limit, up to a period of 2 years, thereby allowing for what is termed a 'protected increase'. This is intended to support the practice of providers offering gradual credit limit increases to consumers who make timely repayments. [Schedule 2, Part 2, item 14, subsections 133BXD(1)-(4) of the Credit Act]

2.81 A 'protected increase' of the initial contract is an amount that is no greater than the maximum credit limit made within the 'protected period', which is the shorter of the period covered by the initial assessment or the period of 2 years beginning when the period covered by the initial assessment begins. However, an LCCC provider is not precluded from making a new assessment in relation to the protected increase before sanctioning it. [Schedule 2, Part 2, item 14, subsections 133BXD(6)-(7) of the Credit Act]

2.82 An LCCC provider cannot make a protected increase if the provider has information that indicates the increase would be unsuitable for the consumer. The LCCC provider is not obliged to actively seek additional information about the unsuitability of the protected increase, but must not disregard information that is actually within its possession. Information that would make an increase unsuitable could include, for example, that the consumer has defaulted on repayments or has recently requested a hardship arrangement. [Schedule 2, Part 2, item 14, subsection 133BXD(5) of the Credit Act]

Presumptions where the credit limit of the contract is not above a threshold amount

2.83 Section 131 of the Credit Act sets out circumstances in which a credit contract must be assessed as unsuitable for the consumer. Schedule 2 to the Bill includes a presumption that can be relied upon by LCCC providers in relation to unsuitability assessments for the purposes of that section. [Schedule 2, Part 2, item 14, section 133BXE of the Credit Act]

2.84 If the credit limit of an LCCC is $2,000 or less, then the initial contract is presumed to meet the consumer's requirements and objectives, despite paragraph 131(2)(b) of the Credit Act. The presumption operates only in relation to the consumer's requirements and objectives. It does not apply to the consumer's ability to comply with their financial obligations under the contract. The presumption is rebutted by evidence to the contrary. For example, if a consumer indicates that they are seeking finance for a specific purchase and do not require an ongoing line of credit, that may rebut the presumption of suitability in respect of a continuing credit contract. [Schedule 2, Part 2, item 14, subsection 133BXE(2) of the Credit Act

2.85 The presumption applies to LCCCs with a credit limit of $2,000 or less, or another threshold prescribed by regulations. It is not intended that an alternative threshold amount will be prescribed immediately. However, the regulation-making power provides flexibility to adjust the threshold in future to ensure its value remains appropriate (for example, to take into account the effects of inflation). [Schedule 2, Part 2, item 14, subsection 133BXE(6) of the Credit Act]

2.86 The presumption does not apply if a licensee has entered an LCCC based on an assessment made in relation to a 'larger contract' (a defined term) and the credit limit of the larger contract is greater than the threshold amount. The presumption is restricted to low value BNPL contracts only. A small proportion of LCCCs relate to high value items such as batteries and solar panels. In these cases, it is reasonable to require the consumer's objectives and requirements to be assessed. [Schedule 2, Part 2, item 14, subsections 133BXE(3) and (6) of the Credit Act]

2.87 If an LCCC provider increases the credit limit of an LCCC, and the credit limit of the initial contract after the increase is $2,000 or less, then the LCCC is presumed to meet the 'requirements and objectives' limb of the unsuitability test if the increase occurs in the period covered by the assessment. This presumption operates unless the contrary is proved. [Schedule 2, Part 2, item 14, subsection 133BXE(4) of the Credit Act]

2.88 This presumption does not apply if the LCCC provider's initial assessment was for an amount of credit over $2,000 and the provider then seeks to rely on that assessment in relation to a credit limit increase. For example, a licensee may assess a contract of $5,000 as suitable for a consumer and, on the strength of that, enter an initial contract for $1,000. Relying on section 133BXD(4) of the Credit Act, the LCCC provider then seeks to increase the credit limit to $1,500, pointing to the $5000 suitability assessment as authorisation. In these circumstances, the LCCC provider cannot also rely on the presumption in section 133BXE(4) to conclude that the increase would meet the consumer's requirements and objectives. [Schedule 2, Part 2, item 14, subsection 133BXE(5) of the Credit Act]

Prohibition on entering unsuitable low cost credit contracts

2.89 Section 133 of the Credit Act prohibits an LCCC provider entering, or increasing the credit limit of, unsuitable credit contracts. Under the modified RLO framework, LCCCs with a credit limit less than or equal to the 'threshold amount' (defined as $2,000 or a dollar amount prescribed by the regulations), are presumed to not be unsuitable, in terms of meeting the consumer's requirements and objectives, for the purposes of section 133.

2.90 The presumption is rebutted by evidence to the contrary. For example, if a consumer indicates that they are seeking finances for a specific purchase and do not require an ongoing line of credit, that may rebut the presumption of suitability in respect of a continuing credit contract. [Schedule 2, Part 2, item 14, section 133BXF of the Credit Act]

Unsuitability assessment policies

2.91 To utilise the modified RLO framework, LCCC providers must prepare written policies that set out processes for ensuring compliance with sections 128 and 131 of the Credit Act. Such a document is defined as an 'unsuitability assessment policy'.

2.92 Providers must ensure that their policies, if followed, make it likely that they themselves will be in compliance with sections 128 and 131 of the Credit Act. They must also comply with any policy-related requirements in the regulations. Such regulations may relate, but are not confined, to the content of policies and obligations to review or update them. [Schedule 2, Part 2, items 9 and 14, subsection 5(1) of the Credit Act and section 133BXG of the Credit Act]

Credit representatives

2.93 Part 2-3 of the Credit Act regulates credit representatives and other representatives of licensees. A credit representative is a person who is authorised by an Australian credit licensee to act on behalf of the licensee for the purposes of carrying out the licensee's authorised credit activity. Merchants are not credit representatives of LCCC providers simply because they process transactions or advertise that they accept LCCCs.

2.94 Licensees are permitted to authorise credit representatives under section 64 of the Credit Act. Under section 65 of the Credit Act, credit representatives that are body corporates may sub-authorise natural persons to engage in credit activities.

2.95 Schedule 2 to the Bill amends sections 64 and 65 of the Credit Act to exempt credit representatives of LCCC providers from requirements in relation to AFCA membership, and to exempt sub-authorised persons from requirements in relation to AFCA membership and ASIC notification. It further amends sections 158 and 160 of the Credit Act to adjust requirements in relation to credit guides. The excluded requirements are unnecessarily burdensome in light of the very minimal benefit they might provide to consumers who enter LCCCs.

AFCA membership

2.96 Currently, paragraph 64(5)(c) of the Credit Act provides that the authorisation of a credit representative has no effect if the person is not a member of the AFCA scheme. 'AFCA scheme' is defined in accordance with Chapter 7 of the Corporations Act as the external dispute resolution scheme for which an authorisation under Part 7.10A of that Act is in force.

2.97 Paragraph 65(6)(c) of the Credit Act similarly provides that sub-authorisation of a natural person by a credit representative has no effect if the person is not a member of the AFCA scheme.

2.98 Schedule 2 to the Bill amends these paragraphs to remove the requirements for credit representatives and sub-authorised persons in relation to an LCCC to be AFCA members. [Schedule 2, Part 3, items 20-22, paragraphs 64(5)(c) and (ca) and 65(6)(c) and (ca) of the Credit Act]

2.99 LCCC providers must be AFCA members themselves and are ultimately responsible for the conduct of their credit representatives. Requiring those representatives to also hold AFCA membership would offer limited additional consumer protection.

ASIC notification

2.100 Section 71 of the Credit Act requires credit representatives to notify ASIC about sub-authorisations (including their variation and revocation) under section 65. Schedule 2 to the Bill amends section 71 to remove this requirement for LCCCs. [Schedule 2, Part 3, item 23, subsection 71(5A) of the Credit Act]

2.101 ASIC must still be notified of authorisations (including variations and revocations) of credit representatives by an LCCC provider under section 64 of the Credit Act.

Credit guides

2.102 Schedule 2 to the Bill eases certain requirements in relation to the content and giving of credit guides. It amends section 158 of the Credit Act, which requires a credit representative to give a consumer the licensee's credit guide under Part 3-2 of the Credit Act, along with the credit representative's own credit guide. Only the former requirement applies to LCCC providers. [Schedule 2, Part 3, item 24, subsection 158(1A) of the Credit Act]

2.103 In addition, minor changes are made to section 160 of the Credit Act, which sets out mandatory features of the credit guide that is given to the debtor by a licensee or a credit representative on being authorised by a credit provider under a credit contract. The changes reflect the removal of the requirement to notify ASIC of any sub-authorisations. [Schedule 2, Part 3, item 25, paragraph 160(3)(e) of the Credit Act]

Precontractual disclosure

2.104 Part 2, Division 1 of the Credit Code establishes the requirements for negotiating and entering credit contracts. Subsection 16(1) of the Credit Code provides that before a credit provider enters a credit contract with a consumer, they must give the consumer a precontractual statement and an information statement.

2.105 Schedule 2 to the Bill amends section 16 of the Credit Code to extend the requirement of precontractual disclosure to LCCC providers. The requirement to give a precontractual statement is replicated for LCCC providers, and there are additional requirements with respect to the information statement. The amendments includes a regulation-making power to prescribe mandatory inclusions in the information statement. Additionally, there is a power for ASIC to determine any requirements by way of legislative instrument, so long as they are consistent with those prescribed by the regulations. [Schedule 2, Part 4, items 27-28, subsections 16(1)-(1B) of the Credit Code]

Contract documents and statements of account

2.106 Section 17 of the Credit Code sets out the matters that must be in a credit contract.

2.107 Schedule 2 to the Bill modifies this by providing that if a credit contract is an LCCC under which no interest charges are payable, then subsections 17(4) to (6) of the Credit Code do not apply in relation to the contract document.

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Subsection 17(4) of the Credit Code requires a credit contract to disclose the annual percentage rate or rates.

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Subsection 17(5) of the Credit Code requires a credit contract to disclose the method of calculation of interest charges payable under the contract and the frequency with which interest charges are to be debited under the contract.

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Subsection 17(6) of the Credit Code requires a credit contract to contain the total amount of interest charges payable under the contract, if ascertainable.

2.108 These requirements apply only to LCCCs that charge interest on the provision of credit. If no interest charges are payable, the contract document is required to contain a statement to that effect. [Schedule 2, Part 5, item 30, subsection 17(6A) of the Credit Code]

2.109 Section 17 of the Credit Code is further amended to include additional content requirements for contract documents in respect of LCCCs. In view of the nature of LCCCs and the way in which credit is to be repaid, the contract document must specify the frequency of repayments (including when payments must be made, including the first repayment, if ascertainable); the amount and the number of the repayments and the total amount of the repayments; and, if the amount of the repayments is not ascertainable, the method of calculating it. These requirements are substantially similar to the existing requirements under subsection 17(7) of the Credit Code. However, that subsection distinguishes minimum repayments under a continuing credit contract from other repayments. As this may not be relevant to LCCCs, subsection 17(7A) of the Credit Code does not make this distinction. [Schedule 2, Part 5, items 31-32, subsections 17(7)-(7A) of the Credit Code]

2.110 Subsection 17(10) of the Credit Code provides that contract documents of credit contracts must contain details of the frequency with which statements of account are to be provided to the consumer. Schedule 2 to the Bill seeks to ensure that these requirements are adaptable to a wide range of technologies, giving LCCC providers the flexibility to determine the appropriate means by which they provide information to their customers.

2.111 If an LCCC provider proposes to give statements of account electronically, the contract document must contain information about the manner of doing so. [Schedule 2, Part 5, item 33, subsection 17(10A) of the Credit Code]

2.112 Subsection 33(3) of the Credit Code sets out circumstances in which a statement of account need not be given by credit providers. Schedule 2 to the Bill inserts a regulation-making power to prescribe requirements which, if met, will exempt LCCC providers from giving statements of account. For example, the regulations may provide that if an LCCC provider has made certain information permanently available to the consumer on its website, a statement of account need not be given. [Schedule 2, Part 5, item 34, paragraph 33(3)(g) of the Credit Code]

2.113 If statements of account need not be given because an LCCC provider satisfies prescribed requirements under subsection 33(3), the contract document must set out any information prescribed by the regulations. [Schedule 2, Part 5, item 33, subsection 17(10B) of the Credit Code]

Increasing credit limits

2.114 Section 67 of the Credit Code sets out the requirements for increasing the credit limit on a continuing contract. Subsection 67(4) of the Credit Code provides that a credit provider may increase the credit limit under a continuing credit contract only at the request of the debtor or with the debtor's written consent. Schedule 2 to the Bill amends Part 4, Division 1 of the Credit Code to apply this requirement to LCCCs. [Schedule 2, Part 6, items 37-40, paragraph 61(2)(b), sections 67 and 67AA and subsection 68(4) of the Credit Code]

2.115 Section 133BE of the Credit Act provides that a credit provider under a credit card contract must not make a credit limit increase invitation to the debtor under the contract. The note to that section mentions other requirements in relation to increasing credit limits. For clarity, Schedule 2 to the Bill amends the note to include a reference to LCCCs. [Schedule 2, Part 6, item 36, paragraph (b) of the note to subsection 133BE(1) of the Credit Act]

Interest rates and comparison rates

2.116 Part 2, Division 4A of the Credit Code sets out how to calculate the annual cost rate of a credit contract and associated prohibitions.

2.117 Schedule 2 to the Bill amends section 32A of the Credit Code to ensure that the prohibitions relating to credit contracts if the annual cost rate exceeds 48 per cent do not apply to LCCCs. [Schedule 2, Part 7, item 41, paragraph 32A(4)(b) of the Credit Code]

2.118 Subsection 34(6) of the Credit Code requires a statement of account for a credit contract to include certain information about interest charges. Schedule 2 to the Bill clarifies that subsection 34(6) only applies in relation to LCCCs under which interest charges are payable. [Schedule 2, Part 7, item 42, subsection 34(6A) of the Credit Code]

2.119 Part 10 of the Credit Code sets out requirements relating to comparison rates, which enable consumers to more accurately assess the relative cost of certain types of credit. Section 158 of the Credit Code provides that Part 10 does not apply to continuing credit contracts.

2.120 Schedule 2 to the Bill amends section 158 of the Credit Code to exclude LCCCs from the application of Part 10 of the Credit Code. Comparison rates are unlikely to provide consumers with useful additional information given that all LCCCs are required to adhere to the same fixed amount fee limits prescribed by regulations. Also, consumers may be confused by receiving interest disclosure information for a product that does not charge interest. A number of consequential amendments are made to take account of this exclusion. [Schedule 2, Part 7, items 43-47, sections 157, 158 and 159 of the Credit Code]

Default notices

2.121 Part 5 of the Credit Code relates to ending and enforcing credit contracts, mortgages and guarantees. Division 1 of Part 5 of the Credit Code deals with the ending of a credit contract by the debtor or guarantor. Subdivision C of Division 1 of the Credit Code relates to a credit provider providing notice of first direct debit default.

2.122 Schedule 2 to the Bill makes several minor amendments that, taken together, expand the first time default notice requirements in section 87 of the Credit Code to apply beyond direct debits to cover a broader range of payment types, including creditor-initiated charges on a credit card and creditor-initiated charges via the New Payment Platform's PayTo service. These amendments include a number of machinery changes to headings and subheadings.

2.123 Payment defaults for LCCCs are captured by new subsection 87(1A) of the Credit Code, which applies if the debtor under an LCCC is in default in relation to the payment of an amount under the LCCC, and it is the first occasion that the debtor is in default in relation to such a payment. [Schedule 2, Part 8, items 52-56, section 87 of the Credit Code]

2.124 Part 2 of the Credit Code sets out rules relating to credit contracts. Division 5A of Part 2 of the Credit Code contains additional rules relating to small amount credit contracts. Section 39C of the Credit Code provides that a credit provider must do prescribed things if a default in payment by direct debit occurs.

2.125 Schedule 2 to the Bill makes a minor amendment to section 39C of the Credit Code to remove the definition of 'direct debit'. That term is already defined in the main definition section of the Credit Code. [Schedule 2, Part 8, items 49-50, section 39C of the Credit Code]

Avoidance schemes

2.126 Part 7-1 of the Credit Act deals with miscellaneous matters. Division 1A of Part 7-1 of the Credit Act has rules that prohibit schemes designed to avoid the application of the Credit Act in relation to small amount credit contracts and consumer leases or to avoid the application of product intervention orders.

2.127 LCCCs (including BNPL contracts) are not currently regulated by the Credit Act. With the introduction of the modified RLO framework, there is a risk that providers will seek to structure their activities to fall outside the definition of LCCC or BNPL in order to remain exempt from licensing, RLO and other regulatory requirements under the Credit Act.

2.128 Schedule 2 to the Bill amends section 323, paragraphs 323A(2)(a) to (d), subparagraphs 323B(1)(a)(i) and (ii), and subparagraphs 323B(1)(b)(i) and (ii) of the Credit Act to include LCCCs in Division 1A of Part 7-1 of the Credit Act, thereby bringing LCCCs within the scope of the anti-avoidance provisions. [Schedule 2, Part 9, items 58-61, sections 323, 323A and 323B of the Credit Act]

2.129 Failure to comply with the anti-avoidance provisions could incur the penalties that currently apply under section 323A of the Credit Act. Further, the presumptions and exemptions in Division 1A of Part 7-1 of the Credit Act also apply to LCCCs, as they apply to small amount credit contracts and consumer leases.

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For example, an avoidance strategy could involve the provision of credit to a consumer by the vendor (not by a third party) at the time of the purchase, but for this credit to be immediately refinanced by a third-party credit provider. Although this would not meet the definition of BNPL (which involves the provision of credit by a third party), the amendments to Division 1A of Part 7-1 of the Credit Act catch and penalise these avoidance strategies and others.

Giving information or documents

2.130 Schedule 2 to the Bill allows LCCC providers to provide information to consumers exclusively via electronic means (including apps or other technologies as they emerge). It does so by allowing an LCCC provider to give information or documents to a recipient by:

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notifying the recipient that the material is available for retrieval on an electronic document retrieval system;

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making the material available for a reasonable period after so notifying; and

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ensuring that the material can be saved and printed by the recipient.

2.131 The notice must explain the nature of the material and include any information needed for its retrieval. The material is taken to be given as soon as the recipient has been notified and is able to retrieve it.

2.132 To the extent of inconsistency with other requirements in the Credit Act or Credit Code, this new mechanism of 'giving' information prevails. It does not, however, apply to credit contracts other than LCCCs. [Schedule 2, Part 10, item 64, section 331 of the Credit Act]

2.133 Definitions for 'information system' and 'electronic communication' cross-referring to definitions in the Electronic Transactions Act 1999 have been included in the Credit Act. Definitions for 'information system' and 'electronic communication' have also been included or amended in the Credit Code with consequential amendments to subsection 16(11) of the Credit Code and the heading for section 187 of the Credit Code. [Schedule 2, Part 10, items 63 and 65-68, subsection 5(1) of the Credit Act, and subsection 16(11), section 187 (heading) and subsection 204(1) of the Credit Code]

2.134 The regulations may prescribe additional requirements for material to be given in accordance with this new mechanism. If the regulations set out requirements for making material available, and those requirements are not satisfied, the material is not considered to have been made available. [Schedule 2, Part 10, item 64, subsection 331(6) of the Credit Act]

Commencement, application, and transitional provisions

Commencement

2.135 Part 1 of Schedule 2 to the Bill commences the day after Royal Assent.

2.136 Parts 2 to 10 of Schedule 2 to the Bill commence on a single day to be fixed by Proclamation. However, if the provisions do not commence within 6 months from the day of receiving Royal Assent, they commence on the day after that 6-month period (the 'delayed commencement time').

Extending the application of the Credit Act

2.137 As a general rule, the amendments made by Part 1 of Schedule 2 to the Bill apply on and after the delayed commencement time (meaning the time when Part 2 of Schedule 2 to the Bill commences) in relation to contracts entered into before, on or after the commencement of Part 1. Even though this is the general rule, certain provisions of the Credit Code (for example, section 17) have separate application rules. While the amendments will apply prospectively, they will have retrospective effect (unless provided otherwise in separate application rules) for existing LCCCs on the basis that any further action taken by an LCCC provider under an existing contract (for example, a credit limit increase) should be subject to the new obligations, including the modified RLO framework. To the extent existing provisions of the Credit Code (for example, sections 76 and 78) will apply and potentially affect a credit provider's rights under an existing LCCC even if no changes have been made to the contract after commencement, such retrospectivity is considered justified as the persons who are likely to be detrimentally affected are LCCC providers who are found by a court to have acted in a way that is unjust or unconscionable and their interests will be affected to the extent that a court takes action to rectify that unjust or unconscionable activity. [Schedule 2, Part 1, subitems 8(1) and (5)]

2.138 For the purposes of Divisions 2, 3, 4 and 6 of Part 2-2 of the Credit Act (licensing of persons who engage in credit activities) and Part 2-3 of the Credit Act (credit representatives), the amendments made by Part 1 of Schedule 2 to the Bill apply on and after commencement of that Part. This is intended to allow certain preparatory steps to occur before the delayed commencement time (for example, to apply for a licence to engage in certain credit activities), but does not have the effect that a licence is in fact required until the delayed commencement time. [Schedule 2, Part 1, subitem 8(2)]

2.139 If, before Part 2 of Schedule 2 to the Bill commences, an applicant applies for a licence to engage in credit activity relating to a BNPL contract or an LCCC, or applies to ASIC to vary the conditions of an existing licence to engage in such credit activity, and that application has not been withdrawn or dealt with before Part 2 commences, and the applicant is an AFCA member at all times during this transition period, then the Credit Act does not apply during this transition period to the applicant, particular persons acting on behalf of the applicant or a prospective credit representative of the applicant. This is included as a contingency to ensure that providers will not be prevented from engaging in credit activity through no fault of their own if there is a delay in processing a licence application. After the transition period, by virtue of the general rule at subitem 8(1), the Credit Act will apply to all BNPL contracts and LCCCs even if there was credit activity in relation to those contracts engaged in during the transition period. For example, after the transition period, existing provisions of the Credit Code (for example, sections 76 and 78) will apply and potentially affect a credit provider's rights under a BNPL contract or an LCCC that was entered into or varied during the transition period even if no changes have been made to the contract since the transition period. [Schedule 2, Part 1, subitems 8(3)-(4)]

Responsible lending conduct

2.140 The amendments made by Part 2 of Schedule 2 to the Bill to Division 4 of Part 3-1 of the Credit Act (obligations of credit assistance providers before providing credit assistance) apply in relation to credit assistance provided on or after the commencement of Part 2. [Schedule 2, Part 2, item 17]

2.141 An LCCC provider may elect to be covered by the modified RLO framework for LCCCs entered into before, on or after the commencement of Part 2 of Schedule 2 to the Bill. [Schedule 2, Part 2, subitem 18(1)]

2.142 The modified obligation to assess unsuitability when entering a credit contract, or increasing the credit limit of a credit contract, but not when making an unconditional representation in relation to a consumer's eligibility to enter a credit contract or increase the contract's limit, applies in relation to conduct that occurs on or after the commencement of Part 2 of Schedule 2 to the Bill. The permitted 90-day period for the unsuitability assessment may start before, on or after that commencement. [Schedule 2, Part 2, subitems 18(2) and (3)]

2.143 The modified obligation to make reasonable inquiries and verification applies in relation to entering, or increasing the credit limit of, an LCCC that occurs on or after the commencement of Part 2 of Schedule 2 to the Bill and determining whether a licensee has met that obligation based on things done before, on or after commencement. [Schedule 2, Part 2, subitem 18(4)]

2.144 An LCCC provider may satisfy their obligations under section 128 of the Credit Act with respect to an initial LCCC entered on or after the commencement of Part 2 of Schedule 2 to the Bill when making an assessment, inquiries and verification with respect to a larger contract on or after the commencement. For subsequent credit increases, an LCCC provider can rely on an initial assessment and reasonable inquiries and verification within the protected period if the contract is entered on or after commencement, and the assessment, inquiries and verification are similarly made on or after the commencement of Part 2 of Schedule 2 to the Bill. [Schedule 2, Part 2, subitems 18(5) and (6)]

2.145 The presumptions in sections 133BXE and 133BXF of the Credit Act apply in relation to assessments made, or conduct that occurs, on or after the commencement of Part 2 of Schedule 2 to the Bill. [Schedule 2, Part 2, subitems 18(7) and (8)]

2.146 If a licensee has elected to comply with the modified RLO framework in relation to an LCCC, the amendment requiring the contract document to contain a statement to that effect applies in relation to contract documents entered into on or after the commencement of Part 2 of Schedule 2 to the Bill. [Schedule 2, Part 2, item 19]

2.147 To avoid doubt, regulations prescribing a period for the purposes of section 128 of the Credit Act that were in force immediately before commencement of Part 2 of Schedule 2 to the Bill continue in force, on and after that commencement, and are taken from that commencement to be made for the purposes of that section as amended by Part 2. [Schedule 2, Part 2, item 16]

Credit representatives

2.148 The amendments to the Credit Act made by Schedule 2 to the Bill to disapply AFCA membership requirements apply on and after the commencement of Part 3 of Schedule 2 to the Bill in relation to authorisations given before, on or after that commencement.

2.149 The amended obligation to notify ASIC applies in relation to authorisations given on or after the commencement of Part 3 of Schedule 2 to the Bill, and the requirement to notify ASIC of changes in details applies, on and after that commencement, to authorisations given before, on or after that commencement. [Schedule 2, Part 3, item 26]

Precontractual disclosure

2.150 The amendments to section 16 of the Credit Code to extend the precontractual disclosure requirement to providers of LCCCs and impose any additional requirements with respect to the information statement via regulations or as determined by ASIC apply in relation to entering into an LCCC on or after the commencement of Part 4. They do not, however, apply if the precontractual statement and information statement were given before commencement and in accordance with the version of section 16 of the Credit Code in force at the time of the giving. [Schedule 2, Part 4, item 29]

Contract documents and statements of account

2.151 On and after the commencement of Part 5 of Schedule 2 to the Bill, section 17 of the Credit Code (matters that must be in the contract document) applies in relation to a BNPL contract or an LCCC only if the contract was entered into on or after that commencement. New paragraph 33(3)(g) of the Credit Code applies on and after commencement of Part 5 of Schedule 2 to the Bill in relation to LCCCs entered into before, on or after that commencement. [Schedule 2, Part 5, item 35]

Interest rates and comparison rates

2.152 The amendments of sections 157, 158 and 159 of the Credit Code to exclude LCCCs from the application of Part 10 of the Credit Code apply in relation to a credit advertisement that is published on or after the commencement of Part 7 of Schedule 2 to the Bill. A credit advertisement that began to be published before commencement, and remains published on or after commencement, is taken to be published on or after that commencement. [Schedule 2, Part 7, item 48]

Default notices

2.153 The amendments of section 87 of the Credit Code to expand the first time default notice requirements beyond direct debits to cover a broader range of payment types apply in relation to a default that occurs on or after the commencement of Part 8 of Schedule 2 to the Bill. [Schedule 2, Part 8, item 57]

Avoidance schemes

2.154 The amendments made by Part 9 of Schedule 2 to the Bill to apply the anti-avoidance provisions to LCCCs apply in relation to conduct mentioned in subsections 323A(1), (3), (4) or (5) of the Credit Act if the conduct occurs wholly or partly on or after the commencement of Part 9. [Schedule 2, Part 9, item 62]

Giving information or documents

2.155 The amendments made by Part 10 of Schedule 2 to the Bill apply in relation to information or documents given on or after the commencement of Part 10. [Schedule 2, Part 10, item 69]