Withdrawing the offer
The credit contract may allow the credit provider to vary essential terms of the credit contract, such as the interest rate and level of repayments. Under division 1 of part 4 of the NCC, the credit provider must notify the debtor of these changes so that the debtor can decide whether or not to terminate the facility and obtain credit elsewhere. However, there is no such requirement to give notice regarding:
• a change to a new annual percentage rate payable under the contract if both the new rate and when it will take effect is ascertainable from the contract (s 63(2)(a) NCC);
• an increase in the amount of repayments, if the increase occurs automatically, as specified by the contract, and both the amount of the increase and when it takes effect are ascertainable from the contract (s 63(2)(b));
• an increase in the term of the credit contract, if the increase occurs only because of an increase in the annual percentage rate or rates payable under the contract; and
• changes made to the contract under the NCC (pt 4-3) (i.e. changes on grounds of hardship and unjust transactions) (see “Unjust contracts”).
Sections 76 and 77 contain the NCC’s version of statutory unconscionable conduct. These sections allow a court to grant relief to debtors from the consequences of entering into “unjust transactions”. The NCC provides similar relief to lessees in relation to unjust consumer leases (entered into from 1 March 2013) (see “Consumer leases”). The provisions set out a two-step test.
1 Was the contract, mortgage, or guarantee unjust at the time it was entered into or changed?
A definition of the term “unjust” is provided in section 204(1) of the NCC, which states that “unjust includes unconscionable, harsh or oppressive”. This phrase, which has been adopted from the Contracts Review Act 1980 (NSW), has been dubbed the “tautological trinity” (see West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621 per McHugh JA).
The definition of unjust is wider than that of unconscionable conduct at common law (see Maisano v Car & Home Finance Pty Ltd (Credit)  VCAT 1755 (“Maisano case”)). The concept includes both:
• substantive unjustness (i.e. the idea that the terms of the document itself are unconscionable); and
• procedural unjustness (i.e. the idea that the conduct of the parties at or prior to the time the transaction was entered into was unconscionable (see the Maisano case, above). Further, the fact that a contract favours one party’s rights over another will not, on their own, amount to unjust conduct (see McKenzie v Smith (1998) ASC 155–025).
When deciding whether a transaction is unjust, a court must consider:
• the public interest; and
• all the circumstances of the case.
Note the presence of two competing public interests of consumer protection and upholding bargains. In Giannopoulos v Rapid Funds Pty Ltd  SADC 9 (per Cole J at 130), it was held that unfairness and poor decision making do not necessarily amount to injustice and that it is generally desirable for contracts to be honoured.
In addition, a court may consider a lengthy list of factors contained in section 76 of the NCC. These considerations include:
• whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics;
• whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship;
• the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases.
Just because a transaction exhibits one of the above factors does not make that transaction unjust (see Bendigo & Adelaide Bank Ltd v Karamihos  NSWCA 17 at 62 per Macfarlan J, which considered similar provisions of the Contracts Review Act).
A contract may be found to be unjust even though none of the section 76(2) criteria are present (see Barker v GE Mortgage Solutions Ltd  QCA 137 at 64). If the court is satisfied that in the circumstances, at the time the relevant credit contract, mortgage or guarantee was entered into or changed, the credit contract, mortgage or guarantee was unjust, the court may “reopen” the relevant transaction (s 76(1) NCC).
To decide if a contract term is unjust, consideration must be given to the circumstances in which the term or arrangement was made (see Wolfe v Permanent Custodians  VSCA 331 (22 November 2013)).
However, the court cannot take into consideration any circumstances that were not reasonably foreseeable when the credit contract, mortgage or guarantee was entered into or changed (s 76(4) NCC).
2 If the transaction is reopened as unjust, what remedy should a court grant the debtor?
Under section 77 of the NCC, a court has a discretionary power to make any one or more of the following orders upon reopening a transaction under section 76:
a reopen an account already taken between the parties;
b relieve the debtor and any guarantor from payment of any amount that the court considers to be excessive;
c set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction;
d order that the mortgagee takes such steps as are necessary to discharge the mortgage;
e give judgment for or make an order in favour of a party of such amount as, having regard to the relief (if any) which the court thinks fit to grant, is justly due to that party under the contract, mortgage or guarantee;
f give judgment or make an order against a person for delivery of goods to which the contract, mortgage or guarantee relates and which are in the possession of that person; or
g make ancillary or consequential orders.
An application under section 76 must be made within two years of the relevant credit contract being rescinded, discharged or otherwise brought to an end (s 80 NCC).
The decision of the Supreme Court of NSW in Permanent Mortgages Pty Ltd v Cook  NSWSC 1104, in which a credit contract was set aside against a debtor because it was unjust, is a good example of the operation of the unjust transaction provisions of the old, Uniform Credit Code.
In Violi v Commonwealth Bank of Australia  NSWCA 152, the bank manager asked Violi to sign a guarantee on the bonnet of his car while he was spraying grapes. The bank manager failed to explain to Violi that he was signing a guarantee and failed to advise him to seek independent legal advice. Violi, who did not have a good comprehension of legal documents (English is his second language), believed he was signing papers because he was required to do so as a shareholder of the company. Violi succeeded in getting a judgment by default (obtained against him) set aside on the basis that the guarantee was unjust under the Contracts Review Act 1980 (NSW).
In Perpetual Trustees Victoria Ltd v Burns  WASC 234, the court set aside a number of loans that disability support pensioners entered into on the basis of unconscionable conduct as the borrowers could not afford the loans and there were serious doubts about whether they fully appreciated the nature and consequences of the transactions.
In ASIC v Channic Pty Ltd (No 4)  FCA 1174, the Federal Court found that a Cairns-based lender entered into unjust transactions when it provided loans to vulnerable Indigenous consumers so they could purchase second-hand cars from a related car yard. Ultimately, the court ordered (in ASIC v Channic Pty Ltd  FCA 363) that the relevant credit contracts be treated as invalid from the outset.
A court can also annul or reduce any change in the annual percentage rate, any establishment fee or charge or fee payable on early termination of a credit contract if the change or charge is unconscionable (s 78(1) NCC). A change to an annual percentage rate is unconscionable if:
• the change occurs in an unreasonable manner, having regard to the advertised rate before or at the time the contract was entered into and the period of time since the contract was entered into; or
• the change discriminates against the debtor compared to other similar debtors (s 78(2)).
A court or dispute resolution scheme has to decide if an establishment fee or charge is unconscionable taking into account the credit provider’s reasonable costs (s 78(3)).
A termination fee or charge is unconscionable if it exceeds a reasonable estimate of the credit provider’s loss arising from the early termination or prepayment of a contract (s 78(4)).
It is not uncommon for things like job loss or ill health to prevent a person from making payments on their loan.
It is prudent for a borrower experiencing financial difficulty to see a free financial counsellor to discuss all options available as soon as possible (for contact details, see Financial counselling services).
Sections 72 to 74 of the NCC allow a debtor who is experiencing financial hardship to ask a credit provider to vary the terms of their credit contract. If the debtor is dissatisfied with the credit provider’s response, they can apply to a court or dispute resolution scheme to vary the contract. The NCC also contains similar provisions that regulate hardship applications in relation to consumer leases (see “Consumer leases”).
Whether these hardship provisions apply depends on various factors including:
• the date of entry into the contract;
• the reason for the hardship application; and
• the amount of credit provided under the contract.
Successful hardship applications show that the debtor will be able to meet their obligations under the contract if it is varied in the way they propose (see Barker v GE Mortgage Solutions Ltd  QCA 137).
Hardship applications are available where:
a Contracts entered in before 1 July 2010
– the debtor borrowed an amount less than or equal to the floating threshold used under the Old Code (item 3(5) sch 1 Transitional Act). A historical list of threshold amounts can be found at www.moneysmart.gov.au; and
– the debtor is unable reasonably, because of illness, unemployment or other reasonable cause, to meet their obligations under a credit contract.
b Contracts entered into from 1 July 2010 to 28 February 2013
– the maximum amount of credit provided under the contract is no more than $500 000 (s 72(5) NCC (as it then was)); and
– the debtor is unable reasonably, because of illness, unemployment or other reasonable cause, to meet their obligations under a credit contract.
The courts have held that the time to apply the threshold test is the date on which the relevant contract was entered into, not the date when the debtor applied to the credit provider for a change to the contract under section 72 (see Perpetual Trustees Victoria Ltd v Monas  NSWSC 1156).
Where a loan exceeds the relevant threshold or the debtor applied for hardship for a reason other than illness, unemployment or other reasonable cause, the credit provider may still be required to provide assistance under applicable industry codes. For example, under clause 25.2 of the Banking Code (now clause 28 Code of Banking Practice 2013), a credit provider must try to help a consumer (if the consumer agrees) overcome their financial difficulties.
In Permanent Custodians Ltd v Upston  NSWSC 223, the NSW Supreme Court held that a hardship variation may be granted at any step along the enforcement process prior to judgment being entered against the debtor for the outstanding debt.
The New South Wales Supreme Court set aside default judgments in two instances where a credit provider failed to deal appropriately with hardship requests and also failed to provide notice that it would seek default judgment (Commonwealth Bank of Australia v Wales  NSWSC 407; Commonwealth Bank of Australia v Larsen  NSWSC 408; but see Westpac Banking Corporation v Tesoro  VSC 182).
c Contracts entered into from 1 March 2013
The Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth) commenced on 1 March 2013 and simplified the hardship arrangements for credit contracts entered into on or after 1 March 2013 (item 5, sch 5 Transitional Act). It also provides for similar hardship provisions in relation to consumer leases entered into from 1 March 2013 (see “Consumer leases”).
Some of the provisions are:
• a hardship application may be made if the debtor considers that they are or will be unable to meet their obligations under a credit contract (for whatever reason) (s 72(1) NCC);
• a debtor has a statutory right to request (in writing or verbally) a hardship variation regardless of the amount of credit that is provided under their contract (s 72(1));
• a credit provider does not have to agree to change the contract if they reasonably believe that the debtor would not be able to meet their obligations under the contract even if it was changed or that there is no reasonable cause (such as illness or unemployment) for the debtor’s inability to meet their obligations under the contract (s 72(3)); and
• there are no limits to the form of hardship variation (the way in which the contract can be varied).
Contracts entered into before 1 March 2013
A debtor’s hardship application for a contract entered into before 1 March 2013 is a two-step process.
A debtor must submit a written application seeking the credit provider’s consent to change the contract terms in one of the ways set out in the NCC (s 72(2)):
a extending the period of the contract and reducing the amount of each payment accordingly. This is useful where the debtor’s financial situation has changed, probably for the long term, for example where the debtor’s income is less than at the time the loan was entered into;
b postponing payments for a specified period. This is useful where the hardship is temporary, for example the debtor has a temporary illness or short-term loss of employment; or
c a combination of options (a) and (b) above.
The letter should set out the cause (such as illness, unemployment or other reasonable cause) of the financial hardship and the grounds on which the debtor believes they will be able to comply with the terms of the contract if it is changed. A credit provider must within 21 days of receiving the application provide a written response stating whether or not it agrees to the change.
Credit providers are currently exempted until 1 March 2018 from sending a notice to a debtor confirming the agreement to change on grounds of hardship as required by section 72(3)(a) NCC (as it then was)(ASIC Class order 14/41).
If the credit provider does not agree, it must provide a written response that includes:
• the name of the dispute resolution scheme of which the credit provider is a member;
• the debtor’s rights under that scheme; and
• the reasons for not agreeing to the change (s 72(3) NCC) (as it then was).
If the matter is urgent because legal action has been threatened or a default notice has been served a complaint should be lodged with the relevant dispute resolution scheme at the same time as writing to the credit provider.
If the credit provider rejects an application under section 72 (as it then was) or does not respond to the application within 21 days, the debtor can apply to the dispute resolution scheme of which the credit provider is a member for assistance in resolving the dispute.
The debtor can also apply to a court for an order under section 74 (as it then was) that the credit provider change the contract in one of the ways set out in section 72(2) (as it then was). An application under section 74 can only be made if the debtor has already applied to the credit provider for the change under section 72.
The following steps outline the process for a debtor’s hardship application for contracts entered into on or after 1 March 2013.
Even though the hardship notice may be given verbally or in writing, it is advisable to do it in writing. The debtor only needs to consider that they would be unable to meet their obligations under the contract and inform the credit provider of their inability to meet the obligations (s 72(1) NCC).
The notice does not have to comply with any other form requirements.
Credit providers must respond to an outstanding hardship application before commencing enforcement action (s 89A(2)).
It would be advisable to lodge a complaint with the relevant dispute resolution scheme at the same time as applying to the credit provider for hardship if the matter is urgent because legal action has been threatened or a default notice has been served.
The Consumer Action Law Centre has prepared a fact sheet and template letter (https://help.consumeraction.org.au/what-can-i-do-if-i-am-having-difficulty-paying-my-loan-or-lease-payments).
The credit provider may (verbally or in writing), within 21 days after receiving the hardship notice, ask the debtor to provide specified information about:
a whether the debtor would be unable to meet their obligations under the contract (s 72(2)(a) NCC); and
b how to change the contract if the debtor is or will be unable to meet those obligations (s 72(2)(b)).
A request for further information must only be made by a credit provider if the information is genuinely needed to allow a final decision to be made and must not unreasonably delay the process.
The debtor must supply the requested information within 21 days of the date of the credit provider’s notice requesting the information (s 72(3)).
The credit provider must provide a response to the hardship request within 21–28 days (under s 72(5) NCC) advising either that:
a the credit provider and the debtor have agreed to change the credit contract (s 72(4)(a)); or
b the credit provider and debtor have not agreed to change the contract and if so:
– the reasons why they have not agreed;
– the name and contact details of the dispute resolution scheme of which the credit provider is a member; and
– the debtor’s rights under that scheme (s 72(4)(b)).
If the credit provider and debtor agree to change the contract, the credit provider must give the debtor a notice detailing the changes to the credit contract (s 73(1)). The notice must be provided within 30 days from the date of the agreement to change.
Credit providers are exempted until 1 March 2018 from the notice provisions where they agree to provide a variation to a contract.
ASIC Class Order 14/41 provides that:
• credit providers are exempt from the obligation in section 72(4)(a) to give notice that a variation has been agreed; and
• credit providers are exempt from the obligation in section 73(1) to give details of the variation agreed, but only where the variation is an agreement to defer or reduce the obligations of a debtor for a period of 90 days or less.
Credit providers may be required by clause 28.8 of the Code of Banking Practice 2013 to provide notice of a decision to provide hardship assistance and confirm the details or the arrangements in all cases.
If the credit provider rejects an application under section 72(4) or does not respond to the application within the timeframes required under section 72(5), the debtor can apply to the dispute resolution scheme of which the credit provider is a member for assistance in resolving the dispute (see “Solving disputes with creditors” in Unauthorised transactions and ePayments Code).
A credit provider that rejects a hardship application will not be allowed to take enforcement action within 14 days from the day the credit provider has given its notice of rejection (s 72(4)(b)).
The debtor can apply to a court for an order that the credit provider change the contract (s 74). An application under section 74 can only be made if the debtor has already applied to the credit provider for the change under section 72 of the NCC.
Under section 88 of the NCC, the credit provider cannot issue legal proceedings or repossess or take any other enforcement action unless:
• the debtor has defaulted (i.e. is behind in payments);
• the credit provider has given to the debtor and guarantor, or posted to the debtor’s and guarantor’s last known address, a default notice allowing the debtor a period of at least 30 days to remedy the default (so it is important for this reason to keep the credit provider informed in writing of any change of address);
• the account remains in default at the end of the notice period;
• in case of a reverse mortgage entered into on or after 1 March 2013, the credit provider has spoken by telephone or in person to either the debtor, a practising lawyer representing the debtor or a person with a power of attorney relating to the debtor’s financial affairs and confirmed with them that the debtor has received the default notice; and
• if the debtor or guarantor has given a credit provider a hardship notice under section 72 NCC in relation to a contract entered into on or after 1 March 2013 or a postponement request under section 94 NCC:
a the credit provider has also given them notices in response to the requests (ss 89A(2)(a), 94(2)), and
b it is more than 14 days since the credit provider gave the notices (ss 89A(2)(b), 94(3)).
The section 88 notice must set out certain information that will help the debtor protect their rights, including:
a the default;
b action necessary to remedy the default;
c information prescribed by the NCCP Regulations about the debtor’s rights to make a hardship application, request to postpone enforcement, make a complaint to a dispute resolution scheme (see “Solving disputes with creditors” in Unauthorised transactions and ePayments Code);
d that a subsequent default of the same kind that occurs during the notice period may be the subject of enforcement proceedings without further notice if it is not remedied within the period;
e that, under the Privacy Act 1988 (Cth), the debt may be included in a credit-reporting agency’s credit information file about the debtor if, among other things, the debt remains overdue for 60 days or more; and
f that repossession and sale of mortgaged property may not extinguish the debtor’s liability.
A credit provider may commence proceedings against a debtor even if a default notice does not comply with section 88 of the NCC if the debtor received sufficient notice of the grace period to remedy the default (see Monas v Perpetual Trustees Victoria Ltd  NSWCA 417 and Commonwealth Bank of Australia v Kilpatrick  NSWSC 169).
However, the credit provider commits an offence under the NCC if it fails to provide the debtor with a section 88 notice that does not contain the required information.
The section 88 preconditions to taking enforcement action do not apply if the credit provider proves that there are reasonable grounds for believing:
• the credit provider was induced to enter the contract or mortgage by fraud by the debtor;
• the goods mortgaged have been or will be concealed, damaged or disposed of;
• the credit provider cannot find the debtor despite reasonable efforts; or
• a court allows the credit provider to repossess (s 88(5) NCC) (Capital Options (Aust) Pty Ltd v Batchelor  QCAT 493 at 22 (18 September 2013)).
Once the debtor receives the section 88 default notice (or even before), they will have at least one month to consider options such as refinancing, a variation to the contract, some other negotiated resolution or a complaint to a dispute resolution scheme. If the debtor applied for financial hardship or a postponement of enforcement proceedings, they may have even more time to consider their options as the notice periods required in relation to applications for hardship (s 89A) and postponement of enforcement proceeding (s 94) may end before, at the same time or after the end of the period for remedying the default specified in the section 88 default notice.
Since 1 July 2010, a credit provider has been required to issue the debtor with a special notice within 14 days of the first occasion of default under a direct debit payment system (s 87(1)-(2) NCC). The notice must be in the form prescribed by the NCCP Regulations (form 11: direct debit default notice) (s 87(3) NCC; reg 85 NCCP Regulations). The notice does not replace or modify any other preconditions for enforcement action under the NCC (s 87(5) NCC).
When can the credit provider repossess?
The credit provider may be entitled to repossess mortgaged goods if the period specified in the default notice has expired and the default has not been remedied.
In most cases, the amount owing must be more than 25 per cent of the amount of credit provided under the contract, or $10 000 (whichever is less), unless a court otherwise consents (s 91 NCC).
The credit provider or its agent cannot enter onto residential premises to repossess mortgaged goods unless a court has authorised entry, or the occupier of the premises has, after being informed in writing about the provisions of section 99 of the NCC (which deals with entry to residential property to take possession of goods), consented in writing to the entry. The NCCP Regulations set out the form of the written consent (form 13: consent to enter premises) and permitted hours of contact.
The credit provider can seek an order from a court to enter onto residential premises and take possession of mortgaged goods (s 100), or an order that the goods be delivered to the credit provider at a specified time and place (s 101).
To avoid repossession, a debtor can:
• bring the account up to date;
• seek the credit provider’s permission to sell the goods privately (this may allow for the goods to be sold at a better price than would be obtained at auction);
• seek a postponement of enforcement proceedings (s 94 NCC);
• seek a hardship variation; or
• pay out the net balance due under the contract.
Within 14 days after repossession the credit provider must give the debtor, or post to the debtor’s last known address, a written notice setting out the estimated value of the goods, the enforcement expenses incurred up to the date of the repossession and the rate (if any) at which they will continue to accrue, and a statement of rights and obligations as required under the NCCP Regulations (form 14: notice after taking possession of mortgaged goods) (s 102 NCC). The credit provider cannot sell the goods until 21 days after this notice has been given.
Section 103 of the NCC allows the debtor to nominate in writing a purchaser for the goods within the 21 day period of the form 14 notice. The purchaser must offer at least the estimated value of the goods. During this period the debtor may also explore other options, including seeking a hardship variation (see “Financial hardship”).
The credit provider must offer to sell the goods to the nominated purchaser for the estimated value of the goods or, if there is a written offer to buy the goods for a greater amount, that greater amount (s 103(2)).
If payment is not made within 21 days of the form 14 notice, the credit provider must sell the goods:
• to the nominated purchaser as soon as reasonably practicable or at a time agreed between the credit provider and mortgagor; or
• if there is no nominated purchaser or the nominated purchaser does not buy the goods, for the best price reasonably obtainable (s 104(1) NCC).
If the price received for the goods is less than the net balance due to the credit provider, the debtor can be sued for the difference (s 104).
It is possible for goods to be sold at a fraction of their real value and for the credit provider to sue the debtor for money still owing after the sale. Accordingly, it is important to seek legal advice as soon as possible if the credit provider demands money after selling repossessed goods.
The debtor can apply to a court for a determination about whether the credit provider exercised its power of sale in accordance with section 104(1) (s 106). The court can award the debtor compensation if it is not satisfied that the credit provider sold the goods as soon as reasonably practical, or at a time the mortgagor had agreed to, for the best price reasonably obtainable. However, it has been held that sale by public auction will in most cases constitute a sufficient attempt by the credit provider to receive the best price reasonably obtainable.
The credit provider can sue up to six years after the sale of repossessed goods. If payments are made later, the credit provider can sue up to six years after the last payment (Limitation of Actions Act 1958 (Vic)).
Division 6 of part 5 of the NCC allows a debtor to apply to a court for orders that a credit provider return repossessed goods where the credit provider has failed to comply with part 5–2 (see “Restrictions on the right to repossess”) and 5–4 (see “Sale of repossessed goods”) of the NCC. Such a remedy may be available even where the secured credit contract remains in default. However, neither the legislation nor the explanatory memorandum provides any guidance as to the factors a court would consider in making such an order.