1.1 The existing provisions

Four sets of provisions are relevant:

  • the responsible lending provisions of the NCCP Act;
  • the responsible lending provisions of the Banking Code;
  • the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act); and
  • the unfair contract terms provisions of the ASIC Act.

Little needs to be said about the last two sets of provisions beyond emphasising the need for their application and enforcement. Together, the consumer protection provisions and the unfair contract terms provisions give detailed content to three of the six basic norms of conduct I have identified in the Introduction. Those three norms are: act fairly; provide services that are fit for purpose; and deliver services with reasonable care and skill.

The ASIC Act prohibits misleading conduct in relation to financial services.[1] It prohibits unconscionable conduct in connection with the supply or possible supply of financial services to a person other than a listed public company.[2] It implies terms of due care and skill, and fitness for purpose into contracts for the supply of financial services where the services under the contract were acquired for use or consumption in connection with a small business.[3]

Since 2015, the ASIC Act has provided that unfair terms in standard form small business contracts for financial services and financial products are void.[4]

As will be seen, however, the responsible lending provisions of both the NCCP Act and the Banking Code give important further content to these norms. It is necessary to say more about the responsible lending provisions.

Lending to consumers,[5] as distinct from lending for a business purpose, is governed by the NCCP Act. The NCCP Act obliges credit licensees to assess whether the proposed credit contract or increase in credit limit will be unsuitable for the consumer.[6] The Act also obliges the licensee to make the inquiries and verification prescribed in section 130. The inquiries required by section 130(1)(a) and (b) are reasonable inquiries about the consumer’s ‘requirements and objectives in relation to the credit contract’ and ‘about the consumer’s financial situation’. The verification required is ‘reasonable steps to verify the consumer’s financial situation’.[7] Section 133 then prohibits a licensee entering, or increasing the credit limit of, an unsuitable credit contract.

At all relevant times, the industry code of practice (known, until its latest iteration, as the Code of Banking Practice) has provided that a bank that has subscribed to, or is bound by, the Banking Code and is considering the provision to a person covered by the Banking Code of a new loan or an increase to a loan limit will exercise the care and skill of a diligent and prudent banker. The diligent and prudent banker provision has applied to lending to small businesses (as ‘small business’ has been defined by successive iterations of the Banking Code). A new code, the 2019 Banking Code of Practice (the 2019 Banking Code), has been approved by ASIC and will come into operation on 1 July 2019.

[1] ASIC Act ss 12DA, 12DB, 12DC, 12DF.

[2] ASIC Act ss 12CA, 12CB.

[3] ASIC Act s 12ED, read with the definition of ‘small business’ in s 12BC(2).

[4] ASIC Act s 12BF.

[5] Section 5 of Sched 1 of the NCCP Act (the National Credit Code) provides that the National Credit Code applies to the provision of credit to a natural person or a strata corporation, wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment purposes. (Other applications of the National Credit Code need not be noticed here.) The definition provisions of the NCCP Act then engage and apply the provisions made by s 5 of the National Credit Code.

[6] NCCP Act ss 128–129.

[7] NCCP Act s 130(1)(c).