Understanding Personal Loans: Your Rights Under the Credit Code

What should I know about personal loans and the Consumer Credit Code?

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Understanding your rights as a consumer is essential in dealing with complex issues like personal loans and other finance. Here we reveal, in simple terms, how the Credit Code works for you.

Introduction of Credit Code

The Consumer Credit Code commenced operation on November 1, 1996.

This is a national code that is applicable in each State.

Despite what its title suggests, it is not a code of conduct but legislation that is enforceable in certain situations where credit is offered.

Any non-business credit transactions are governed by the Code if entered into after that date, including continuing contracts that were in force at that date.

This includes:

credit provided predominantly for domestic, personal or household purposes;
where a charge is made for the credit; and
credit is provided in the course of a business of providing credit, or incidental to any other business of the credit provider. Definition of credit contract The Consumer Credit Code covers a wide range of credit contracts, which is defined as:
the payment of a debt owed by one person to another is deferred; or
one person incurs a deferred debt to another. Different categories of credit under the Consumer Credit Code include:
instalment contracts;
consumer leases;
continuing credit.

The Consumer Credit Code covers credit contracts entered into after November 1, 1996 including:

all consumer credit e.g. credit cards, housing etc loans that are characterised as being domestic, personal or household - not for business purposes;
in all Australian jurisdictions;
where charges are made for the credit;
where the credit provider does so in the course of business.

Personal, domestic & household purposes

The Consumer Credit Code does not apply for business purposes.

According to the Code the nature of the credit does not have to be wholly concerned with domestic credit, but will be caught by the provisions of the Consumer Credit Code if:

more than half the credit is for personal, domestic & household purposes; or
if the credit is to purchase goods that are to be used for different purposes, then the purpose is mostly for personal, domestic & household purposes.

Goods mortgages

Mortgages are a security over goods (sometimes called "chattels") or real property.

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This means that the lender has the right to take the property/goods and sell it if the borrower defaults on the loan.

There are certain requirements that must be met before the mortgage comes under the Consumer Credit Code, including that the goods or land must be specifically described.

Applicable credit providers

For a credit contract to be covered by the Consumer Credit Code, the credit provider must supply the credit:

in the course of a business that provides credit; or
where it is incidental to any other business of the credit provider.

There is no hard and fast way to determine this, but it can be important where the seller simply allows the buyer to pay for the goods in instalments, or when a family member offers a loan.

In the first case the contract would probably be covered by the Consumer Credit Code; in the latter case it would not be covered.

Exclusions from the Consumer Credit Code

This can be complicated, and it is always worth asking whether the contract is covered by the Consumer Credit Code. There are many situations where the Consumer Credit Code will not apply, including:

short term credit;
where credit provision occurs without contemplation e.g. a savings account goes into debit;
within certain limits, where the only charges are periodic or fixed and not changed according to the level of credit that is provided e.g. an annual fee to a credit card provider or a arrangement with a supplier that allows goods to be bought on account and a fixed charge is applied;
insurance premiums payable on instalment;
most pawnbroker transactions;
employee loans.