Planeación del proyecto

6.1 Introduction

The Consumer Credit Code (the Code) commenced operation in all States and Territories of Australia (other than Tasmania) on 1 November 1996. The Code commenced operation in Tasmania on 1 March 1997.

With few exceptions, the Code regulates all personal, domestic and household credit, including personal loans, housing loans, overdrafts, credit card facilities, credit and debt facilities (to the extent credit is provided), consumer leases, consumer hire purchase and retail credit. As a result, it affects many Australian securitisations including mortgage-backed programs.

6.2 The credit provider

The Code is directed primarily towards, and imposes obligations on, the actual provider of the regulated credit. In addition, but to a lesser extent, it also imposes obligations on and affects other parties involved in the lending process (eg. agents of credit providers, suppliers of goods and services purchased with credit and insurers).

The Code defines a credit provider as a “person that provides credit and includes a prospective credit provider”. Section 4 of the Code defines credit in the following terms:

“(1) For the purposes of this Code, credit is provided if under a contract:

(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or

(b) one person (the debtor) incurs a deferred debt to another (the credit provider).”

In securitisation programs using trusts or special purpose vehicles, a loan may be originated in two ways:

• conduit programs which involve an originator originating a loan with funds provided by a trustee or special purpose vehicle. The trustee or special purpose vehicle is the lender (or mortgagee) and under this arrangement is the credit provider for the purposes of the Code; or

• assignment programs where a lender lends money to a borrower and equitably assigns the resulting debt to a trustee or special purpose vehicle. The original lender in the credit provider. But does it remain the credit provider after the assignment or does the trustee or special purpose vehicle become the credit provider? This is answered by section 166 of the Code which provides:

“(1) If the rights of a credit provider under a credit contract, mortgage or guarantee are assigned or pass by law to another person, this Code from then on applies to that other person and does not impose any further obligation on the credit provider.

(2) The debtor, mortgagor or guarantor has and may exercise the same rights in respect of the credit contract, mortgage or guarantee against the assignee as the debtor, mortgagor or guarantor has against the credit provider.

(3) Subsection (1) does not apply while the credit provider continues to receive payments from the debtor, or would continue to do so if the debtor complied with the credit contract.”

Typically, the original lender remains the servicer of the assigned loans and the debtors are unaware of the assignment. As a result, section 166(1) will not apply to make the trustee or special purpose vehicle the credit provider (see section 166(3)). Debtors are normally only be given notice of the assignment if the trustee or special purpose vehicle perfects its title to the loans (ie. it takes a legal assignment of the loans). If it does so, the trustee or special purpose vehicle will then become the credit provider.

6.3 Failure to comply with the Code

The consequences to a credit provider for failing to comply with the requirements of the Code can be divided into five categories: 6.3.1 Criminal consequences

The commission of an offence exposes the credit provider, certain officers of a corporate credit provider and persons or corporates who aided and abetted the commission of the offence to monetary penalties. The maximum penalty currently provided for in the Code is $10,000.

6.3.2 Part 6 – Civil consequences

Key requirements: Division 1 of Part 6 sets up a regime under which, if a key requirement is breached, civil consequences may flow. Put simply, those civil consequences are that the debtor may not be required to pay any interest under the credit contract or the credit provider may be required to make a payment (of up to $500,000 per type of breach) to consolidated revenue or into a statutory trust fund.

Other contraventions: Division 2 of Part 6 provides that a court may order the credit provider to make restitution or pay

compensation to any person affected by a contravention, other than one for which a civil effect is specifically provided for in the Code.

6.3.3 General civil consequences

Other civil penalties are provided for in the Code. For example, a credit provider’s failure to comply with certain requirements in connection with a mortgage or guarantee can result in the mortgage or guarantee (or certain provisions of such a document) being void or unenforceable.

6.3.4 Linked credit provider

Under the so called linked credit provider provisions of the Code, a credit provider can be held responsible for certain actions and statements made by a supplier of goods or services in connection with the credit contract and the sale contract, if there is a sufficient connection between the credit provider and that supplier.

6.3.5 Unjust contracts

Pursuant to the Code, a court or tribunal can reopen the transaction that gave rise to an unjust contract, mortgage or guarantee (or an unjust variation). It can also annul or reduce certain unconscionable fees.

6.4 The credit provider indemnified for a breach of the Code

In general, as a matter of public policy, the courts will not enforce a contract that provides for a person to be indemnified against criminal, and arguably, civil penalties under a statute.

This policy was of concern to trustees involved in securitisation programs and led to a submission by the Trustee Corporations Association of Australia (TCA) to State and Territory Consumer Affairs Ministers in relation to the impact of the Code on securitisation. Clayton Utz assisted the TCA in making that submission.

This concern has now been largely overcome by section 169A of the Code. That section provides as follows:

“(1) An indemnity for any liability under this Code is not void, and cannot be declared void, on the grounds of public policy, despite any rule of law to the contrary.

(2) The liabilities to which this section applies include the following –

(a) a liability for any criminal or civil penalty incurred by any person under this Code;

(b) a payment in settlement of a liability or alleged liability under this Code;

(c) a liability under another indemnity for any liability under this Code.

(3) This section is subject to section 169(2).

(4) This section does not derogate from any other rights and remedies that exist apart from this section.

(5) This section extends to any indemnity obtained before the commencement of this section.”

This section provides that an indemnity from any person for any liability under the Code is not void on the grounds of public policy. Those liabilities are expressed to include both civil and criminal penalties, a payment in settlement of a liability or alleged liability under the Code, and a liability under another indemnity for any liability under the Code.

6.5 Licensing and registration requirements

The Administration legislation in Victoria, the Australian Capital Territory and Western Australia requires providers of credit which is regulated by the Consumer Credit Code to be either registered or licensed.

That legislation must be carefully reviewed to determine which of the parties involved in a securitisation program need to be so licensed or registered.

6.6 Conclusion

Where Code-regulated receivables are to be securitised, it is important, in light of the consequences of contravention, that these comply with the Code to ensure the integrity of the relevant program. For this reason it is current practice for a Code compliance sign-off to be received by selected participants (including the rating agency) from a major law firm involved with the securitisation.

The next sections of this publication deal with two matters principally affecting the participation by banks, building societies and credit unions in securitisation – the Australian Prudential Regulation Authority requirements (section 7) and set-off (section 8).

7 The regulation of the participation by authorised