Commonwealth Consolidated Regulations Commonwealth Consolidated Regulations(1) This regulation is made for the following provisions of the Act:
(a) paragraph 118(2)(c) (when the credit contract must be assessed as unsuitable--entering contract or increasing the credit limit);
(b) paragraph 123(2)(c) (prohibition on suggesting or assisting consumers to enter, or increase the credit limit under, unsuitable credit contracts);
(c) paragraph 131(2)(c) (when credit contract must be assessed as unsuitable);
(d) paragraph 133(2)(c) (prohibition on entering, or increasing the credit limit of, unsuitable credit contracts).
(2) A credit contract is unsuitable for a consumer if:
(a) the consumer's requirements and objectives are to receive an identified amount of credit; and
(b) the credit contract is part of an arrangement by which the identified amount of credit is provided, or to be provided, by:
(i) 2 or more small amount credit contracts; or
(ii) 2 or more medium amount credit contracts; or
(iii) a combination of small amount credit contracts and medium amount credit contracts; and
(c) the amount that is payable under the combination of credit contracts (in circumstances in which there is no default by the debtor) is higher than the maximum amount that could be charged under a single credit contract under section 32A of the Code.
Example: The consumer's requirements and objectives are to receive the sum of $3,300. This could be provided by a medium amount credit contract for $3,300.
However, the credit provider offers to enter into 2 small amount credit contracts with the consumer. The amount of credit under each contract is $1,500 and each term is 12 months. The credit provider is only prepared to advance $3,000 in total, and not $3,300, because the consumer cannot afford the higher repayments that would be required if the amount of credit under these 2 contracts were $3,300.
The consumer agrees to this as the consumer still has a need for $3,000.
The amount payable under each small amount credit contract is an upfront fee of 20% of the amount of $1,500, and a monthly fee of 4% of this amount, or charges of $1,020 for each contract, and total charges of $2,040. The maximum amount that could be charged under a medium amount credit contract for $3,000 would be interest charges of $768 plus an additional fee of $400--a total of $1,168. The consumer has therefore been charged an additional amount of $872.
Each of the 2 small amount credit contracts would be unsuitable.