What is consumer credit?

The usual suspects are unsecured personal loans and credit cards, car loans for private use, consumer leases and rent-to-own agreements, buy now pay later and merchant instalment plans, payday and other short-term high-cost loans, and pawnbroking or small cash advances. What unites them is the purpose: the credit is used mainly for personal, household or domestic needs by an individual.

Not every finance arrangement qualifies. The National Credit Code applies only when the purpose is predominantly personal and the lender or intermediary is a credit provider under the NCCP Act. Loans to companies and finance taken mainly for business, such as equipment leases and most commercial vehicle finance, fall outside it. Where a loan serves both purposes, the provider assesses the main purpose at the time the contract is made, and that decides which rules apply.

Three bodies share the work, under one law. The NCCP Act and its National Credit Code set the duties. ASIC licenses credit providers and brokers, sets responsible lending and disclosure standards and takes enforcement action. AFCA, the Australian Financial Complaints Authority, resolves disputes between consumers and providers for free. The OAIC handles privacy and credit reporting complaints.

The people in a consumer credit transaction have legal labels. The consumer is an individual borrowing for personal purposes. The credit provider lends under a credit contract and must hold an Australian credit licence. A credit representative acts under someone else's licence. A broker arranges or recommends credit and must disclose commissions and conflicts. A guarantor agrees to pay if the borrower defaults, and joint debtors are each liable for the whole debt.

Before lending, a provider must make reasonable inquiries about your financial situation, requirements and objectives, verify what you tell it against reliable evidence such as payslips and bank statements, and refuse to enter a contract that is unsuitable or unaffordable. Brokers must disclose how they are paid, any conflicts and which lender they are recommending.

Disclosure comes next: a credit guide, the pre-contract statement setting out fees, repayments and the total amount payable, the comparison rate, default fees and any early termination charges on a consumer lease, plus a key facts sheet for a credit card contract. The contract itself must be clear, in plain language, and you are entitled to a free copy. Once the loan is running, the provider needs a documented process for assessing hardship requests, must respond to them promptly in writing, and should not enforce while a valid hardship application is being assessed unless the law allows it.

If you cannot pay, contact the provider early and ask for a hardship variation, keeping a written record of the request and the decision. If a loan was unsuitable because the provider never checked your capacity to pay, you can challenge it; AFCA can order compensation, reduce the debt or vary the contract. The escalation path is always the same: the provider's internal complaints process first, then AFCA, with ASIC for systemic or licensing concerns.

Other protections sit around the loan. You can get a free copy of your credit report, have errors corrected and add a statement explaining a dispute. Debt collectors cannot harass you, mislead you or discuss your debt with third parties. A lender cannot repossess a car without giving the notices the contract and the Code require. Free help is available from financial counsellors and community legal centres.