Credit and Debt

Credit and Debt

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All consumer contracts (credit and non-credit)

False, misleading or deceptive representations

Section 29 of the ACL and section 12DB ASIC Act.

Section 29 of the ACL prohibits making false representations in relation to a large number of matters with respect to goods or services, such as: price, need, quality or value, place of origin, approval or affiliation and performance characteristics or benefits.

Section 12DB of the ASIC Act prohibits making false or misleading representations in relation to a large number of matters with respect to the supply of financial services.

Section 18 of the ACL; section 12DA of the ASIC Act; and section 154 of the Code

Section 18 of the ACL states that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.

The terms "misleading" and "deceptive" are not defined in either Act, but generally speaking, the provisions of each Act are directed at conduct that consists of a misrepresentation of some kind.

It is not necessary to establish that the trader intended to mislead or deceive. A person or corporation may have engaged in conduct that was misleading or deceptive even if they have acted honestly and reasonably.

Section 154 of the Code also prohibits false or misleading representations about a matter that is material to a person's decision to enter a credit contract.  The kinds of things to look out for include representations in relation to a credit contract (such as a mortgage, personal loan or credit card) about savings that can be made, which do not eventuate or are outweighed by high fees.

Vulnerabilities of your client and unconscionability

Sections 20–22 of the ACL and sections 12CA and 12CB of the ASIC Act

Consider whether it could be the case that:

  • your client, as a party to a contract or transaction, is under a special disability; and
  • the company or creditor took unfair advantage of that disability, either with knowledge of that disability or where the company or creditor "closed their eyes" to the disability.

There is no clear definition of what constitutes taking unconscionable advantage of a person, but it might be the case that, for example, the company or creditor was aware (or should have been aware) that the client had a mental illness, was affected by drugs or alcohol or had an intellectual impairment at the time of entering into the contract or transaction and that the company or creditor took advantage of this in entering into the contract.  

Similar considerations will be relevant to unjust transactions in relation to credit contracts.

Standard form contracts – unfair contract terms

Sections 23-28 of the ACL and sections 12BF-12BM of the ASIC Act

Under the ACL, for consumer contracts entered into or renewed after 1 July 2010 or for terms of relevant contracts varied after that date, if a term in a standard form consumer contract is unfair, the term can be held to be void and that term will be treated as if it never existed.  The contract as a whole will continue to bind parties if it is capable of operating without the unfair term.

The unfair contract term provisions under the ACL apply to:

  • standard form consumer contracts - these contracts are commonly used across a range of industries including telecommunications, utilities, gyms, car rental and finance. They are "take it or leave it" contracts, prepared by the creditor and not subject to negotiation. Contracts for home loans, credit cards and client or broker agreements for example, are almost certainly standard form contracts. Individually negotiated contracts are not covered. Factors that are relevant to whether a contract is a standard form contract or not include whether:
    • one of the parties has all or most of the bargaining power;
    • the contract was prepared by one party before any discussion occurred about the transaction;
    • one party was, in effect, required to either accept or reject the contract on the terms as presented;
    • the other party was given any real opportunity to negotiate the terms of the contract; and
    • the terms of the contract take into account the specific characteristics of the other party or the particular transaction (section 27(2) of the ACL and section 12BK(2) of the ASIC Act);
  • consumer contracts - in addition to being standard form, the contract must be a "consumer" contract i.e. for the supply of goods, services or financial services to a person who is acquiring the goods, services or financial products wholly or predominantly for personal, domestic or household use or consumption (section 23(3) of the ACL and section 12BF(3) of the ASIC Act);
  • unfair terms - a term in a consumer contract is unfair if it:
    • would cause a significant imbalance in the parties' rights and obligations arising under the contract;
    • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
    • would cause detriment (whether financial or otherwise, including inconvenience, delay or distress) to a party if it were to be applied or relied on.

A court may have regard to the transparency of the term (i.e. whether it is legible and expressed in reasonably plain language) and the contract as a whole in determining whether a term is "unfair".

The table in Going to Court - Making and Defending Claims lists the non-exhaustive "grey list" of terms that are set out in section 25 of the ACL and section 12BH of the ASIC Act as examples of the kinds of terms of a consumer contract that may be unfair. 

If it appears that a term of a standard form consumer contract is unfair, you should first make a complaint to the creditor using the Internal Dispute Resolution mechanism.  If your complaint is not resolved, you should take the complaint to the relevant External Dispute Resolution scheme, VCAT or the court.

You can also make a complaint directly to ASIC (for financial services providers) or the ACCC (for all other suppliers).

You should note, though, that only a court or the EDR scheme can decide if a term is unfair or not.  While it is still very useful in negotiation, for the term to be void under the ACL, the term has to first be declared by a court or the EDR scheme to be unfair.