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The new rule will apply to any payday loan provided from 1 February 2017. Loans that commence before 1 February 2017 will continue to operate under the existing rules and third-party direct debit fees will be able to be charged on those loans.
On 1 July 2013, restrictions were introduced for small amount credit contracts (SACCs) that limit the fees and charges that consumers can be asked to pay. Cost caps apply to establishment fees and monthly fees (both of which are subject to maximum limits based on a percentage of the adjusted credit amount), default fees and government fees and charges.
In response to a government request, ASIC made Class Order [CO 13/818] on an interim basis to allow the charging of direct debit fees by third-party companies in certain circumstances.
In August 2015, to fulfill a statutory requirement under the National Credit Act, an independent review panel was established by the government to examine and report on the effectiveness of the laws relating to SACCs. Two phases of consultation were undertaken during the course of the review, with the panel considering written submissions together with holding roundtables and bilateral meetings with interested stakeholders.
The panel’s final report released in March 2016 included a recommendation that “Direct debit fees should be incorporated into the existing SACC fee cap”. Then-minister for small business and assistant treasurer Kelly O'Dwyer, when releasing the final report, said, “The government is supportive of ASIC acting on this recommendation when it considers it appropriate”.
As a result, ASIC has now repealed CO 13/818 and after consulting stakeholders, provided a 12-month grandfathering period to ensure a smooth transition for both consumers and industry.
This means that for loans which commence from 1 February 2017, third-party direct debit agencies will no longer be able to charge consumers a fee when processing a repayment on that loan. Third-party agencies, that have entered into an agreement with consumers for a loan that commenced prior to 1 February 2017, will continue under CO 13/818 to be able to charge consumers a fee when processing a repayment on that loan.
[Related: 10-year ban for former lending director]