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Law Current to: June 30, 2025

Challenging debts or contractual obligations

Misleading and deceptive conduct/misrepresentations and unconscionable conduct

There are provisions under the national laws to protect individuals and small consumers from misleading and deceptive conduct, and unconscionable conduct. 1

Misleading and deceptive conduct/misrepresentation

The national law prohibits a credit or service provider from engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive. A provider is likely to mislead or deceive a customer if it makes false claims about its products or services, such as information relating to prices or the benefits and performance of the products.

In certain circumstances, a failure to disclose key information that are relevant to the decision-making will also be considered to be misleading.

The Australian Competition and Consumer Act (ACCC) has published resources relating to false or misleading claims at False or misleading claims | ACCC.

Some examples of misleading and deceptive conduct include:

Price claims

For example, where a feature of the product is ‘free’ but in fact there are conditions that may apply or the fee is absorbed into the overall cost.

Fine print

Information in the fine print should not be in conflict with the information provided by the provider.

Claims about the future

Any claims about the future must be supported by the grounds on which those claims are made (such as uncertainties and variables), and those grounds must be reasonable.

If our client considers that they have been adversely affected my misleading and deceptive conduct or by a misrepresentation this may be a basis for challenging the overdue amount or a part of it.

Unconscionable conduct

The national law also prohibits financial services providers, such as credit providers, from engaging in conduct that is, in all circumstances, unconscionable.2

The term ‘unconscionable conduct’ is not defined by any legislation and is considered on a case-to-case basis. However, it generally refers to actions that are so harsh and unfair that they go against good conscience. Courts, in determining whether a conduct is unconscionable, will consider factors such as:

  • the relative bargaining power of the parties;
  • the use of undue pressure; and
  • whether the stronger party acted in good faith or imposed unreasonable conditions.

An example where a conduct is likely to be considered unconscionable is targeting vulnerable customers, such as those experiencing significant difficulties, illnesses or lacking basic financial or English language skills.

The ACCC has also published resources relating to unconscionable conduct at Unfair business practices | ACCC.

ASIC has alleged that the adoption of a course of conduct that is designed to avoid the operation of the NCCP Act may constitute unconscionable conduct. 3

Unfair contract terms

There are national laws to protect individual and small consumers from unfair terms in standard form contracts. Standard form contracts are contracts with a business provider where there are limited opportunities for the consumer to negotiate the terms of the contract.

A contract term is unfair if:

  • it would cause a significant imbalance in the rights and obligations of the parties;
  • it’s not reasonably necessary to protect the legitimate interests of the party who benefits from the term; and
  • it would cause harm or loss (whether financial or otherwise) to the other party. 4

For credit and financial services and products the relevant provisions are contained in the ASIC Act and are regulated by ASIC.

ASIC Information Sheet 210 (INFO 210) explains how the law protects consumers from unfair terms in contracts for financial products and services. The information sheet describes how a consumer can challenge a term under the unfair contract terms law in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), what happens if a term is unfair, and what ASIC can do.

For other arrangements relating to the supply of goods and services the protections are contained in the Australian Consumer Law which is overseen by the Australian Competition and Consumer Act (ACCC). The ACCC has also published resources relating to unfair contract terms at Contracts | ACCC.

The offices of fair trading or equivalent in the various states and territories also have a role in relation to the Australian Consumer Law, particularly in areas like property law which are not regulated by the Commonwealth. The relevant state authorities publish guidance relating to unfair contract terms (in Queensland see Unfair contract terms | Your rights, crime and the law | Queensland Government.

If a consumer thinks that a term in their contract is unfair, our client’s options include to complain to the credit or service provider, to complain to AFCA (if the provider is a member), to raise a complaint with the relevant regulator, or to apply for a court to declare the term unfair.

If our client considers that they have been adversely affected my misleading and deceptive conduct or by a misrepresentation this may be a basis for challenging the overdue amount or a part of it.

Some examples of where a contract may be unfair include:

Entire agreement clauses

These may be unfair because a provider may make important representations relating to the contract on which the borrower relies but which are not contained in the contract.

One-sided rights
  • One-sided rights for the credit provider to make changes to the contract which are not subject to any qualifications.
  • This may include unqualified rights to introduce new charges or vary existing charges.
  • The absence of reasonable notice periods when making changes may also be a factor that makes these clauses unfair.
Unqualified rights of indemnity

Unqualified rights of indemnity in favour of the credit provider which potentially could make the individual or small business responsible for wrongful acts or negligence by the provider.

Unqualified indemnities

Unqualified indemnities in favour of the provider, which attempt to protect the provider from any liabilities or loss including loss arising from the providers own fraud, negligence, misconduct or similar conduct of its employees, officers, or contractors.

Proper disclosure, responsible lending, DDO and unjust contracts

Providers of credit regulated by the NCCP Act are subject to strict rules relating to a number of matters including rules relating to the precontractual disclosure, the form and contact of the contract, and design and distribution obligations.

Even if the credit is not regulated, some of the relevant industry codes considered in this Manual may contain contractual promises of a similar nature.

Where a credit provider has failed to comply with statutory or industry code obligations there may be an opportunity to challenge part or all of the debt.

Some of the key statutory obligations for providers or regulated credit are summarised below.

A review of the client’s contract, responsible lending assessment, target market determination and account statements may provide identify a failure of the credit provider to comply with their obligations.

Pre-contractual disclosure and form of contract

Credit providers are required to complied with detailed obligations in relation to pre-contractual disclosure and the form and content of regulated credit contracts. These include disclosures in a ‘financial table’ (which is usually incorporated into the contract itself) that sets out a number of important matters about the contract. These requirements are set out in sections 16 and 17 of the NCC. This includes information about:

  • the amount of credit;
  • interest rates and calculation of interest;
  • repayments;
  • commissions payable in respect of the credit;
  • credit fees and charges;
  • default rates of interest and enforcement expenses; and
  • insurance financed by the contract.

This list is not exhaustive.

Credit providers may have contractual rights to change some aspects of the loan over time including the interest rate if the loan is a variable rate loan or the changing fees and charges (subject to providing appropriate notices). The financial table therefore is a point in time summary based on a number of assumptions.

However, if there are inconsistencies between the matters contained in the contract and pre-contractual disclosure on the one hand and the performance of the loan or conduct of the credit provider on the other (as reflected for example in the loan account statements), then this may constitute a basis to raise a complaint or to challenge the amount of the debt.

In addition to these specific requirements credit providers are required to provide a credit guide (a general obligation) and key facts sheets (for particular types of products such as credit cards and home loans). If the credit provider has failed to provide these documents that may be an indication that the consumer was not properly informed before entering into the credit contract. 5

Responsible lending obligations

Prior to entering into a contact, lenders must conduct an assessment that the credit contract is ‘not unsuitable’. This assessment is called a ‘preliminary assessment’ (ss 115 – 118 of the NCCP Act) if you are a credit assistance provider and a ‘final assessment’ if you are a credit provider (ss 129 – 133 of the NCCP Act).

When undertaking the assessment, lenders must:

  • make reasonable inquiries about both the consumer’s requirements and objectives and their financial situation;
  • take reasonable steps to verify the consumer’s financial situation; and
  • obtain and consider bank statements that cover at least the immediately preceding period of 90 days (ss 117 & 130 of the NCCP Act).

A contract will be unsuitable if the product does not meet the requirements and objectives of the consumer, or the consumer will not be able to comply with its obligations under the credit contract or will only be able to do so by incurring substantial hardship. If the client can only meet their obligations under the credit contract by selling their principal place of residence then this would generally be regarded as ‘substantial hardship’ for the purposes of this test.

If the contract is a small amount credit contract and either of the following apply:

  • at the time of the assessment: the consumer is a debtor under another small amount credit contract;
  • at the time of the assessment: the consumer is in default in payment of an amount under that other contract;
  • in the 90-day period before the time of the assessment, the consumer has been a debtor under 2 or more other small amount credit contracts;

then it is presumed that the consumer could only comply with the consumer’s financial obligations under the relevant contract with substantial hardship, unless the contrary is proved (ss 123 (3A) & 133 (3A) of the NCCP Act).

If the repayments on all PayDay loans for our client exceeds 20% of their income and their main (at least 50%) source of income is Centrelink, then the loan must not be granted (s 133 of the National Credit Code).

BNPL loans that qualify as low-cost credit contracts are subject to modified responsible lending obligations.

It is possible to obtain a copy of a responsible lending assessment if our client does not already have one. 6

Design and distribution obligations

Providers of financial products (including regulated credit) are subject to obligations about the way in which they design and distribute their products under part 7.8A of the Corporations Act.

This requires the product issuer (credit provider) to publish a target market determination which amongst other things identifies those persons who fall within the target market (persons who do not) and conditions attached to the distribution of the product.

Product issuers publish their target market determinations on their website (or our client may be able to obtain a copy by contacting the product issuer).

If our client is concerned that they were not within the target market for the product at the time that they entered into the loan or that any relevant distribution conditions have not been met then that may constitute grounds for a complaint or to challenge some or all of the debt. 7

There are also statutory provisions that allow a court to re-open a contract if the court considers the contract to be an unjust contract. These are contained in s 76 of the NCC. There is an extensive list of factors that a court can take into consideration when determining whether or not a contract is unjust. Factors can have regard to matters of public interest and can include unfair pressure tactics, whether or not the terms of the contract are unreasonably difficult to comply or not reasonably necessary for the protection of the legitimate interests of a party and the intelligibility of the contract.

In practice these provisions may not provide an immediate direct resolution for our client, given the need to take court action and other remedies available to our clients including taking complaints to AFCA. In addition there are additional remedies under responsible lending and unfair contract laws that are not available which were not present when this provisions was first drafted. However, if there any particular circumstances that may make a particular contract unjust this could be raised with the credit provider as part of an overall dispute about the terms of a contract or the circumstances in which it was created. There is some case law that considers the operation of this section if further consideration is required. 5

Case study – fees and charges

Rosie was suffering from financial hardship. She lived in an emergency community housing and works with a support worker. Rosie had obtained a secured car loan for business purposes. Rosie was about halfway through her loan. Her total repayments under the loan to date exceeded the principal loan amount but the loan had a high rate of interest. Rosie still had about 18 months of repayments to go on her loan but was unable to continue making payments under the loan.

The lender issued a default notice for the payment of the outstanding balance and when the amount was not repaid appointed a debt collector to recover the car. The car was worth less than the outstanding balance and Rosie would still have owed the lender money after the car was sold.

We first contacted the lender and provided authority for them to speak to us signed by Rosie. We requested that they direct all contact to us and not contact Rosie, and that they cease all debt collection activity, including repossession of the vehicle, whilst we obtained Rosie’s instructions. The lender agreed to speak to us and ceased collection activity.

We reviewed the loan documents and account statements. We identified that the amounts of the establishment fees exceeded the amount stated in the contract. There was also a commission fee that was deducted from the loan account that was not stated in the contract. We contacted the lender and challenged the amount of the debt due to incorrect fees and the undisclosed commission.

The lender agreed to a surrender of the vehicle in full satisfaction of the alleged debt owing.

Footnotes

  1. QCAT Practice Direction No. 4 of 2023.
  2. QCAT Web Page on Lodging your application and forms, accessible at: https://www.qcat.qld.gov.au/applications/lodging-your-application-and-forms.
  3. Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 43(3).
  4. Queensland Courts on Enforcing tribunal orders, accessible at: https://www.courts.qld.gov.au/going-to-court/money-disputes/money-disputes-under-150000/enforcing-tribunal-orders.
  5. ASIC has published general information for consumer credit on its website at Loans and credit cards | ASIC.
  6. ASIC has published extensive guidance regarding responsible lending available from its website page at Responsible lending | ASIC.
  7. ASIC has published guidance on DDO obligations at RG 274 Product design and distribution obligations | ASIC.
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