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Law Current to: August 19, 2025
Understanding regulated credit
Overview of different types of debt
Consumers in Australia are offered a wide range of legal protections. Which protections apply and which options are available will depend on the type of transaction that is involved. It is therefore important to understand the debt that is owed by your client. The options for managing the debt arrangements vary depending on the type of debt involved.
Debts owed by individuals can be broadly divided into one of three broad categories summarised in this diagram.
Regulated credit and consumer leases
Consumer credit arrangements and consumer leases falling within the operation of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) are regulated by very prescriptive rules, including rules in relation to the formation, variation and enforcement of regulated contracts.
Providers of regulated credit and consumer leases are also subject to rules relating to responsible lending, participation in the external dispute resolution administered by the Australian Financial Complaints Authority (AFCA) and specific obligations about how to respond to circumstances when borrowers indicate that they are facing circumstances of financial hardship.
Some types of regulated debt are subject to specific additional regulatory requirements. The protections in the credit laws are in addition to the basic consumer protections contained in the ASIC Act or the Australian Consumer Law.
Is the client’s debt a credit arrangement?
Only an arrangement that is an agreed deferral of payment can be ‘credit’. Overdue rent or bills for goods and services are not regulated (unless there has been a specific agreement to defer payment of those amounts).
For example, if a client has an obligation to pay an electricity bill each month and is overdue, then this overdue amount is not ‘credit’ and therefore is not regulated credit.
Is the client’s debt the type of debt that is regulated by the NCCP Act?
Not all credit is regulated. There is a four-part test to determine whether credit is regulated (section 5 of the National Credit Code (NCC), which is attached as Schedule 1 to the NCCP Act). Each limb of the test must be satisfied for the credit arrangement to get the protections of consumer credit law.
Regulated credit: four-part test
| Limb | Comments |
|---|---|
| Individual or strata corporation. | Only credit provided to a natural person or strata corporation will be regulated. A loan made to a company is not regulated. |
| Consumer or residential investment. | Credit that is provided wholly or predominantly for domestic, personal or household purposes will be regulated. In addition, credit provided for purchasing, renovating or improving residential property for investment purposes (or for refinancing a loan made for those purposes) will be regulated. |
| A fee or charge is or may be made for the provision of credit. | To satisfy this limb, there would need to be a fee or charge for the provision of the credit. This could be expressed as a one off or on-going fee or charge such as a monthly credit fee or account fee. Alternatively, it may take the form of interest that is charged under the agreement. Default interest for late payment would not necessarily meet the requirements of this limb. However, please note that this test is not relevant to ‘buy now pay later’ arrangements. |
| Credit provided in course of business. | Credit is only regulated if the credit is provided: • the course of a business of providing credit; or • as part of or incidentally to any other business of the credit provider. The test is quite broad. For example, a deferred payment arrangement with a car sales business under which the buyer pays interest could be caught even if credit is not the main business of the car sales. This is because the arrangement is provided as part of or incidentally to the car sales business. Arrangements between family members or between friends would typically not be regulated because they are not provided by the credit provider in relation to a business. |
Where all four limbs are satisfied the loan will be regulated unless an exemption applies. If you need to consider these tests in more detail, then ASIC Guide 203: Do I need a credit licence contains more information about the credit and leasing arrangements which are regulated.
The effect of a business purpose declaration
Sometimes lenders ask borrowers to sign a “business purpose declaration” before entering into a credit agreement declaring that the credit is to be provided wholly or predominantly for business purposes or investment purposes other than investment in residential property.
The business purpose declaration must be set out in the form contained in regulation 68 of the NCCP Regulations and operates to exclude the credit from the consumer credit law protections. This kind of declaration is not conclusive but reverses the onus of proof. For example, if the lender knew, or had reason to believe, that the credit was in fact wholly or predominantly for personal purposes, then the declaration cannot be relied on.
Small business lending is less regulated
Consumer credit laws, including responsible lending obligations, do not generally apply to business and commercial lending. However, they apply to mixed-purpose loans (for example, where a small business or sole trader applies for a single loan that may have both personal and commercial benefits) if the ‘predominant’ purpose of the loan is not business-related.
Until 3 October 2026, an exemption allows certain mixed-purpose small businesses to access credit without being assessed against the responsible lending obligations, so long as there is a genuine business purpose. For the purposes of the exemption, a small business is one with fewer than 100 employees or revenue of $5 million or less in the previous financial year.
The relief is limited to responsible lending obligations only. The other credit laws will still apply.
Specific types of regulated credit
The credit regulations cover a number of different credit products. There are special rules for some types of credit arrangements. These may provide different options for a client to challenge a debt if the lender has not complied with the rules. The main product types likely to be relevant to our clients in the table below.
Types of regulated credit
| Small Amount Credit Contracts (Payday Loans) | Medium Amount Credit Contracts | Continuing Credit Contracts (Credit Cards) |
|---|---|---|
| Up to $2,000. Not a continuing credit contract. Unsecured. 16 days to 12 months. Lender is not an ADI. | Between $2001 and $5,000. Not a continuing credit contract. Payable over of a period of less than 12 months. Lender is not an ADI. | Credit is obtained by use of a credit card. Use includes obtaining cash, goods or services. |
| Additional specific rules relating to small amount credit contracts including caps on the fees that the credit provider may charge. | Additional specific rules relating to medium amount credit contracts including caps on the fees that the credit provider may charge. | Additional specific rules about various matters are set out in National Consumer Credit Protection Act 2009 including disclosure, conduct and prohibitions on fees and charges. Specific rules about responsible lending approach also apply. |
There are also special rules for ‘buy now pay later’ contracts.
For the purposes of the above, a continuing credit contract means a credit contract under which:
- multiple advances of credit are contemplated; and
- the amount of available credit ordinarily increases as the amount of credit is reduced. 1
Credit cards contracts are a common form of continuing credit contract.
ASIC has published guidance to consumers about these forms of credit and provides warnings about pay day loans on its MoneySmart website. If your client has a pay day loan or is considering such a loan, you may want to talk them through the ASIC commentary.
Additional considerations may also apply for other types of credit including home mortgages, reverse mortgages and equity release products which are not considered in this guide. There are also guides and calculators for ‘reverse mortgages’ and similar loan products on the MoneySmart website at Reverse mortgage and home equity release for clients considering these types of products.
Is the arrangement a regulated consumer lease?
A consumer lease is a contract for the hire of goods (such as a TV, laptop or fridge) for a set time and typically involves regular rental payments.2
To be a consumer lease, the consumer must not have a right or obligation to purchase. Consumer leases are often expensive and could cost more over the term of the loan than say purchasing the goods with a credit card.
Elements of consumer lease test
The elements of the test are:
- the purpose for renting is mainly for personal, domestic or household purposes;
- the charge for the lease is more than the cash price of the goods; and
- the lessor is usually in the business of renting goods, or the rental of the goods is incidental to another business. 1
The Credit law does not apply to leases under four months or leases for an indefinite period. 3 For example, a short-term car hire agreement will not be a consumer lease.
Where a lease is not regulated under consumer credit law the client may still have rights under general consumer protections, including under the Australian Consumer Law.
Some types of credit and consumer leases that might otherwise satisfy these tests are expressly excluded (either wholly or partially) from the application of the consumer credit laws.
Types of credit & consumer leases – expressly excluded
Some of these include:
- short-term credit – credit that is provided for less than 62 days where credit fees and charges do not exceed 5% of the amount of credit and the interest charges do not exceed 24% per year;
- credit without express prior agreement – examples include when a cheque account is overdrawn but there is no express overdraft facility, or when a savings account falls into debit;
- credit under a continuing credit contract for which only an account charge is payable;
credit under bill facilities; - insurance premiums by instalments;
- credit provided by pawnbrokers;
- employee loans.
A more complete list of exemptions is contained in Appendix 2 of ASIC RG203.
The application of some of these modifications has been modified in relation to ‘buy now pay later contracts’.
Footnotes
- NCC s 170
