ANU LEGAL WORKSHOP
GRADUATE DIPLOMA OF LEGAL PRACTICE
CONSUMER LAW PRACTICE
LEGW8135 Autumn 2012
ASSESSMENT 2
INSTRUCTIONS TO STUDENTS
(All stated times Australian Eastern Time ‘AET’)
1. The Assessment 2 Written Advice is due by 23:00 (11:00PM), AET Monday
14 May 2012 and uploaded into the A2 submission area on Consumer
Law Practice Wattle site.
2. The facts on the following pages relate to Assessment 2.
3. The Assessment 2 Written Advice word limit is 1,100 words. The word limit
includes all footnotes containing legislative provisions, and case references.
The word limit does not include the memo header.
4. Assessment 2 has a weighting of 30% for the course assessment.
MARKING CRITERIA
Criteria Factors assessed
Knowledge of facts
Knowledge of the law
Did the student demonstrate a good understanding of
the facts?
Did the student identify the “material facts” for the
purposes of preparing the advice?
Did the student demonstrate they had researched and
understood the relevant law in the context of the
facts?
Did the student identify the relevant elements of the
relevant legislation?
Did the student identify any civil and/ or criminal
penalties provided by the legislation?
Did the student identify which legislative provision
supports the issuing of an infringement notice?
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Application of the law to
the facts
Drafting
Formatting/presentation
Did the student particularise the specific elements of
how the legislation applies and any potential
breaches?
Did the student advise on any inferences, by
identifying the need for further investigation, before
applying the law?
Did the student provide sufficient analysis of the
facts/law?
Did the student set out the advice in a logical fashion?
Is the advice drafted in a clear and concise style?
Was the advice set out in a neat and presentable
manner that was easy to read?
Was there a logical flow of principles in the memo?
Your role
For the purpose of the Assessment 2 scenario you are a junior
lawyer employed by the Australian Securities and Investments
Commission (ASIC). Your Supervisor, Charlotte Lucas, hands
you a briefing memo requesting that you prepare a written
memo of advice:
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BRIEFING MEMO
Australian Securities and Investments Commission (‘ASIC’)
From: Charlotte Lucas, Senior Lawyer (Compliance)
Date: 30 April 2012
Subject: Investigation into CashWeb Financial Services Pty
Limited t/a CashWeb Finance
Preliminary
1.1 ASIC has received a number of complaints from consumers of financial
services, which include borrowers and their guarantors, regarding the
activities of a credit provider called CashWeb Financial Services Pty
Limited ACN 01 018 225 577, trading as CashWeb Finance (“CWF”),
which carries on business at Level 6/23 High Street, YOUR
STATE/TERRITORY, in YOUR STATE/TERRITORY. CWF has an
Australian credit licence and provides credit in the form of finance to the
public.
1.2 CWF’s financial services are conducted over the internet at the site
www.cashweb.com.au with consumers making applications for credit online.
Investigation of CWF Finance
1.3 The investigation of CWF took place after ASIC received a number of
complaints from consumers of financial services. ASIC has scrutinized the
lending activities of CWF and is of the opinion that CWF has engaged in
some practices which may contravene elements of the relevant consumer
credit legislation.
1.4 It was established, during the ASIC investigation, that CWF targeted
consumers who were prone to financial vulnerability, by purchasing
advertising space, for example, on poker websites, websites that provide
on-line form guide information about race horses and second hand car
sales web sites.
1.5 The CWF website set out information about CWF and how CWF could
provide finance for periods ranging from 6 months to 2 years for amounts
in between $1K and $10K and that approval for a loan could be provided
immediately upon the completion of an on-line application form.
1.6 The apparent ease of making an on-line application, for credit, enticed a
number of consumers to complete an on-line application for finance. The
loan application page on the web requested personal details, such as the
applicant’s, full name, date of birth, address, telephone and email contact
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details, employer details, and weekly/fortnightly/monthly income, but did
not require information about matters such as the number of dependents
who are reliant on the consumer, home loan repayments, personal loans
and/or credit card debt/s and any other financial commitments. The
consumer was then invited to submit the application, electronically, by
clicking on a ‘submit loan application’ button.
1.7 The next step in the approval process involved the appearance of a new
screen on the CWF website, advising that the consumer was given
approval for the amount being sought, which was conditional upon the
consumer putting forward a suitable guarantor and requested the
consumer to enter and submit the name/s of a proposed guarantor/s on
the screen. The approval advice would also instruct the consumer that
the approval was subject to the loan terms and conditions contained
under the ‘loan terms and conditions link’ on CWF’s website.
1.8 The usual procedure, after the granting of the approval, was for CWF to
email consumers the credit contract and guarantee documentation, on the
same day, requesting that the consumer, print off the documentation, sign
the credit contract and arrange for a guarantor to sign the guarantee,
following which the consumer was to send the signed credit contract and
signed guarantee documentation, to CWF, by registered post.
1.9 Within 24 hours of CWF sending out the initial email attaching the credit
contract and guarantee documentation, CWF sent email and text
messages to the consumer as a follow up and if the credit contract and
guarantee documentation were not returned with 72 hours, then a follow
up phone call was placed by a CWF loan consultant enquiring about when
CWF could expect the consumer to have the credit contract and
guarantee documentation signed and returned to CWF.
1.10 The consumer usually received the personal loan funds, from CWF, by
way of direct deposit into a nominated bank account, within forty eight
hours after the signed credit contract and the signed guarantee were
returned by the consumer to CWF.
Credit Contract and supporting documents
1.11 On an inspection of the credit contracts provided by dissatisfied
consumers, it is apparent that the CWF credit contract, loan periods, were
always within the range of 6 months to 24 months at a fixed interest rate
of 22.95%, per annum. Repayments were paid monthly with the balance
of principal and final interest payment due at the expiration of the loan
period.
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1.12 There was no reference in the CWF credit contract about how the interest
charges were determined by CWF or the total amount of repayments that
consumers were required to make under each credit contract.
1.13 A frequent complaint, by consumers, in default under a credit contract with
CWF, was that debt recovery agents, authorised by CWF, would often
attend consumers’ places of work making oral demands for re-payments,
without providing any other information.
Individuals providing Guarantees
1.14 There were a number of complaints, received by ASIC from individuals,
who guaranteed loans to consumers through CWF. The guarantors were
mainly concerned about only receiving the guarantee document for
signature and not sighting any of the loan documentation. Guarantors
were provided with a copy of the credit contract and a copy of the
guarantee by CWF within 14 days of signing the guarantee documentation.
1.15 The guarantors advise that CWF did not inform them about their rights
and obligations, prior to signing the guarantee, particularly, the risk of
losing their home and/ or personal property. All the guarantors believe
they would have refused to act as guarantors if they were given
information, about the possible, adverse, consequences, before signing.
1.16 ASIC also received complaints, from guarantors, about cases where CWF
offered a consumer additional finance which was accepted by the
consumer, but where CWF did not inform the relevant guarantor about the
offer and acceptance of additional finance by the consumer.
1.17 Individual guarantors also complained about waiting for up to two months,
for CWF to provide information about the amount owing on a consumer’s
account, after the guarantors had telephoned CWF’s contact number and
requested such information.
Advice required
Can you please prepare a written advice, for me, up to 1,100 words, based upon the
information contained in this memo, concerning whether:
A. CWF is subject to and has breached any provisions of the National Consumer
Credit Protection Act 2009 (Cth), the National Consumer Credit Code, and the
National Consumer Credit Protection Regulations 2010 (Cth);
B. Any applicable penalties;
C. Whether it is appropriate for the Commission to issue an Infringement Notice
against CWF and the legislative provisions which support such a course of
action.
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Please ensure to cite the relevant legislative provisions, in your advice, for points A,
B and C as footnotes.
I require the written advice by 23:00 (11:00PM), AET on Monday 14 May 2012.
Charlotte Lucas
Senior Lawyer (Compliance)
End of instructions
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SOLUTION
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Our ref
Your ref
DRAFT 25 May 2012
Ms. Consumer
High Street
Australia
Dear Ms. Consumer,
Investigation into CashWeb Financial Services Pty Limited t/a CashWeb Finance.
Thank you for your letter of 30 April 2012 to Mr. Charlotte Lucas, in which you requested a legal advice on the investigation into CashWeb Finance Services Pty Limited (CWF).
Your Questions, our answers along with the reasons for the answers have been stated below.
QUESTION AND ANSWERS
Q1 Whether CFW is subject to or has breached any provisions of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act), The National Consumer Credit Code (NCCC) and the National Consumer Credit Protection Regulations 2010 (Cth) (NCCPR Act).
- CFW has breached the provisions of the NCCP Act[1], NCCC[2] and Part 7-2 regulations relating to the debtor obligation and the comparison rates NCCPR Act[3]. Detailed explanations of those provisions are given in the further part of the letter.
Q2 Any applicable penalties.
- Yes, CWF is liable to penalties as they have breached the provisions of Part 6 under the NCCP Act of 2009, under Part 6 of the act it is essential to disclose the facts of credit contract but as per the investigation it can be understood that CWF did not disclose the facts of the contract such as the interest calculation or the required details to the guarantor if there were any additional credit taken under their name.
Q3 Whether it is appropriate for the Commission to issue an Infringement Notice against CWF and the legislative provision which support such course of action.
- It is appropriate for the Commission to issue an Infringement Notice against CWF as per the legislative provisions stated under 331 regulations where they are liable to pay penalties to the commonwealth for breaching the provisions of the NCCP Act, 2009[4] and under regulation 39[5] forms 3[6] of the NCCPR Act, 2010.
REASONS FOR ANSWERS:
Background:
- As per the given investigation facts it can be noted that CWF is a licensed credit contractor and it targeted those consumers who were vulnerable in their financial dealings. It is for these consumers that this company provided online loans from $1K to 10K. It was also noted in the investigation on the complaints received by ASIC that these loans were provided to the consumers immediately after the completion of the online application form. The website of CWF contained different procedure for completing the online form and once the form was completed then they would be sending an e-mail to the debtor with the application and the guarantee form.
- The CWF never made any disclosure to the facts as to how it had calculated the interest rate and in the repayment process consumers have complained that the agents appear at the consumer place of work and demand for the re-payment orally.
- The individual guarantors complained that CWF did not inform them about their contract obligations nor did they inform them their rights prior signing the credit contract. In cases where CWF offered special credits to the consumers the relevant guarantors were not informed of the same.
The relevant provision of the Consumer acts state that CWF had breached the provision stated under the different acts. As stated earlier below is the detailed information of the different regulations and provisions that were breached by CWF.
- The relevant regulations and provisions used for our reference are Division 2, Regulation 92 of the NCCP Act, 2009 which states that the credit contract provider should provide all the relevant financial information to the ASIC and also that they disclose all the relevant information to the debtor and also the guarantor. These financial records should be kept in detail and should contain all the information relating to money received and paid by the creditor and also detail of the amount collected from the consumer.
- Sec 61(2) of the NCCC states that the guarantor has the complete rights to know all the relevant details such as the obligations and his rights to the guarantee they are giving but in the present case CWF did not provide the guarantor with all the required information and if he would have provided with all the information then guarantors claimed in the complaints that they would have not entered in to the contract nor given guarantee.
- Comparison rate stated under Part 7-2 NCCPR Act, 2010 Sec 71, shows the calculation of the interest rate to be followed by the credit provider and also this calculation helps even the debtor in knowing how the returns have been calculated but in the current scenario we find that the calculation of returns and the interest to be received by the debtor were not properly enclosed by CWF and under Sec 75, it is essential to disclose the additional information of the contract to the debtor but it was not done by CWF and instead it just sent in agents to the debtors to receive returns.
Applicable Penalties:
The credit assistance provider is jointly and severally liable to pay any compensation to the consumer under sec 178 of the NCCPR Act, 2010 as the consequence of the breach by the creditor.
On application made by the debtor or the guarantor, a maximum penalty is imposed by the court for the contravention of the key requirements. This amount excludes the interest charge payable from the date of contract it was made, but includes different monetary values extracted from CWF by calculating interest in a different procedure in way that the company is benefited. The court may impose higher penalty if the debtor or the guarantor has proved that they have suffered greater loss as per Part 6 of the NCCP Act, 2009.
Apart from applicable penalties the commission can also give infringement notice to the CWF Company such that they are warned against continuing the activities which would allegedly breach the provisions of the different consumer codes such that the interest of the consumer is not effected and also that the interest of the guarantee provider is not effected.
The relevant facts can be further supported with the Michael Paton v. Peter Gerald Hynes CIV 735 of 2011.
In our view, therefore, CWF has allegedly breached the provisions of the consumer act and is liable to the consumer and guarantor and also is liable to answer the ASIC as it did not abide by its rules. This advice has been read by the senior lawyer and they agree with the contents advised. Please contact me if you have any queries or require further information.
Yours sincerely
Junior Lawyer
Compliance
ASIC
REFERENCE:
- Ø National Consumer Credit Protection Act 2009, Act No. 134 of 2009 as amended
- National Consumer Credit Protection Regulations Act 2010, Select Legislative Instrument 2010 No. 44 as amended
- National Credit Code Legal Services Commission of South Australia; http://www.lawhandbook.sa.gov.au/ch08s04s01.php,
- Guarantees http://www.lawhandbook.sa.gov.au/ch08s04s01s07.php; Changing a credit contract , mortgage or guarantee http://www.lawhandbook.sa.gov.au/ch08s04s01s08.php
Unjust contract changes and charges http://www.lawhandbook.sa.gov.au/ch08s04s01s09.php
- Maisano v Car and Home Finance Pty Ltd [2005] VCAT 1755
- Custom Credit Corporation Ltd v Lupi [1992] 1 VR 99
- Australian Guarantee Corporation Ltd v McClelland (1993) ASC 56-230
- Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284.
[1] Division 2; Regulation 92 of NCCP Act: Information of financial records.
[2] Sec 61(2) of NCCC: Disclosure of facts to the guarantor of the additional facts of the credit contract.
[3] Part 7-2 NCCPR Act, Sec 71 – Comparison Rate; Sec 75 – Additional disclosures about credit contracts to be signed by the debtor
[4] Regulation 331 (The NCCP Act, 2009): Infringement Notice for Civil Penalties for committing civil offence; Infringement Notice for offences committed by breaching the contents of the contract.
[5] Regulation 39 (The NCCPR Act, 2010): When the infringement Notice can be given; alleged commission of offence against this act.
[6] Form 3 (The NCCPR Act, 2010): Infringement Notice
LG14
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