Contemporary issue: credit and consumers: HSC Legal Studies

What this dot point is asking

Credit is one of the four contemporary issues that must be studied in the Consumers option of the Legal Studies Stage 6 Syllabus (2009), alongside product certification, marketing innovations and technology. You must identify and investigate the issue and evaluate the effectiveness of legal and non-legal responses to it.

Credit was examined directly in the 2024 HSC, where Question 25(b) asked how effectively legal responses address credit and technology. NESA's feedback praised responses that identified buy now pay later as a credit issue, and asked students to state clearly what the issues for consumers are before judging the responses. So structure every credit answer around the problems (over-commitment, cost, predatory lending, hardship, new products) and then the responses.

The answer

Identifying the issue: why credit is a consumer problem

Credit is any arrangement that lets a consumer defer payment for goods, services or money: credit cards, personal and car loans, home loans, payday loans, consumer leases and buy now pay later. It has real benefits (buying a home, smoothing income, meeting emergencies), but it creates specific risks:

• Over-commitment. Consumers can borrow more than they can repay, especially when several products are combined, and hardship follows job loss, illness or rising interest rates.
• Cost and complexity. Interest, fees and default charges are hard to compare, and short-term or fringe credit can be extremely expensive.
• Vulnerable consumers. Payday lenders and consumer lease providers have targeted people on low incomes or Centrelink payments, who have fewer alternatives.
• Irresponsible lending and selling. Lenders and brokers have incentives to lend more; the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (final report February 2019) documented misconduct across the financial sector.
• New products. Buy now pay later grew rapidly outside the credit law by charging no interest, until it was brought within the law in 2025.
• Cost of living. AFCA reported that complaints remained "too high" in 2024-25 as households faced cost-of-living pressure, and its preliminary figures for 2025-26 show a record 119,949 complaints.

The legal framework: the National Consumer Credit Protection Act 2009 (Cth)

Before 2010, consumer credit was regulated by the states through a Uniform Consumer Credit Code. The National Consumer Credit Protection Act 2009 (Cth) created a national regime administered by ASIC.

Licensing. A person must not engage in credit activity without an Australian credit licence (s 29). Licensees must act efficiently, honestly and fairly, have dispute resolution procedures and be members of AFCA. Licensing lets ASIC remove bad actors from the industry.

Responsible lending (Chapter 3). Before entering a credit contract or increasing a limit, a lender or broker must:

1. make reasonable inquiries about the consumer's requirements and objectives and financial situation (s 130);
2. take reasonable steps to verify the consumer's financial situation; and
3. make an assessment of whether the contract is unsuitable (s 128 and s 129).

A contract is unsuitable if the consumer will be unable to comply with their obligations, or could only comply with substantial hardship, or it will not meet their requirements or objectives (s 131). The lender must not enter an unsuitable contract.

The National Credit Code (Schedule 1) applies to credit for personal, domestic or household purposes and residential investment property. It requires pre-contractual disclosure of the interest rate, fees and repayments; caps the annual cost rate of most credit at 48 per cent (s 32A); lets a borrower in difficulty give a hardship notice asking for the contract to be varied (s 72); and allows a court to reopen unjust transactions (s 76).

Credit cards. Reforms in 2018 banned unsolicited offers to increase credit limits and required lenders to assess whether a consumer could repay the whole limit within a reasonable period, not just make minimum repayments.

Credit reporting. Part IIIA of the Privacy Act 1988 (Cth) regulates credit reporting bodies and lets consumers access and correct their credit reports.

Responsible lending in court: ASIC v Westpac (2020)

ASIC alleged that Westpac breached responsible lending obligations by using an automated system that assessed home loan applications using a benchmark (the Household Expenditure Measure) rather than the living expenses borrowers declared. At first instance, Justice Perram dismissed the case, famously observing that a borrower might eat "wagyu beef every night washed down with the finest shiraz" but could cut back to cheaper food to meet repayments, so declared expenses did not necessarily show what a borrower could afford. On 26 June 2020 the Full Federal Court, by 2 to 1 (Gleeson and Lee JJ; Middleton J dissenting), dismissed ASIC's appeal, holding that the Act does not prescribe how a lender must use declared expenses in its assessment.

Significance. The case showed that the obligations are principles-based: they set what a lender must assess, not how. Lenders gained flexibility; consumer advocates argued that ASIC lost an important tool.

The attempt to repeal. In 2020 the government introduced the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 to remove responsible lending obligations for most credit (keeping them for payday loans and consumer leases), arguing they slowed lending during the pandemic. Consumer groups, financial counsellors and legal centres campaigned against it, citing the Hayne Royal Commission's recommendation not to weaken the law. The Bill passed the House of Representatives but lacked Senate crossbench support and never became law. This is a strong example of non-legal advocacy shaping law reform.

Payday lending and consumer leases

Small amount credit contracts (SACCs), often called payday loans, are loans of up to $2,000 for between 16 days and one year. Because they are used by financially stressed consumers, the law:

• caps fees at a maximum establishment fee of 20 per cent of the amount borrowed and a monthly fee of 4 per cent;
• since 12 June 2023, generally limits total SACC repayments to 10 per cent of the consumer's net income (the protected earnings amount), previously applied only to consumers who received at least half their income from Centrelink;
• requires lenders to follow design and distribution obligations and anti-avoidance rules.

Enforcement. ASIC obtained $16 million in penalties against Ferratum Australia in 2024 for charging prohibited fees, overcharging SACC customers on early payouts and having deficient systems; in one case a customer was overcharged by more than 30 per cent of their loan. In March 2025 ASIC's report REP 805 warned that some payday lenders may be breaching the law, including through business models that may be attempting to avoid the SACC protections, and noted a shift from small to medium amount contracts with rising missed repayments.

Buy now pay later

Buy now pay later (BNPL) lets consumers split a purchase into instalments, usually without interest. Because providers charged no interest and relied on late fees and merchant fees, most BNPL fell outside the National Credit Code, so providers did not need a credit licence or follow responsible lending. Concerns grew about young and low-income consumers holding multiple BNPL accounts, missed payments and late fees, and the pressure BNPL placed on other bills.

The legal response. The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 received assent on 10 December 2024 and extended the National Credit Code to BNPL contracts. From 10 June 2025:

• BNPL providers must hold an Australian credit licence (with transitional arrangements for those whose applications were accepted for lodgement by that date);
• they must be members of AFCA and meet hardship, disclosure and dispute resolution obligations;
• where a contract is a low cost credit contract, the provider can elect to meet modified responsible lending obligations that are scaled to the lower risk, instead of the full obligations. ASIC released guidance on these obligations in 2025.

Evaluation. The reform closed a significant gap and gives BNPL users the same basic protections as other borrowers. But it came several years after BNPL became mainstream, and the modified obligations are lighter than full responsible lending. Its effectiveness depends on ASIC's supervision and on how providers apply the scalable checks.

Non-legal responses

• Financial counsellors give free, confidential help to people in debt, negotiate hardship arrangements and represent them in AFCA disputes; they can be reached through the National Debt Helpline, and their peak body is Financial Counselling Australia.
• Consumer legal centres such as the Financial Rights Legal Centre (NSW) and the Consumer Action Law Centre (Victoria) give legal advice, run test cases and campaign; they led the opposition to the 2020 repeal Bill.
• CHOICE publishes comparisons and campaigns on credit products, including BNPL.
• Industry codes, such as the Banking Code of Practice and the BNPL industry code developed before regulation, set standards but are weaker than law.
• The media reported on payday lending and BNPL debt, and on the Hayne Royal Commission's findings, building public support for reform.
• Education: financial literacy programs and ASIC's Moneysmart website help consumers compare credit and understand costs.

Evaluating the effectiveness of legal and non-legal responses

Judgement. Legal responses to credit are effective to a large extent for mainstream lending: a licensed lender must assess suitability, disclose costs and deal with hardship, and consumers have free access to AFCA. They are less effective at the fringes of the market, where payday lenders and new products such as BNPL operated for years with little regulation and where some lenders still structure products to avoid protections. The pattern is reactive law reform, often driven by non-legal responses: the Royal Commission, financial counsellors, legal centres and the media. The 2025 BNPL reforms and the 2023 SACC changes show the law catching up, but their effectiveness depends on ASIC's enforcement.

In one sentence

The National Consumer Credit Protection Act 2009 (Cth) protects borrowers through licensing, responsible lending, cost caps, hardship rights and free dispute resolution, and it now covers buy now pay later, but the law has repeatedly lagged behind new credit products and depends on ASIC enforcement and on financial counsellors and advocates to reach the consumers who need it most.

Try this

Q1. Identify TWO issues for consumers concerning credit. (2 marks)

• What the marker wants. Two clear issues, such as over-commitment and unregulated BNPL, or high-cost payday lending.

Q2. Explain the significance of ASIC v Westpac (2020) for responsible lending. (5 marks)

• What the marker wants. The facts, the outcome at first instance and on appeal, and what it shows about principles-based regulation.

Q3. Assess the effectiveness of the 2025 buy now pay later reforms. (8 marks)

• What the marker wants. The problem, the 2024 Act and its 10 June 2025 obligations, low cost credit contracts, strengths and limits, and a judgement.