6th March 2008
UCCC Comparison Rates Update
In 2002, amendments were made to the Uniform Consumer Credit Code ("UCCC") to require credit providers and finance brokers,
from 1 July 2003, to provide compulsory comparison rate information to prospective borrowers for all loans regulated by the UCCC.
The compulsory comparison rate is a method of summarising the total cost of a loan, including interest and all defined fees and
charges, to a single percentage rate. It was claimed that this would allow for much easier comparison of the overall cost of loan
products by consumers, and would assist consumers compare the true cost of different loans, allowing for the different interest
rates, fees and charges of different credit providers.
Compulsory comparison rate information must be supplied in relation to all fixed term consumer credit products. Continuing credit
contracts are therefore excluded e.g. lines of credit facilities.
The comparison rates are calculated by adding fixed non-government fees and charges relating to the credit being offered to the
interest that will be charged. In other words, it reflects the total cost of credit, but excluding any activity-based fees that may
or may not be charged depending on circumstances e.g. early repayment fees and redraw fees.
Comparison rates are calculated in accordance with a standard formula, which takes into account:
- the amount of the loan;
- the term of the loan;
- the repayment frequency;
- the interest rate; and
- the fees and charges connected with the loan, except for:
- government charges, such as stamp duty or mortgage registration fees;
- activity-based fees and charges which may or may not be charged, because they depend on some event which may or may not
occur (for example, fees for early repayment or redraw fees); and
- fees and charges which are not ascertainable at the time the comparison rate is provided.
The exact formula for the calculation of the comparison rate is set out in Regulation 33F of the UCCC Regulations.
Comparison rate information must be supplied or be available in 4 situations:
- in the offices of the credit provider;
- on any internet site that advertises credit products, where an annual percentage rate is shown;
- when any application form is sent or given to the prospective borrower; and
- in any advertisement that contains an annual percentage rate, including print, TV, radio and internet.
Current Sunset Clause
The Queensland Parliament passed the amendment to the Code to extend comparison rates for a further two years. The intention of the review was to provide a basis for Ministerial Council of Consumer Affairs ("MCCA") to make a decision as to the continuation, or otherwise, prior to their initial sunset on 1 July 2006. As the review process was slower than expected, MCCA agreed to extend the sunset date to 1 July 2007 to accommodate the finalisation of the review.
The review involved the preparation of a Consultation Regulatory Impact Statement, followed by a Final Impact Statement, overseen by the Federal Office of Best Practice Regulation.
The independent review is still being considered. Accordingly, MCCA has approved the extension of Part 9A for up to a further two years to 1 July 2009. The extension is for a maximum of two years with provision being made for MCCA to deal with the sunset date any time after July 2007.
Read more on Comparison Rates here
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Head of Lending
Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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