Part 3-2D and the Code
A product with rules of its own
Where they are regulated under the consumer credit regime, reverse mortgages are covered by the responsible lending obligations, alongside home loans, personal loans and other credit products. ASIC’s guide to those obligations says extra requirements, on top of the general ones, have been made for a few kinds of credit, reverse mortgages among them, to deal with particular risks those products carry for consumers.
Several sections of the National Credit Code deal with reverse mortgage contracts alone: what the contract may not include, who else may live in the home, and what happens when the debt has grown past the home’s adjusted market value. The National Consumer Credit Protection Act has a Part of its own, Part 3-2D, which in its own words “has rules that apply to licensees that provide credit services or are credit providers”.
Register of sections
The lender’s sections, in one register
| Section | Binds | Rule | In plain words |
|---|---|---|---|
| What the contract must not include | |||
| Code s 18A(1) | Credit provider | Must not | enter into a reverse mortgage contract that gives a basis for beginning enforcement proceedings for an event the section lists |
| Code s 18A(2) | Credit provider | Must not | agree to change a contract, or change it alone, so that it gives such a basis |
| The statement, the name and legal advice | |||
| Act s 133DB | Licensee | Must | before its assessment, give projections and a printed copy, tell the borrower in person what the regulations prescribe, and give an information statement |
| Act s 133DC | Licensee with a website about these contracts | Must | make a reverse mortgage information statement available through the website |
| Act s 133DD | Licensee | Must | give a statement on a request made other than through its website, where the section’s conditions are met |
| Act s 133DE | Licensee | Must not | use terms like “reverse mortgage” inaccurately in representations about credit contracts and mortgages |
| Code s 18C | The regulations | May | regulate or prohibit a credit provider entering into a reverse mortgage where the borrower has not obtained legal advice |
| Other people living in the home | |||
| Code s 17(15A) | The contract document | Must contain | where the contract is to make provision for someone other than the borrower to occupy the home, provisions on nominating such a person and on their rights |
| Code s 18B | Credit provider, and any other person providing a credit service on the contract | Must tell in writing | where the contract has no tenancy protection provision, that it has none |
| Code s 67A | Any change to the contract | Void | so far as it removes those provisions or limits nominations or a nominee’s rights |
| Code s 185A | Credit provider | Must keep | a record of nominations and their revocations, in accordance with the regulations |
| The default notice | |||
| Code s 88 | Credit provider | Must not begin | enforcement proceedings unless the borrower is in default, has had a default notice allowing at least 30 days to remedy it, and has not |
| Code s 88 | Credit provider | Must not begin | enforcement unless, within the notice period, it has spoken by telephone or in person to one of the persons the section lists, confirming the notice arrived and explaining the consequences, or made reasonable efforts to |
| Code s 88(7A) | A notice about a barred event | Not a default notice | so far as it relates to an event section 18A bars, for the purposes of the provisions the subsection lists |
| Code s 93A | Credit provider | Must not begin | proceedings to recover the excess where section 86E applies, unless its notice specifies what the section requires and any known lawyer has a copy |
| When the lender sells | |||
| Code s 86B | The contract and the mortgage | Discharged | where the debt is more than the adjusted market value and the lender receives at least that value, as a payment it accepts from the borrower under the contract or as proceeds of its own sale of the home |
| Code s 86C | Credit provider | Must pay | the borrower any amount received over the adjusted market value for the home |
| Code s 86D | Credit provider | Must not | require, or accept, a further payment under the contract |
| Code s 86E | Sections 86B to 86D | Do not apply | if the borrower engaged in fraud or misrepresentation relating to the reverse mortgage, or in circumstances the regulations prescribe |
Guides
Five guides
- s 18A
What the contract must not include
The events a contract may not use as a basis for enforcement.
- ss 133DB–133DE, 18C
The statement, the name and legal advice
The reverse mortgage information statement, who may use the name, and what the Code provides about legal advice.
- ss 17(15A), 18B, 67A, 185A
Other people living in the home
Tenancy protection, the written notice when a contract has none, and void changes.
- ss 88, 93A
The default notice
What must come before enforcement, and what the notice must say.
- ss 86A–86E
When the lender sells
Discharge, no further payments, any excess, and the exceptions.
Checking
Where the official word lives
Moneysmart, ASIC’s website for consumers, has a page on reverse mortgages and home equity release. The National Credit Code is Schedule 1 to the National Consumer Credit Protection Act 2009, and both are on the Federal Register of Legislation.
Moneysmart names the Australian Financial Complaints Authority (AFCA) as an independent scheme for disputes with financial firms.
Reverse Mortgage Lenders is a guide published by Dotto, from the sources listed at the foot of each page.