From 1 October 2012, lenders who provide a Key Fact Sheet (KFS) for standard home loans must comply with the amended KFS regulations released on 18 June 2012.

KFSs are essentially a personalised comparison rate statement, setting out the specific cost for the specific loan a borrower requires. The intention is to allow consumers to shop between lenders.

As a result of the amendments contained in the National Consumer Credit Protection Amendment Regulation 2012 (No.1) the changes listed below must be made to KFSs by 1 October 2012. Until then, existing forms or forms amended as shown below may be used.

A mark up showing these changes can be accessed [ here] and a clean version can be accessed [ here].

There are also changes to the KFSs for credit cards which also must be made by 1 October 2012.

List of changes to home loan KFSs

  1. Amend the text in the 'Description of this home loan' table to change the 'interest rate' description.
  2. Amend the 'Estimated cost of this home loan' table by shading the second line ('This means you will pay back') in light blue and continuing to use black font. However, if a lender is not able to print KFSs using a colour printer, the document can be black and white.
  3. Amend the text box under the above table by making a reference to note '16A', appearing after 'valuation fees'.
  4. Amend the text in 'What happens at the end of the fixed rate period?' to provide two alternatives.
    1. Alternative 1: (the existing text) is used when there is an option to enter into a new fixed rate at the expiry of the initial fixed rate term. If not exercised the rate converts to variable.
    2. Alternative 2: (new text) is used when the rate automatically converts to a variable rate upon expiry of the initial fixed rate term.
  1. Amend the note at the end of 'What happens if interest rates includes?' from '18' to '19'.
  2. Insert a new note at 16A. The reference to 'valuation fees' (see change 3 above) can be removed where (1) the credit provider charges a valuation fee in all cases and (2) the fee is included in the amount for establishment fees listed in the KFS.
  3. Amend the text at note number 18. Paragraph (b) of this new text is unclear, but we think the intention of 18(b) is to allow omission of the section if the loan is a variable rate loan for the entire term.

Who has to provide KFSs?

Under the current law, only licensees who are lenders are obliged to provide KFSs. So, the law does not extend to servicers of exempt lenders, mortgage managers, or brokers. However, mortgage managers funded by a licensee (ie the lender of record is a licensee) may be required to produce KFSs for their funder in respect of the manager's products. The amendment does not change who is required to provide a KFS.

If a KFS is produced when not required by law (eg because a loan is not regulated or because the lender is not a licensee), the KFS must be amended to omit any reference to the production of the KFS being an Australian Government requirement.

For more information, please contact:

Sydney

Jon Denovan

P +61 2 9931 4927

e jdenovan@nsw.gadens.com.au

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.