45ECosts of borrowing must not exceed loan advance

1. The maximum costs of borrowing that are recoverable under a high-cost consumer credit contract and all related consumer credit contracts is an amount equal to the first advance.

2. A consumer credit contract must not provide for an amount to be recoverable that will result in that maximum amount being exceeded or that is capable of resulting in that maximum amount being exceeded.

3. No person may be a creditor under a contract that contravenes this section or accept a payment, or debit a fee or charge to the debtor’s account, that will result in that maximum amount being exceeded.

4. Section 48 also applies if a payment results in that maximum amount being exceeded.

5. In this section,—

   costs of borrowing, in relation to a consumer credit contract, means any or all of the following costs:

   1. a credit fee:
   2. a default fee:
   3. interest charges:
   4. charges for an optional service:
   5. fees or charges passed on by the creditor (other than default fees)

   fees or charges passed on by the creditor means fees and charges payable as referred to in section 45 regardless of whether the other person, body, or agency referred to in that section is an associated person of the creditor

   first advance means,—

   1. in respect of a high-cost consumer credit contract that has no related consumer credit contracts, the first advance (excluding any credit fees, charges for optional services, and fees or charges passed on by the creditor) under that high-cost consumer credit contract:
   2. in respect of a high-cost consumer credit contract that has 1 or more related consumer credit contracts, the first advance (excluding any credit fees, charges for optional services, and fees or charges passed on by the creditor) under the earliest high-cost consumer credit contract in the series

   related consumer credit contract, in respect of a high-cost consumer credit contract (contract A), means all other consumer credit contracts where—and includes a contract declared by regulations to be a type of contract that is a related consumer credit contract.

   1. a debtor is the same person as a debtor under contract A; and
   2. a creditor is the same person as, or an associated person of, a creditor under contract A; and
   3. the consumer credit contracts (including contract A) are entered into during a period—
      1. that begins with a high-cost consumer credit contract being entered into; and
      2. that ends with the expiry of 15 continuous days during which there was no unpaid balance on any of the consumer credit contracts entered into since the start of the period,—

   Example

   On 2 February, Ms D borrows $100 from a creditor (C) under a consumer credit contract that has an annual interest rate of 500% pa and a term of 6 weeks. The maximum costs of borrowing that Ms D will have to pay under that contract and any contract that replaces that contract is $100.

   On 2 March, Ms D has paid $92, consisting of $32 in interest and fees and $60 of the principal. Her unpaid balance is $40.

   Ms D refinances by entering into a further high-cost consumer credit contract with C to repay the remaining $40, and will receive a further advance of $50, ie, $90 in total. The first advance of $100 caps the maximum costs of borrowing. The maximum costs of borrowing that Ms D will have to pay under the new contract is $100 - $32 = $68 (ie, the amount in interest and fees charged on the first contract ($32) is subtracted from the first advance of $100 to give a remaining cap of $68).

   C is not entitled to receive more than $68. If Ms D does pay $120 (instead of $68), C must refund $52 to Ms D, or give Ms D a credit for $52 against other money owing (see section 48).

   In addition, C is liable in other ways, for example, to a pecuniary penalty, statutory damages, and other court orders.