Credit Pricing Compliance for ACL Holders: Interest, Fees and the 48% Annual Cost Rate Cap

Introduction

Credit pricing compliance for Australian Credit Licence (ACL) holders involves more than the advertised interest rate. The National Consumer Credit Protection Act 2009 (Cth) Schedule 1 (‘National Credit Code‘) regulates interest calculations, certain credit fees and charges, and the cost of credit contracts.

The 48% annual cost rate is a separate statutory measure, not a general interest rate cap. This article explains how the rules apply to credit providers, including interest calculations, fee limits, pricing disclosures and product-specific exclusions.

Interactive Tool: Check If Your Credit Pricing Meets the 48% Cap

National Credit Code Requirements Applicable to Consumer Credit Providers

Credit Contracts Subject to the National Credit Code

Section 5(1) of the National Credit Code applies to credit provided to a natural person or strata corporation where the credit is wholly or predominantly for personal, domestic or household purposes. It also applies to credit used to purchase, renovate or improve residential property for investment purposes, or to refinance credit provided for those purposes.

Subject to the extended application of the National Credit Code to buy now pay later and low cost credit contracts under its Sections 13B–13C, Section 5(1)(c) requires that a charge is or may be made for providing the credit. Section 5(1)(d) requires the credit provider to provide the credit in the course of a business of providing credit, or as part of or incidentally to another business, carried on in the relevant jurisdiction.

Product-specific rules may differ. For example, Section 27A of the National Credit Code excludes small amount credit contracts from the interest-charge division, while Section 32A(4) excludes certain products from the 48% annual cost rate cap discussed below.

Disclosure Requirements for Credit Providers

Under Section 17 of the National Credit Code, a credit contract document must disclose key pricing information. For credit contracts other than small amount credit contracts, Section 17(4) requires the annual percentage rate or rates and how each rate applies. Section 17(5) requires the method used to calculate interest charges and the frequency of debiting those charges.

For a credit contract besides a low cost credit contract, Section 17(7) requires the contract document to state:

• the repayment amounts, or the method for calculating them;
• the number and frequency of repayments where ascertainable;
• the total repayment amount where ascertainable and the statutory seven-year condition is met; and
• the first repayment date where ascertainable;

For a low cost credit contract where more than one repayment is to be made, Section 17(7A) separately requires the contract document to state:

• the repayment frequency; and
• where ascertainable, the amount, number, and total amount of repayments; or
• if the repayment amount is not ascertainable, the method for calculating that amount.

However, under Section 17(6A), where a low cost credit contract does not impose interest charges, Sections 17(4)–(6) do not apply, and the contract document must instead state that no interest charges are payable.

Under Section 17(8), it must identify credit fees and charges, when they are payable, their amount, or calculation method where ascertainable, and the total amount payable where ascertainable.

How ACL Holders Must Calculate Interest & Manage Fees

Calculating Interest on the Unpaid Balance

Under Section 28(1) of the National Credit Code, the maximum interest charge is generally determined by applying the applicable daily percentage rate to the unpaid daily balances. Section 28(2) also permits an interest charge for a month, quarter or half-year to be calculated by applying the relevant proportion of the annual percentage rate to the average unpaid daily balances. ‘

Unpaid balance’ and ‘unpaid daily balance’ are defined in Section 27(1). The unpaid balance is the difference between amounts credited and debited under the credit contract, while the unpaid daily balance is measured at the end of each day.

A flat interest rate cannot be applied to the full purchase cost for the entire contract term. As repayments reduce the unpaid balance, the amount used to calculate interest must also reduce.

Limitations on Default Interest

Section 30(2) of the National Credit Code permits a higher default rate only within defined limits. The higher rate must:

• apply because of a payment default;
• relate only to the amount in default; and
• operate only while the default continues.

A credit contract cannot provide for different rates merely because the debtor is in default without meeting those conditions. In addition, the contract document must state whether a default rate may apply, identify the rate, and explain how it will be applied under Section 17(11).

Rules Governing Prohibited & Third-Party Fees

Section 31(1) of the National Credit Code allows regulations to identify credit fees or charges that are prohibited. It does not establish one universal cap for every fee, and subsection 31(1) does not apply to small amount credit contracts.

Section 32(2) limits a third-party fee to the ascertainable amount paid or payable by the credit provider to the third party. If that amount cannot be established when the debtor pays, any later difference must be refunded or credited under Section 32(3). Discounts, rebates and other allowances received by the credit provider or a related body corporate must be considered under Section 32(4).

Understanding the 48 Percent Annual Cost Rate Cap for Credit Providers

How the Annual Cost Rate is Calculated

Section 32B of the National Credit Code sets the method for calculating the annual cost rate.

The calculation uses:

• the amount of credit provided;
• the timing and amount of repayments; and
• any credit cost amounts payable by the debtor.

Credit cost amounts may include credit fees and charges, certain fees paid for introductions or services connected with providing credit, and other prescribed amounts. As a result, the annual cost rate is a separate statutory measure from the contractual interest rate because it also considers fees, charges and repayment timing.

Exemptions to the 48 Percent Cap

The 48% cap does not apply to every credit contract. Section 32A(4) of the National Credit Code excludes contracts where:

• the credit provider is an authorised deposit-taking institution (ADI);
• the contract is a low cost credit contract;
• the contract is a small amount credit contract; or
• the contract is a bridging finance contract.

Therefore, as a practical implication, the product classification should be checked before applying the cap, because different credit products may be subject to different statutory pricing rules.

Managing Pricing Changes After the Contract Begins

Section 32AA(1) of the National Credit Code addresses later changes to pricing. A credit provider contravenes this provision if an increase to the annual percentage rate or a prescribed amount would have caused the annual cost rate to exceed 48% when calculated as at the date the contract was entered into. The relevant prescribed amounts are identified in Regulation 79AC of the National Consumer Credit Protection Regulations 2010 (Cth) (‘NCCP Regulations‘).

Section 32AA(1) applies to contracts other than small amount credit contracts and bridging finance contracts, and does not apply where the credit provider is an ADI. Accordingly, as a best practice, pricing changes should be tested against the annual cost rate calculation before they are introduced.

How Pricing Structures Breach the Cap & Enforcement Lessons from Snaffle

Breaching the Cap Despite Low Interest Rates

A credit contract may exceed the 48% annual cost rate even where its stated interest rate is below 48%, because the calculation under Section 32B includes the amount of credit, repayments, and credit cost amounts.

An inflated cash price, excessive markup or delivery fee can increase the cost attributed to the goods before interest is applied. As a result, the pricing structure may produce an annual cost rate above 48%, even where the separate interest rate appears modest. For this reason, the stated interest rate should not be assessed without examining the full cost of the credit contract.

The Snaffle Case Study on Inflated Prices & Overcharging

In Australian Securities and Investments Commission v Walker Stores Pty Ltd (In Liquidation) [2026] FCA 665 (‘Snaffle‘), the Federal Court found that Walker Stores, trading as Snaffle, entered three sample credit contracts with annual cost rates exceeding 48%, contrary to Section 32A(1) of the National Credit Code.

The Court accepted the ‘cash price construction’ and, on the facts of those contracts, applied the first limb of the ‘cash price’ definition in Section 204(1)—the lowest price that a cash purchaser might reasonably be expected to pay for the goods from the supplier—rather than Walker Stores’ inflated stated price. The Court also found that interest had been calculated on the total contract amount instead of the unpaid balance across 38,562 contracts.

Under Section 167 of the National Consumer Credit Protection Act 2009 (Cth) (‘NCCP Act‘), with the applicable maximum pecuniary penalty governed by Sections 167A–167B, the Federal Court ordered Walker Stores to pay $33.5 million in pecuniary penalties for its Section 24(1) contraventions, comprising:

• $1.5 million for the contraventions involving Sections 24(1) and 32A(1); and
• $32 million for the contraventions involving Sections 24(1) and 28.

Identifying Common Credit Pricing Mistakes

Credit providers can create compliance risk by assessing only the advertised interest rate, making ACL compliance services for credit providers relevant when reviewing broader pricing and disclosure obligations. Other frequent errors include:

• applying a flat-rate methodology that results in interest charges exceeding the maximum permitted by Section 28;
• failing to calculate the annual cost rate under Section 32B;
• assuming the 48% cap applies to every credit product, despite the exclusions in Section 32A(4); and
• treating fees, charges or markups incorrectly.

Contract documents should also match the pricing method used by the credit provider. The Snaffle proceedings show the risks of using a calculation system that differs from the methodology described to customers.

Practical Compliance Steps for ACL Holders

Legal and product teams can assess a credit product through a focused review:

• confirm the product classification and applicable exclusions;
• review the pricing model against Sections 17, 28 and 32A of the National Credit Code;
• test interest and annual cost rate calculations using representative contracts;
• audit systems to confirm interest is applied to the unpaid daily balance;
• review fees, charges and any third-party amounts;
• check that disclosures reflect the actual pricing methodology; and
• record and remediate identified errors.

Teams managing wider regulatory obligations can download the Conflicts of Interest Management Guide (AFSL & ACL Holders) from Click Legal.

Conclusion

Credit pricing compliance requires ACL holders to assess more than the stated interest rate, including interest on the unpaid daily balance, permitted fees and charges, disclosure obligations, and the separate 48% annual cost rate measure under the National Credit Code. The Snaffle decision shows that incorrect calculations and pricing structures can result in substantial penalties, adverse publicity orders and consumer harm.

For support with reviewing your credit pricing systems, contracts and disclosures, contact Click Legal to discuss ACL compliance services for credit pricing and disclosures. Our regulatory lawyers can help identify potential compliance issues and support a focused review of your obligations under the National Credit Code.

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