The protected earnings amount that will apply to all consumers taking out small amount credit contracts and consumer leases under new credit law has been set at 10 per cent of net income. Treasury has released draft regulations that give effect to provisions of the Financial Sector Reform Act 2022, which was legislated in December and will take effect in June. The key reform deals with protected earnings. Under the old law the protected earnings amount rule said that if a consumer received at least 50 per cent of their gross income from social security payments, 80 per cent of their income was protected and could not be used to repay a SACC. The new law extends the protected earnings amount to all consumers. It prohibits licensees from entering into a SACC if the repayments under the contract would not meet the requirements prescribed by regulations. This rule will also apply to consumer leases for household goods. Draft regulations released this week set out those requirements. National Consumer Credit Protection Amendment (Financial Sector Reform) Regulations 2023 requires that the total amount of repayments under a SACC or a consumer lease for household goods be equal to or less than 10 per cent of the “available income” the consumer is reasonably expected to receive during the repayment period. “Available income” is defined as the consumer’s income less any amount withheld under the pay as you go withholding system. The income requirement is designed to ensure that “financially vulnerable consumers do not enter into a SACC or consumer lease for household goods where doing so would require them to repay an amount that would put them at risk of significant financial distress.” The new protected earnings amount is likely to dampen activity in the SACC and consumer lease markets. Cash Converters has already announced that it will write off A$90 million to $110 million of goodwill, reflecting “the anticipated diminishing strategic contribution of the SACC loan products to the company’s earnings”. Small amount credit contracts are loans of up to $2000, where the term of the contract is between 16 days and 12 months. They are covered by the general consumer protections in the Credit Act, including responsible lending obligations. But providers of SACCs are not subject to the 48 per cent annual interest rate that applies more broadly.  Reflecting the short-term nature of the loans, SACC lenders can charge a maximum establishment fee of 20 per cent and a maximum monthly fee of 4 per cent of the value of the loan. In the event of default, a consumer cannot be charged more than twice the adjusted credit amount, including the amount already repaid. The new law makes a number of other changes to the rules covering small amount credit contracts, including:·      requiring SACCs to have equal payments and equal repayment intervals over the life of the loan;·      prohibiting the lender from charging monthly fees in respect of the residual term of a loan where it is repaid early;·      prohibiting licensees from making unsolicited communications to consumers;·