Threshold below which no penalties for late payment are imposed

New clause

Submission

(Matter raised by officials)

As a result of the application of the new interest and penalty rules being delayed until 1 April 2013, the interest and penalty rules under the Student Loan Scheme Act 1992 will continue to apply for another year. Under the Act, borrowers are not subject to penalties for late payment if the unpaid amount is less than $334, which equates to no penalty being imposed if the penalty is $5 or less. This reduces the administrative and compliance costs in imposing and collecting small amounts.

With the delay in the application of the new interest and penalties rules, officials have previously recommended in this report that the penalty for late payment be reduced from 1.5%, compounding monthly to 0.843%. One of the consequences of this change is that if the $5 threshold remains, no penalties will be imposed on outstanding amounts less than $593 ($5 / 0.00843) rather than $334 as intended. Officials therefore recommend that the references to the $5 threshold be removed and instead provide that penalties are not imposed on unpaid amounts less than $334 and that the change applies with effect from 1 April 2012.

Recommendation

That the submission be accepted.