A short-term lender targeting vulnerable Australians with fees as high as 990 per cent has become the first target of new Australian Securities and Investments Commission powers.
On Tuesday, ASIC opened a consultation process with the aim of obtaining the power to crack down on short-term credit providers using crafty business tactics to avoid conventional credit laws.
Those tactics have allegedly gouged desperate consumers with fees sometimes totalling up to 990 per cent of the original loan.
Queensland-based Cigno Pty Ltd and its associated Gold-Silver Standard Finance Pty Ltd are the focus of the powers, ASIC said.
But any other business attempting to use a similar model would also be subjected to the regulator’s scrutiny.
While ASIC is still in consultation (the first step in using its intervention powers), Financial Counselling Australia chief executive Fiona Guthrie said it was a promising first move by the regulator.
“These powers were specifically designed to address these sorts of issues and to shut them down,” she said.
‘Do not have anything to do with them’
Kevin, from Goolgowi in western New South Wales, is one of many people affected by Cigno’s business model.
After a series of unfortunate events left him stranded in Queensland, Kevin – who relies on a disability pension – made numerous applications for small, short-term loans to help him return home.
While most credit providers knocked him back, Cigno informed Kevin he was eligible for a $150 loan, with fortnightly repayments of $80 – repayments Kevin thought were expensive at the time, but in dire need of the money he accepted.
However, after making two repayments of $80 (a cumulative $160 on the $150 loan), Kevin found himself in financial hardship and reached out to Cigno to request changes to the repayment scheme so he could meet all his financial obligations.
“I tried contacting them, but they were really rude and unhelpful. They kept saying ‘You wanted the money, you have to pay it’,” Kevin told The New Daily.
Unable to make the $80 repayment, Kevin was instead stung with a default fee of $49; roughly 60 per cent of the total repayment amount. Cigno also continued to charge this default fee each fortnight, Kevin said, making it increasingly difficult to make repayments.
Kevin said he has already paid between $400 and $500 as a result of taking on the $150 loan, and is still being hounded for a further $900.
“I told them I can’t handle this. It’s breaking me up, but they keep telling me I have to handle it or they’ll take me to court,” Kevin said.
“Do not have anything to do with them. That’s my advice. Do not have anything to do with them.”
Kevin has since sought the assistance through the Financial Rights Legal Centre.
Cigno did not respond to numerous requests for comment.
Vulnerable Australians targeted
Gerard Brody, chief executive of Consumer Action Law Centre, told The New Daily the people affected by Cigno’s business model were among the most at risk of financial hardship.
“These are people that are often struggling to pay their rent, their electricity bills, or even food, and this high-cost credit ends up sending them into a debt spiral,” he said.
The business has so far avoided repercussions by structuring its business around existing laws.
“The lender itself is an associated business called Gold-Silver Standard Finance, which charges less than 5 per cent on these small loans so it’s exempt from credit licensing laws. Cigno acts as an agent referring people to this business, and all the additional fees are charged by Cigno,” Mr Brody said.
“No matter how the law is worded, canny businesses can find ways to build their model around those laws.”
As a result, Cigno customers have been able to access loans that wouldn’t ordinarily be provided by banks or even pay-day lenders and continue to charge excessive fees.
Financial Rights Legal Centre chief executive Karen Cox told The New Daily loans target by the proposed new intervention power are “the worst of the worst” because none of the usual protections “like hardship rights, free dispute resolution and limits on default charges” are available to customers.
“Financial Rights would like to see less vulnerable people in desperate trouble because a company is demanding they repay up to 900% of the amount they have borrowed.
“Pay day lending is often a trap, where people borrow to pay for essential expenses and then have even less money for essential expenses because of the loan repayments.
ASIC’s proposed intervention would change that, Consumer Actin Law Centre’s Mr Brody said, changing the ways Cigno’s fees are considered under the law and ultimately placing the business under the credit licensing regime – but the powers will only apply to new loans.
Consumers who have already taken out a loan through Cigno will still need to manage their repayments, and Mr Brody encouraged them to seek the advice of a financial counsellor to help negotiate their debt.