It has been five years in the making, but the Australian Securities and Investments Commission is set to take action against short-term predatory lending.
While the idea of tackling the punitive rates charged by short-term lenders was advocated by the David Murray-chaired Financial System Inquiry in 2014, the corporate watchdog has been denied legislative teeth until now.
The first target of ASIC’s new product intervention power will be lenders who have been able to charge repayment rates of up to 1000 per cent via layers of upfront, ongoing, default and administrative fees through associated entities.
“ASIC is ready and willing to use the new powers that it has been given,” ASIC commissioner Sean Hughes said.
“The product intervention power provides ASIC with the power and responsibility to address significant detriment caused by financial products, regardless of whether they are lawfully provided.”
The first targets of the action are the online payday lender Cigno Pty Ltd and its associate Gold-Silver Standard Finance Pty Ltd, as well as more recent versions of the same business model, MYFI Australia Pty Ltd and BHF Solutions Pty Ltd.
Cigno has long attracted the ire of consumer advocates over its pursuit of lending into rural, remote and Indigenous communities.
ASIC had been reluctant to pursue the sector, having lost Federal Court civil cases in 2014 against earlier incantations of Cigno and Gold-Silver Standard Finance, which managed to sidestep the National Consumer Credit Protection Act (NCCPA).
Jail and fines
The law still allows short-term lenders to be exempt from credit licensing, conduct and responsible lending obligations under the NCCPA, as long as the fees charged for a loan do not exceed 5 per cent of the loan amount and 24 per cent a year.
However, the new provisions still give ASIC sweeping powers to stamp out onerous loans via product intervention orders.
“ASIC will take action where it identifies products that can or do cause significant consumer detriment,” Mr Hughes said.
“In this case, many financially vulnerable consumers incurred extremely high costs they could ill afford, often leading to payment default that only added to their financial burden,” he said.
The criminal and civil penalties for breaching the orders include up to five years’ imprisonment and fines of up to $1.26 million per offence.
Good start but more needs to be done, advocates say
“It’s a really positive move,” Consumer Action Law Centre chief executive Gerard Brody said.
“Up until now ASIC wasn’t able to do much about it,” he said.
“Cigno and other businesses that use this model have operated outside the reaches of the law for too long.”
However, Mr Brody said more needed to be done to ensure all payday lenders operated safely.
“Payday lending is a harmful business model because repayments take up so much of someone’s income, enticing them to become reliant on further loans,” he said
“We applaud ASIC for using their powers to protect people from reckless lenders, but the government also needs to act on recommendations made by the 2016 Small Amount Credit Contract Review that it committed to implement more than 1000 days ago.
“The government says that it is taking action following the banking royal commission, but it is doing little to deal with the harmful payday lending industry,” Mr Brody said.