Customers who received loans from Melbourne-based business Financial Circle are unlikely to see any of the $9 million in penalties the company has been ordered to pay for its “misleading” advice, despite many losing almost a third of their super savings as a result.
The Federal Court of Australia ordered Financial Circle Pty Ltd to pay $8.9 million in pecuniary penalties after it was caught offering cash loans to consumers on the condition they take financial advice from the business.
Customers were typically advised to switch their superannuation providers, and take out new personal insurance policies, and were then stung by what corporate regulator ASIC described as “significant advice fees” and insurance commissions.
“This process often resulted in a substantial erosion – in many cases up to 30 per cent – of the client’s superannuation balances,” ASIC said in a statement.
However, ASIC confirmed the $9 million in penalties has been ordered to be paid to the Commonwealth and not the affected clients, some of whom lost as much as $10,000.
The investors should instead seek independent legal advice, the regulator said.
Vulnerable people targeted
Financial Circle’s customers were predominantly vulnerable Australians whose “need or desire for cash” was exploited.
In his ruling, Federal Court Judge David O’Callaghan said it was “doubtful” the affected customers would have agreed to implement the financial advice they were required to receive if they didn’t need the money.
Some of these customers also had their loan applications ultimately rejected but were still charged an advice fee, which was taken from their superannuation.
Affected customers’ super balances were “immediately reduced by between 5 per cent and 30 per cent”, and by $5000 and $10,000, which Justice O’Callaghan said caused them “immediate and long-term financial detriment”.
New support for wronged consumers
The judgment follows the launch of the new “one-stop shop” financial complaints body, AFCA, which commenced operating on Friday, November 1.
AFCA was established to replace three exisiting financial services complaints bodies and is intended to give consumers access to justice when they have a complaint they can’t resolve with a business.
David Locke, the chief executive of AFCA, said the organisation expects to handle 55,000 complaints in its first year.
The New Daily reached out to AFCA for comment on the Financial Circle ruling but did not hear back in time for publication.