ASIC moves on short-term credit lending
In its first use of its product intervention powers, ASIC has moved on banning a particular short-term credit lending model that is a form of predatory lending.
The law allows short term credit providers to remain exempt from credit licensing, conduct and responsible lending obligations under the National Consumer Credit Protection Act 2009, if the fees charged for a loan of up to 62 days do not exceed 5 per cent of the loan amount and 24 per cent per annum interest.
However, the model used by these predatory lenders, have charged significant upfront, ongoing and default related fees under a separate contract for management and administrative services in relation to the loan.
When combined, these fees can add up to almost 1000 per cent of the loan amount.
The model has been used by Cigno Pty Ltd and Gold-Silver Standard Finance Pty Ltd, and more recently by MYFI Australia Pty Ltd and BHF Solutions Pty Ltd.
“ASIC is ready and willing to use the new powers that it has been given. 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,” ASIC commissioner Sean Hughes said.
“ASIC will take action where it identifies products that can or do cause significant consumer detriment,” he 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.”