The Australian Securities and Investments Commission (ASIC) announced today (13 March) that it is placing added focus on small credit lenders (often referred to as payday lenders), after a review highlighted some concerns.
In a bid to minimise financial harm to vulnerable consumers, the commission is continuing to investigate lenders who breach compliance.
Some of these payday lenders are breaching obligations through “entering into unsuitable contracts with consumers, or failing to identify an appropriate target market and distribute their products accordingly,” said ASIC.
The people accessing these loans are often in a squeeze and need cash fast, making them vulnerable.
“Consumers who access these products are often financially vulnerable. That’s why people who use small amount credit contracts are subject to additional protections,’ said ASIC commissioner Alan Kirkland.
“ASIC has a strong record of taking enforcement action in response to lending practices that cause harm to vulnerable consumers. Lenders are on notice that if we detect serious breaches of the law, we will consider taking further action.”
There have been multiple instances of ASIC penalising small credit lenders in a bid to weed out the non-compliant.
One penalty against Ferratum Australia resulted in the lender paying $16 million. This came after the company charged prohibited fees to consumers, among other things. Ferratum is now in liquidation following the charges.
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ASIC Deputy Chair Sarah Court said: “Ferratum’s conduct was egregious. It offered short term loans to often vulnerable customers, significantly compounding their hardship by charging fees that it was not legally entitled to charge. This significant penalty is the latest outcome in ASIC’s ongoing work to combat consumer harm resulting from high-cost credit.”
Further, ASIC is involved in ongoing proceedings against Swoosh, alleging it “breached its design and distribution obligations (DDO) by failing to review its target market determinations and continuing to provide credit contracts to consumers, despite increasing complaints received directly from customers or via the Australian Financial Complaints Authority.”
Court continued: “Many of these borrowers were in challenging socio-economic circumstances and were experiencing financial difficulties. Some of them had frequently used early wage advance services, had multiple existing loans and buy-now/pay-later commitments, and many showed clear signs of financial distress, such as direct debit dishonours, negative bank balances or credit defaults.”
“In certain cases, ASIC alleges loans were used to consolidate existing debts or to pay for basic household items, such as groceries and car service or repairs. Borrowers typically used their cars as security for the loans, which were generally between $2,000 and $3,000, and were charged upfront fees of more than $400 and an annual interest rate of 47 per cent. Borrowers who defaulted on their repayments were charged further fees.”
Lenders in the small credit space will face added scrutiny as ASIC aims to identify breaches of compliance.
Kirkland condluded: “We were disappointed to uncover that some lenders may be seeking to shift consumers into other forms of credit, some of which involve greater risk.”