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Short-term ‘predatory’ lending practice banned
ASIC has announced a ban on a short-term loan model that saw consumers able to be charged fees that added up to almost 1,000 per cent of the original loan amount.
Short-term ‘predatory’ lending practice banned
ASIC has announced a ban on a short-term loan model that saw consumers able to be charged fees that added up to almost 1,000 per cent of the original loan amount.
It’s the first time that ASIC used its product intervention power to ban a model of lending in the short-term credit industry, it has been reported.
According to the regulator, the lending model has been found to cause significant consumer detriment, and it had been targeted for the charging of fees by the short-term credit provider and an associate under separate contracts.
Short-term credit providers remain exempt from credit licensing, conduct and responsible lending obligations under the National Consumer Credit Protection Act 2009 where 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.
ASIC has reported that the credit business model in use by Cigno, Gold-Silver Standard Finance, MYFI Australia and BHF Solutions saw the short-term credit providers charging costs within the legislative limitations.
However, its associate charged significant upfront, ongoing and default related fees under a separate contract for management and administrative services in relation to the loan.
ASIC outlined that when the contracts are combined, the fees charged can add up to almost 1,000 per cent of the loan amount.
Considering the product as able to cause “significant consumer detriment”, ASIC commissioner Sean Hughes noted that the regulator is “ready and willing to use the new powers that it has been given”.
The order that has been applied is an industry-wide order made by legislative instrument and therefore will apply to any person that attempts to use this short-term lending model or variations of the model.
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