Consumer Action welcomed today’s announcement from the corporate regulator Australian Securities and Investments Commission (ASIC) that it will use its product intervention power to ban the excessively harmful lending models used by Cigno Pty Ltd (Cigno) and its lending partners.
For years, Cigno has been offering short term loans using two-contract lending models in order to circumvent the National Credit Laws, under which their excessive fees would be prohibited. While borrowers understood they were entering a single contract, under a separate contract Cigno charged a range of expensive fees, while denying borrowers key protections and rights to hardship or dispute resolution.
“We applaud ASIC’s decision to use its product intervention power to ban the lending models used by Cigno. There is no clearer example in financial services of the kind of conduct causing significant detriment that this power is meant to stop”, says Consumer Action, CEO Gerard Brody.
ASIC has made two product intervention orders against Cigno which will ensure that these avoidant two-contract models cannot be used to impose additional fees. ASIC had previously banned one of these lending models via another intervention order but that order expired in 2021.
Cigno’s business model specifically targeted people in, or at risk of, financial hardship. The lack of checks in Cigno’s loan approval process means perpetrators of family violence can easily obtain credit from them in their victim’s name. Cigno are also notoriously difficult to contact and routinely chase payments from people who have already paid far more than the (already very high) originally agreed amount.
“While the loans are only for small amounts, we routinely hear of eye-boggling fees charged by Cigno amounting to many times the value of the loan. Making these product intervention orders means that these models can no longer be used to charge exploitative and excessive fees in future,” continued Brody.
This action comes just a few weeks after ASIC was successful in its appeal to the Full Federal Court regarding one of Cigno’s lending models, with the Court finding that Cigno’s lending was captured by the National Credit Laws.
“Making the product intervention orders provides consumers certainty and safety from future use of these models. However, we urge ASIC to do everything it can to secure compensation for those who have paid Cigno’s excessive fees in the past”, said Brody.
“We also encourage ASIC to closely monitor the operations of Cigno in the coming months as there is a real risk that it will develop yet another avoidant lending model to continue trading. The best solution to this kind of predatory lending is for the federal government to simply close the yawning loopholes and exemptions that exist in our financial services laws”.
Mark Pearce Media and Communications Adviser
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