The Australian Securities and Investments Commission (ASIC) took swift action in September 2019 using its new product intervention powers to shut down the high cost lending model, which was causing widespread detriment in the community. Consumer groups have congratulated the regulator on taking such decisive action against predatory lending.
Cigno used a sophisticated broker system to provide short-term cash loans of up to $1,000. This model skirted around Australia’s credit laws and meant people were charged almost 1,000% of the original loan amount.
In dismissing Cigno’s application, the Federal Court confirmed a broad construction of the intervention power. This decision should give ASIC confidence to proactively use the power against harmful financial products like payday loans and junk insurance to reduce the risk of consumer harm.
Unfortunately, financial counsellors and community lawyers have seen Cigno morph its business model yet again to get around the ban and continue to offer extremely high cost loans. Consumer groups are calling on the regulator to take swift action to shut the new model down, and follow through with its proposal to use the powers on junk insurance sold in car yards.
You can read the Federal Court decision here.
Gerard Brody, CEO, Consumer Action Law Centre:
- We welcome the Federal Court’s decision. ASIC must not hesitate to crack down on businesses that rip off people in such a blatant way.
- Exploitative lenders that target people in hardship and drive them deep into debt have no place in our community.
- The purpose of the product intervention power was to enable the regulator to intervene quickly where there is a risk of significant consumer detriment. Time will be of the essence as the economic downturn takes hold and predatory firms look to take advantage of desperate families. ASIC shouldn’t hesitate to use its powers in these circumstances.
- We are seeing payday lenders target consumers who are struggling financially because of the current health emergency. There is a real risk of widespread consumer harm right now unless the regulator steps up. ASIC should not hesitate to use its product intervention power, or other regulatory powers, as the Covid-19 crisis unfolds.
Karen Cox, CEO, Financial Rights Legal Centre:
- The business models of lenders like Cigno and MyFi have been designed to avoid the law and exploit the most financially vulnerable people in Australia. This is an important move by ASIC and we are glad to see this business model shut down.
- This ban will reduce the number of truly shocking examples of exploitation that we see at our Centre – including people being charged ridiculous fees and owing up to 952% of the original amount borrowed.
- Intervention in this space is well overdue and we are pleased that ASIC has used this power on a well-deserved target. We encourage them to do whatever it takes to shut down this predatory lending and send a clear message to the market that this conduct will be stopped.
Media contact: Katherine Temple, Director Policy & Campaigns | 0413 299 567 | firstname.lastname@example.org