Regulator proposes to stop the latest predatory lending model involving Cigno

The corporate regulator is proposing to again use its product intervention power (PIP) in relation to Cigno and BHF Solutions. Consumer Action Law Centre supports the move, saying there is a desperate need for regulatory intervention to prevent harmful lending models ripping off more Australians.

The Australian Securities & Investments Commission (ASIC) released a consultation paper today detailing a proposal to use the PIP for a second time in the short-term credit industry, to stop significant consumer detriment caused by continuing credit contracts associated with Cigno.

“We strongly support ASIC’s proposed use of this power to stop one of the most unethical lending models we have seen. The short-term lending market is desperately in need of additional consumer protections,” said Gerard Brody, Consumer Action CEO.

ASIC intervened for the first time in September 2019, to ban a lending model involving Cigno which avoided credit laws and charged exorbitant fees to consumers for short term loans.

The proposed use of the power would ban a second lending model—known as a continuing credit model—also used to avoid important consumer protection laws. Despite ASIC’s previous intervention, this revised lending model has been adopted which also causes significant consumer detriment.

“The evasive business model being used by Cigno to avoid responsible lending laws is yet another clear example of short-term lenders causing significant harm.

“Far too often people are being charged unfair and exorbitant fees under these agreements,” said Mr Brody.

While Consumer Action welcomed ASIC’s action, Mr Brody said law reform was needed so the regulator didn’t have to keep playing ‘whack-a-mole’ in the short-term high-cost credit industry.

“This industry is in desperate need of an overhaul to protect consumers. The only long-term answer is legislative reform that addresses this behaviour and the Federal Government needs to deliver on its commitment to the reforms recommended by the 2016 Small Amount Credit Contract Review.

“Over 1,300 days have passed since the Government accepted the recommendations of the review, which included a broad anti-avoidance provision. The Small Amount Credit Contract Bill, if passed, would have prevented both of these harmful lending models. It needs to be passed as a matter of priority,” said Mr Brody.

ENDS

Background:
Consumer Action recently released a toolkit that provides more detail on the harmful lending models used by Cigno and BHF Solutions, and how people can dispute the amounts owed under the exorbitantly expensive contracts. The toolkit is available here. 

Consumer Action’s submission to ASIC on the previously proposed use of the PIP in short-term credit is available here. Cigno sought judicial review of the initial PIP, but the PIP was upheld by the Federal Court. In May 2020 an appeal was filed with the Federal Court.

The National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 is available here.

 

Media contact: Mark Pearce, Media and Communications Adviser | Consumer Action Law Centre | 0413 299 567 | media@consumeraction.org.au

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