Payday lender set to cop ASIC's new powers
A payday lender faces being the first to taste ASIC's new intervention powers as the consumer watchdog cracks down on loans that can leave vulnerable customers paying up to 990 per cent of their initial amount.
ASIC is seeking feedback before it uses the protection tools against short-term credit provider Cigno Pty Ltd and its associate, Gold-Silver Standard Finance.
Commissioner Sean Hughes says the Cigno and Gold-Silver model has the potential to cause harm to consumers through "substantial" additional fees, including fees to receive the loan funds on the same day.
Together, the entities provide short-term credit in amounts mostly less than $1000, sometimes as low as $50, but have been accused of failing to adequately assess consumers' ability to meet repayments.
"Sadly, we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short-term lending model," Mr Hughes said on Tuesday.
One case in ASIC's discussion paper details a consumer on Newstart who had to repay $1,189 after taking out a $120 short-term loan through Cigno.
The customer was hit with an initial $90 financial supply fee, $5.95 in weekly account fees, a $6 credit card fee and, after failing to afford the repayments, was charged dishonour fees and ongoing costs.
ASIC said the customer would have had to repay a maximum $153.60 if she had entered into a small-amount credit contract regulated by the National Credit Act, and a maximum $130.64 if she had entered into an exempt short-term credit facility.
Laws passed in April expanded ASIC's consumer protection toolkit by equipping it with the power to intervene where there is a risk of "significant consumer detriment".
Mr Hughes said it was timely and vital to consult on the use of the power it had only recently been granted.
"This is an opportunity for us to receive comments and further information, including details of any other firms providing similar products, before we make a decision," Mr Hughes said.
ASIC seeks the public's input on the proposed intervention order by July 30.