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16-335MR Cairns-based car yard lender and broker breached consumer credit laws
The Federal Court has found that a Cairns-based lender, Channic Pty Ltd (Channic), broker Cash Brokers Pty Ltd (Cash Brokers) and the sole director of both companies, Mr Colin William Hulbert, breached consumer credit protection laws when they provided loans to vulnerable indigenous consumers for the purchase of second hand cars from Super Cheap Car Sales, which was also owned by Mr Hulbert.
The consumers largely lived in the relatively isolated Aboriginal community of Yarrabah, located near Cairns.
Cash Brokers assisted these consumers to obtain loans from Channic at 48 per cent interest to enable them to purchase vehicles from SuperCheap. Cash Brokers also charged brokerage fees of either $550 or $990 to arrange loans with Channic which were also financed under the loans. Channic did not assess whether the loans were affordable or suited to the consumers' requirements.
The Federal Court found that Channic and Cash Brokers breached responsible lending laws under the National Consumer Credit Protection Act 2009 (National Credit Act) which is legislation that the Court found:
… seeks to ensure that a consumer does not enter into an “unsuitable” credit contract … by casting a statutory obligation on a credit provider not to enter into such a contract coupled with a regime for inquiries and verification about the relevant statutory matters and an assessment protocol. These normative matters are not simply a “tick the box” compliance exercise.
The Federal Court also found that Channic engaged in unconscionable conduct and that the loan contracts were unjust transactions. In finding the conduct unconscionable the court stated:
It must have been obvious … that having regard to the educational qualifications of the consumers, their background, their financial circumstances and their lack of commercial experience, that they would not have comprehended the content, in a meaningful way, of the loan contracts.
The Court also held Mr Hulbert personally liable, stating that: CBPL and Channic were no more than wafer thin transparent membranes between the consumer and Mr Hulbert.
Deputy Chairman Peter Kell said, 'ASIC will take action where vulnerable people are deliberately targeted by lenders who engage in unconscionable conduct. We have a strong focus on lenders and financial services firms who push poor quality and unsuitable financial products to indigenous consumers, particularly where they fail to meet responsible lending obligations.'
The matter will be listed for a further hearing, on a date to be set, in relation to the declarations sought by ASIC, civil penalties and consequential orders.
The court may impose a penalty of up to $1.1 million against corporations and up to $220,000 against an individual for each contravention of the responsible lending obligations.
Read and download the judgment here.
This action came as a result of work by ASIC's Indigenous Outreach Program (IOP), which is staffed by lawyers and analysts, the majority of whom are Indigenous. The IOP gathers intelligence from Indigenous consumers and their advocates, undertakes surveillance, implements targeted financial literacy programs and works with industry to improve access to appropriate products and services.
Other outcomes affecting indigenous consumers coming as a result of work by ASIC and the IOP include:
The conduct that was the subject of ASIC's proceedings was first brought to ASIC's attention by the Indigenous Consumer Assistance Network (ICAN). ICAN, among other things, provides financial counselling services to Indigenous consumers in North QLD and noticed that many of their clients were suffering financial hardship as a result of loans they had taken out with Channic. ICAN assisted ASIC to maintain communication with Indigenous consumer witnesses throughout the course of the proceedings.
ASIC's MoneySmart website has information for Indigenous consumers on buying a car.
ASIC also offers a dedicated help line to assist Indigenous consumers with financial issues (Phone: 1300 365 957).
Editor's note 1:
The matter has been listed on 29 November 2016 to determine issues in relation to costs.
Editor's note 2:
The 29 November 2016 hearing has been adjourned until 21 February 2017.
Editor's note 3:
A hearing regarding penalties and ASIC's application on costs has been set for 23 March 2017.
Editor's note 4:
On 23 March 2017, a hearing on penalty and costs was held. The Court reserved its decision.