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14-278MR ASIC continues crackdown on payday lending avoidance models
Following ASIC intervention, Cash Loan Money Centres and Sunshine Loans have agreed to stop offering 'leaseback' arrangements to consumers who want a payday loan.
ASIC was concerned that the Cash Loan Money Centres and Sunshine Loans were using business models which deliberately attempt to avoid the protections for consumers contained in the small amount lending provisions in the National Consumer Credit Protection Act 2009 (National Credit Act).
Consumers who approached a Cash Loan Money Centre for a payday loan were signed up to an arrangement where the consumer 'sold' a household item such as a washing machine or fridge to the business, in return for a sum of money, and simultaneously 'leased' the goods back from the business. In practice, the goods never changed hands, and the business never actually saw the household goods, or confirmed the current market value before 'purchasing' them from the consumer.
Similarly, under the model used by Sunshine Loans, a consumer would approach the business for a payday loan, and enter into an agreement to assign the rights to use their mobile phone or car to the lender for a fee, and then simultaneously lease the rights back.
ASIC was primarily concerned that, in both cases, consumers were charged considerably more than the amount allowed under the legislative cap on costs for payday loans. In one example, a consumer received $1,000 and repaid a total of $1,682.10, when the statutory maximum the consumer would have repaid for a small amount loan of the same amount was $1,280.
Deputy Chairman Peter Kell said, ‘Where we see business models or arrangements being used which are designed to avoid obligations imposed by the consumer credit legislation, we will take action'.
'Payday lenders and their advisers need to ensure any change to their lending models are legitimate and do not seek to avoid the small amount lending provisions', Mr Kell said.
After ASIC intervention, Cash Loan Money Centres and Sunshine Loans have ceased using these models and are now offering consumers a small amount credit contract.
Before July 2013, some states and territories had laws capping the cost of credit for small amount loans. These laws were replaced by the national cap which was introduced in July last year and is regulated by ASIC.
A small amount loan, in general terms, is a loan where the amount borrowed is $2,000 or less and the term is between 16 days and one year. From 1 July 2013, only the following fees can be charged on small amount loans:
- a monthly fee of 4% of the amount lent
- an establishment fee of 20% of the amount lent
- Government fees or charges enforcement expenses, and
- default fees (the lender cannot recover more than 200% of the amount lent).
Providers of small amount loans are also subject to enhanced responsible lending obligations, including providing a warning statement to the consumer which contains information about the alternatives to a payday loan.
The credit licensees who agreed to stop offering the sale and leaseback arrangements are Sunshine Loan Centres Pty Ltd and the following companies which operated under a model promoted by Courthouse Holdings Pty Ltd (trading as Cash Loan Money Centres):
- A. & W. Edwards Investments Pty Ltd ACN 059 914 742
- Advance Cash Lending Co Pty Ltd ACN 112 550 802
- CLMC Pty Ltd ACN 113 241 160
- C L Money Pty Ltd ACN 059 615 262
- Gold Coast Cash Loans Pty Ltd ACN 115 923 870
- Gold Vision Finance Pty Ltd ACN 106 172 767
- Indijye Pty Ltd ACN 139 394 988.
- Inspyer Pty Ltd ACN 119 508 673
- Lucky4Leaf Pty Ltd ACN 126 950 829
- Mulley Investments Pty Ltd ACN 056 644 378
- Namax Pty Ltd ACN 108 584 292
- Northam Park Pty Ltd ACN 005 974 701
- Nuit Pty Ltd ACN 107 973 544
- P & V Jackson Holdings Pty Ltd ACN 113 928 368
- Stonehenge Holdings Pty Ltd ACN 009 451 843, and
- Tamdanic Investments Pty Ltd ACN 107 693 210.
Other action ASIC has taken to address compliance concerns by payday lenders:
- ASIC action leads to $1.128 million refund to consumers (refer: 14-272MR).
- Payday lender engages in unconscionable conduct and breaches consumer credit laws (refer: 14-220MR).
- ASIC takes action against payday lending businesses (refer: 14-150MR).
- ASIC investigation leads to Cash Stop Financial Services Pty Ltd refunding more than 650 consumers (refer: 14-035MR).
- ASIC commences legal action against Fast Access Finance (refer: 13-205MR).