ASIC has started legal action against Make It Mine Pty Ltd (MIM), seeking financial penalties against the company for breaching consumer credit laws, including the responsible lending obligations.

ASIC’s civil penalty proceedings, filed in the Federal Court of Australia in Melbourne, allege the company, which sells electronic devices and white goods via instalment payments to people who receive government benefits, failed to collect financial information from customers and failed to assess whether the contracts were suitable. ASIC also alleges the company failed to comply with the credit licencing laws.

MIM has also voluntarily started its own proceeding before the court, admitting it failed to include in its contracts details regarding the interest rate being charged, as well as the cash price (or market value) of the goods being purchased via the hire-purchase arrangement, as distinct from the total contract price of the goods.

ASIC Deputy Chairman Peter Kell said, ‘Credit providers must provide customers with all the necessary information to enable them to make an informed choice about entering into what are often costly contracts. This is especially important when it comes to financially vulnerable people.

‘Responsible lending laws are important in protecting customers from taking out loans they can’t afford.’

In addition to financial penalties, ASIC is seeking declarations that MIM contravened its responsible lending obligations and that it engaged in credit activities without the appropriate licence.

The maximum penalty for a company for breaching responsible lending laws is $1.7 million for each contravention.

The proceedings are listed for a directions hearing in the Federal Court in Melbourne on 8 December 2014.

Background

Only customers receiving certain Centrelink benefits as their main source of income are eligible to obtain goods from MIM online.

The National Consumer Credit Protection Act requires credit licensees to meet responsible lending conduct obligations.

The key responsible lending obligation is that credit licensees or providers must not suggest, assist with or provide a credit product that is unsuitable for a consumer. Before a credit licensee suggests, assists with, or provides a new credit contract or lease to a consumer, the credit licensee (or provider) must:

• make reasonable inquiries of the consumer about their requirements and objectives in relation to the credit contract
• take reasonable steps to verify the consumer’s financial situation
• based upon these inquiries, assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable, and
• give the consumer a copy of the assessment if requested.

A contract will be unsuitable if the consumer would be unable to repay it without substantial hardship or it would not meet the consumer’s requirements or objectives. The requirements also apply where the credit limit on an existing contract is being increased.

The National Credit Code stipulates that certain details of consumer credit contracts must be included within each contract, including:

• the amount of credit, including the cash price of goods sold
• the annual interest rate
• calculation of interest and total amount of interest payable
• details of repayments
• fees and charges
• commission.

These are key requirements under the Code and a contravention of each requirement attracts a maximum civil penalty of $500,000.

Editor's note:

On 8 December 2014 the matter was listed for a hearing on 17 April 2015.