Australia’s second-largest listed payday lender, Money3, has stopped offering its two payments ‘fixed fee’ loan arrangement and agreed to refund more than $100,000 to consumers following concerns raised by ASIC that it breached consumer credit laws and engaged in misleading conduct.

Money3’s ‘fixed fee’ loan (also promoted as a ‘LACC’ loan) required only two repayments despite having a term of 16 months. Under the terms of the contract, the first repayment (generally due a week after the loan was taken out) was for a nominal amount, and the much larger second repayment was due 15 months later. This second payment usually accounted for more than 90% of the total amount repaid.

ASIC was concerned that the product was likely to be unsuitable for most of the financially vulnerable customers who obtained it, and in breach of the national responsible lending obligations. Consumers may also have been misled into believing the terms of the loan enabled flexible repayments when the contract in fact disclosed that a large fee could be charged if the consumer asked for a variation of the repayment schedule. ASIC saw examples where the second repayment was as high as 170% of the customer’s Centrelink benefit for that pay period.

Money3 has agreed to finalise outstanding loans and will refund approximately 400 consumers a combined total more than $100,000. These refunds will ensure current consumers have not repaid any monies above the principal amount lent and a cost recovery fee.

ASIC Deputy Chairman Peter Kell said, ‘Small, high cost loans such as this with large one off payments are likely to be of limited benefit to customers who have no savings or savings history as they would be unable to finance the second repayment of the loan without considerable hardship.

‘The difficulties for these vulnerable customers are amplified where there is a large fee where the consumer wants to make any changes to the repayment schedule or amount.’

Money3 has changed the product and its marketing and all LACC contracts now have the repayments spread at even monthly intervals across the 16 months term of the contract.

Consumers are reminded that if they have entered into a credit contract and believe it was unsuitable and suffered a loss or damage they are able to access free internal and external dispute resolution services. Consumers who have previously repaid a LACC loan in full can approach Money3 directly and request a refund similar to what is being offered to current customers.

If a consumer is unable to resolve their complaint directly with the lender via its internal dispute resolution process, they should contact their credit provider’s external dispute resolution scheme, in this case, the Credit and Investments Ombudsman. Consumers may also seek legal advice.

Background

The tighter consumer credit rules for small amount lending included a cap on the fees that can be charged and a strengthening of responsible lending obligations.

For the period Money3 offered the loan, it entered into 24,547 contracts. As at 29 May 2015, 1941 remain on foot.

ASIC’s payday lending work

ASIC has had a particular focus on the payday lending sector in recent years including a recent review. Report 426:  Payday lenders and the new small amount lending provisions (REP 426) was released in March 2015 and found that payday lenders need to improve compliance with some of the key consumer protection laws operating in the industry (refer: 15-056MR).