Following an ASIC investigation, payday lender Cash Converters will refund $10.8 million to consumers who received small amount loans under approximately 118,000 small amount credit contracts. Cash Converters has paid a $1.35 million penalty following the issuing of infringement notices by ASIC.
ASIC has agreed to accept an enforceable undertaking from Cash Converters following concerns that, in respect of small amount loans processed via its online website at www.cashconverters.com.au, Cash Converters failed to make reasonable inquiries into consumers' income and expenses, particularly in situations where the small amount loan was presumed by the credit legislation to be unsuitable.
In addition, ASIC had concerns that Cash Converters did not take reasonable steps to verify consumers' expenses in accordance with its responsible lending obligations. Instead of assessing the actual expenses recorded in a consumer's bank statements, Cash Converters applied an internally-generated assumed benchmark that had no relationship to the real expenses of the individual consumer.
For the small amount loans that were likely to be unsuitable because of the consumer's circumstances, ASIC was concerned that Cash Converters failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation.
Cash Converters has paid penalties totalling $1.35 million following the issue of 30 infringement notices by ASIC, under the National Consumer Credit Protection Act 2009 (National Credit Act), where ASIC had reasonable grounds to believe that Cash Converters failed to assess small amount loans as unsuitable, and entering into those unsuitable loans, when the loans were presumed to be unsuitable under the credit legislation.
Under the Enforceable Undertaking accepted by ASIC, Cash Converters is required to:
- refund eligible consumers $10.8 million in fees through a consumer remediation program overseen by an independent expert who will report to ASIC; and
- engage that same independent expert to review its current business operations and compliance with the consumer credit regime and report to ASIC
'ASIC is seeking to protect financially vulnerable consumers, many of whom are recipients of welfare payments, from falling victim to unsuitable payday loans." said ASIC Deputy Chairman Peter Kell. "Payday lending is a high priority area for ASIC, and we will continue to pursue lenders who do not follow their responsible lending obligations.'
Consumers who had two or more small amount loans in the 90 days before taking out another small amount loan through Cash Converters' website during the period 1 July 2013 to 1 June 2016 should expect to be contacted in due course with information about their refund.
If you think you may have entered into a loan contract with Cash Converters (either in-store or online) that was unsuitable, you are encouraged to lodge a complaint with the Credit and Investments Ombudsman. If you need help lodging a complaint with the CIO, you can talk to a free and independent financial counsellor by ringing 1800 007 007 during business hours. ASIC's MoneySmart website has useful guidance on how payday loans work and alternative credit options.
Cash Converters Personal Finance Pty Ltd was granted an Australian credit licence in February 2011.
The National Credit Act requires credit licensees to meet responsible lending obligations. Before a credit licensee suggests, assists with, or enters into a new credit contract, the credit licensee must:
- make reasonable inquiries of the consumer about their requirements and objectives in relation to the credit contract;
- make reasonable inquiries of the consumer about their financial situation;
- take reasonable steps to verify the consumer’s financial situation; and
- based upon these inquiries, assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable.
Further protections for consumers of payday loans were introduced in 2013 which introduced the presumptions of unsuitability which presume that a small amount loan will be unsuitable if either:
- the consumer is in default under another small amount loan; or
- the consumer has had two or more other small amount loans in the last 90 days.
If a licensee enters into a loan that triggers the presumption of unsuitability, they must ensure they are able to rebut the presumption and show the loan is suitable.
ASIC investigated Cash Converters' online lending practices and has concerns about systemic failures in its responsible lending processes over a sustained period of time.
The National Credit Act allows infringement notices to be issued for strict liability offences and certain civil penalty contraventions where ASIC has reasonable grounds to believe a person has contravened the provision. The payment of an infringement notice is not an admission of a contravention of the National Credit Act.
ASIC’s responsible lending work
ASIC has had a particular focus on the responsible lending laws not just in relation to payday lending but across the credit industry more generally. These laws are key consumer credit protection provisions. Some outcomes are listed below:
- Nimble refunded $1.5 million to consumers after concerns were identified with their responsible lending practices (refer: 16-189MR).
- BMW Finance paid $391,000 for breaching responsible lending and repossession laws (refer: 16-019MR).
- Westpac paid $1 million following ASIC's concerns about credit card limit increase practices (refer: 16-009MR).
- Bank of Queensland Limited improved its lending practices following ASIC's concerns about the way it assessed applications for home loans (refer: 15-125MR).
- The Cash Store Pty Ltd and Assistive Finance Australia Pty Ltd received civil penalties of $18.9 million in the Federal Court of Australia for their failure to comply with responsible lending obligations (refer: 15-032MR).
- Wide Bay Australia Ltd (now Auswide Bank Ltd) made changes to their responsible lending policy as a result of ASIC's intervention (refer: 15-013MR).
- Abaz Pty Ltd paid an infringement notice for failing to obtain and consider bank statements as required by the legislation (refer: 14-313MR).
- Channic Pty Ltd, Cash Brokers Pty Ltd and Mr Colin William Hulbert were found by the Federal Court to have acted unconscionably and breached their responsible lending obligations in providing motor vehicle finance to vulnerable consumers (refer: 16-335MR).
ASIC's Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) sets out practical guidance for lenders and credit intermediaries (including brokers) on how to comply with their responsible obligations.