ASIC today announced a package of regulatory outcomes against Thorn's (Thorn Australia Pty Ltd's) consumer leasing businesses Radio Rentals, RR and Rentlo Reinvented, to address past poor conduct and protect future customers. The outcomes include $6.1 million in refunds to customers and write-offs of default fees, and an additional $13.8 million in customer refunds of excess lease payments.
Civil penalty proceedings
Today, ASIC has lodged civil penalty proceedings with the Federal Court of Australia, in which Thorn has admitted to four contraventions by Radio Rentals of the National Credit Act in respect of each of the 278,683 consumer leases which it entered into in the period from 1 January 2012 to 1 May 2015.
These contraventions relate to the responsible lending obligations of lease providers which require them to make inquiries and take steps to verify the consumer’s financial situation, in order to assess whether the lease is suitable for the consumer, before it is entered into.
ASIC and Thorn will file a Statement of Agreed Facts in the Federal Court , and will make joint submissions that the appropriate penalty to be paid by Thorn is $2 million. The penalty amount payable by Thorn will be determined by the Court.
Enforceable undertaking
In addition, ASIC has accepted an Enforceable Undertaking (EU) from Thorn, to further address ASIC's responsible lending concerns and to address concerns about Radio Rentals accepting and retaining excess payments from customers that were more than the lease required. Radio Rentals has already returned approximately $11.8 million of the $13.8 million to customers who overpaid.
Under the terms of the EU, Radio Rentals will:
- refund or write-off approximately $6.1 million in default fees and charges relating to an estimated 60,000 leases as a result of the responsible lending conduct which is the subject of the civil penalty proceedings.
- hold the balance of both the responsible lending refunds and the overpayment refunds that cannot be returned to customers in trust and ultimately donate it as a community benefit payment if the money is not claimed.
- appoint an independent expert to review its compliance with obligations under its Australian credit licence (including general conduct and responsible lending obligations) and oversee the refund program.
In addition, in response to ASIC's concerns about Radio Rentals' contracts containing terms that may have led to poor outcomes for consumers, Radio Rentals will:
- roll out a new plain English lease contract by 1 June 2018
- work with ASIC to improve communications with customers whose leases are ending or have ended, about exercising their end of lease options.
Acting ASIC Chair Peter Kell said: 'Consumer lease customers tend to be vulnerable consumers in tight financial circumstances. Lease providers must ensure that they comply with their responsible lending obligations and should be engaging with their customers fairly. If customers are paying more than what is required, lease providers need to promptly fix this or face regulatory action.'
'To all customers renting goods, check your contract to see what your options are at the end of your lease. You may be better off buying the good cheaply than continuing to pay your regular rental payments. You could end up paying much, much more than the product is worth.'
Consumers can use the rent vs buy calculator on ASIC's MoneySmart website to compare the cost of a consumer lease with the cost of borrowing the money to pay for the item instead. ASIC's MoneySmart also has information about low-cost credit options such as No or low interest loans.
Radio Rentals will be contacting customers that are eligible for a refund. Customers with questions or concerns can contact their closest Radio Rentals store, call the customer support line on 1800 464 732 or register their contact details at:
- www.radio-rentals.com.au/stay-informed (all states except for South Australia)
- www.rr.com.au/stay-informed (South Australia only)
ASIC acknowledges the co-operation of Thorn in relation to this package of regulatory outcomes.
Background
Consumers can rent household appliances under consumer leases. Under the lease, consumers make regular payments (generally weekly or fortnightly) until the agreement finishes.
ASIC has continued to focus on the consumer leasing industry since the release of Report 447 Cost of consumer leases for household goods (REP 447) on 11 September 2015. REP 447 found that household goods leases can be very costly and, for low income consumers, the market was delivering poor outcomes.
Recent consumer lease outcomes include:
- 20 July 2017 - The Rental Guys paid $100,000 to regional customers after ASIC found that they failed to make proper inquiries, conduct verification and carry out unsuitability assessments when contracting with customers from NSW regional Indigenous communities. (17-243MR The Rental Guys refund more than $100,000 to vulnerable consumers)
- 23 November 2016 - ASIC cancelled the credit licence of Rent to Own after finding that it had actually entered into credit contracts (that purported to be consumer leases) where it charged consumers an annual interest rate more than the allowable maximum of 48% for credit contracts. (16-403MR ASIC cancels credit licence of Rent To Own Appliances)
The Government has proposed enhancements to the credit legislation that introduces a series of consumer leasing reforms. ASIC supports these reforms as they will lead to better outcomes for consumers. For more information visit Treasury's website.
ASIC's Regulatory Guide 209 Credit licensing: Responsible lending conduct sets out practical guidance for lenders and credit intermediaries (including brokers) on how to comply with their responsible obligations.
Editor's note:
The proceedings have been listed for a first case management hearing on 20 February 2018 at 9:30am.
Editor's note 2:
On 15 February 2018 the Federal Court made orders by consent. They included orders relating to the filing of evidence and submissions in the proceedings and an order that the matter be listed for a hearing on a date to be advised by the Court. As a result, the parties were excused from attending the case management hearing that had been scheduled for 20 February 2018.
Editor's note 3:
The proceedings have been listed for hearing on 16 May 2018.