ASIC has commenced civil penalty proceedings in the Federal Court against Membo Finance Pty Ltd (Membo) and its sole credit representative Richmond Group Financial Services Pty Ltd (RGFS) for alleged contraventions of the National Consumer Credit Protection Act (the Act).
These proceedings include allegations of failures by Membo and RGFS to comply with the Act when borrowers experienced financial hardship. Protecting consumers from harm at a time of heightened vulnerability during the pandemic is a priority for ASIC.
Membo and RGFS carry on a credit business trading as ClearLoans, which provides loans between $3,000 and $15,000 on a 12 to 60-month term with a fixed interest rate of 43 per cent per annum. All loans are secured by a personal guarantee, usually given by a friend or relative of the borrower. In the event of default by the borrower, ClearLoans attempts collection from the guarantor.
ASIC alleges that between 15 December 2017 and 16 December 2020, Membo and RGFS:
- failed to provide written decisions and reasons to debtors who applied for their credit contracts to be varied due to financial hardship, including because of a change in the debtor’s circumstances;
- failed to issue notices warning debtors or guarantors of a direct debit default on the first occasion it occurred;
- failed to give debtors and guarantors 30 days, as required by the Act, to correct a default before commencing enforcement proceedings;
- commenced court proceedings to enforce credit contracts in states or territories outside of where the debtor or guarantor resided;
- failed to ensure its representatives were adequately trained, particularly in relation to hardship applications;
- failed to take reasonable steps to ensure that its representatives complied with the credit legislation; and
- failed to act efficiently, honestly and fairly to ensure proper systems and supervision existed to prevent the alleged breaches.
ASIC is concerned that these alleged failures resulted in significant consumer harm, including in circumstances where many customers were experiencing financial hardship due to the COVID-19 pandemic.
ASIC is seeking civil penalties, declarations, injunctions and adverse publicity orders. ASIC will also seek orders requiring Membo to implement a compliance program to be overseen by an independent external reviewer and a report by the external reviewer to be provided to ASIC.
The proceeding will be listed for directions on a date to be determined by the Court.
Under the National Consumer Credit Protection Act, a credit provider must meet important obligations when responding to consumers experiencing financial difficulties, including that they must consider varying a consumer’s credit contract if a consumer notifies them that they are or will be unable to meet their credit obligations. If a credit provider decides to not vary the consumer’s repayment terms, a credit provider must inform the consumer in writing of the reasons for the decision and the consumer’s right to complain to an external dispute resolution scheme.
Consumers who notified ClearLoans of their inability to meet their repayment obligations and believe that ClearLoans’ response was not adequate, or consumers who have ongoing hardship concerns, can make a complaint to the Australian Financial Complaints Authority (AFCA). AFCA is an independent dispute resolution service providing free, fair and independent help with financial disputes and can be contacted on 1800 931 678.
Editor's note 1:
The proceedings have been listed for the first case management hearing on 12 April 2021.
Editor's note 2:
A further case management hearing has been scheduled for 21 May 2021.
Editor's note 3:
On 21 May 2021, the matter was listed for a further case management hearing on 1 September 2021.
Editor's note 4:
An interlocutory hearing has been set for 22 September 2021. The trial will proceed on 18 July 2022 for five days.
Editor's note 5:
The interlocutory hearing on 22 September 2021 considered a strike-out application brought by Membo and RGFS relating to certain paragraphs of the further concise statement. His Honour Justice Yates reserved his decision. The trial remains listed to proceed on 18 July 2022 for five days.
Editor's note 6:
On 27 September, Justice Yates dismissed the strike-out application brought by Membo and RGFS, and ordered they pay ASIC's costs in relation to the proceedings.
Editor's note 7:
The matter is next listed for a case management hearing on 7 February 2022. The matter remains listed for trial on liability for five days on 18 July 2022.
Editor's note 8:
The matter is next listed for a case management hearing on 6 June 2022. The matter remains listed for trial on liability for five days on 18 July 2022.
Editor's note 9:
Between 18 and 19 July 2022, the scheduled liability hearing took place before the Federal Court, Sydney. Judgment has been reserved.
Editor's note 10:
At a case management hearing on 19 September 2022, the matter was listed for a hearing on relief on 2 February 2023. A decision on liability is still pending.
Editor’s Note 11:
On 2 February 2023, the scheduled hearing on relief took place before the Federal Court, Sydney. Judgment on both liability and relief has been reserved.