ASIC has succeeded in its appeal before the Full Federal Court which has found unanimously that a ‘financial supply fee’ charged by Cigno Pty Ltd is a charge ‘made for providing credit’.
The Full Federal Court decision reverses the outcome in the Federal Court in June 2021(21-144MR).
Cigno and BHF Solutions operated a lending model purporting to rely on an exemption in the National Credit Code and claimed they did not require an Australian credit licence.
The lender, BHF Solutions, provided the credit and charged a fee under the credit contract to consumers. However, Cigno, under a composite services agreement, separately charged very high fees (including the ‘financial supply fee’) to arrange and manage the credit. These fees, combined with the lender’s fees, exceeded the prescribed maximum charge allowed in order to be exempt from holding a credit licence.
Credit providers must comply with the cap on costs if they are to remain exempt from the National Credit Act and Code.
In making its decision, the Court found that legislation must be looked at in a way which ‘looks to the substance of the credit arrangements rather than their contractual form and ensures that the remedial provisions of the Code are not easily avoided by carefully structured credit arrangements.’
ASIC Commissioner Sean Hughes said ‘ASIC expects companies to be candid about their credit arrangements. Credit regulation exists to protect consumers from unscrupulous and unfair lending practices and companies should not seek to bypass important consumer protections through artificial structures and mechanisms which expose consumers to additional harm and avoidable cost.
‘ASIC took on this case and appealed the Federal Court decision because we were concerned that vulnerable consumers were being charged significant fees which gave rise to hardship and they were not afforded the consumer protections provided by the National Credit Act and Code.’
The National Credit Act and National Credit Code impose important obligations to protect consumers, including disclosure requirements, caps on fees and interest rates, hardship provisions and free access to independent external dispute resolution services.
Cigno and BHF Solutions have 28 days to file an application for special leave to appeal to the High Court, should they choose to do so.
ASIC sought declarations only from the Federal Court.
Neither BHF Solutions nor Cigno holds, or has ever held, an Australian credit licence.
On 29 September 2020, ASIC commenced proceedings against Cigno and BHF Solutions seeking declarations and injunctions (20-226MR). In the proceedings, ASIC alleged:
- BHF Solutions contravened section 29 of the National Credit Act by engaging in credit activities without holding an Australian credit licence by entering into a credit contract with a borrower and carrying on a business of providing credit; and
- Cigno contravened section 29 of the National Credit Act by engaging in credit activities without an Australian credit licence by performing obligations and exercising rights of BHF Solutions in relation to BHF Solution’s credit contract with the borrower and providing a credit service to the borrower.
On 23 June 2021, the Federal Court dismissed ASIC’s application, finding Cigno and BHF Solutions did not contravene the National Credit Act (21-144MR). ASIC appealed the Federal Court decision in July 2021 (21-179MR).
On 25 July 2022, BHF Solutions Pty Ltd lodged with the High Court an Application for Special Leave to Appeal from the judgment of the Full Federal Court given on 27 June 2022.
Editor's note 2:
Cigno Pty Ltd has also lodged with the High Court an Application for Special Leave to Appeal.
Editor's note 3:
The remitted matter is listed for hearing in the Federal Court on 28 November 2022.
The Special Leave Application is listed for hearing in the High Court on 15 December 2022.