ASIC has issued an interim stop order on One Card Credit Pty Ltd’s (OCC) Scorebuilder and Safetynet loan product because of deficiencies in the target market determination (TMD).

ASIC was particularly concerned as the loan targets consumers looking to use credit to pay their rent. Consumers seeking to use credit to pay rent, a basic cost of living, are at a heightened risk of being financially vulnerable.

While the TMD explains that particular consumers are excluded from the loan, including consumers who cannot afford the minimum repayments without hardship, are financially vulnerable or are living in public housing, ASIC does not consider that the distribution conditions are sufficient to identify and exclude these consumers.

Further, ASIC considers that the TMD does not adequately describe the target market as it does not contain specific details about the financial situation or needs of the target market. ASIC’s concern was supported by missed repayment information showing that a significant proportion of consumers who had drawn down on the product had missed at least one repayment.

ASIC made the interim order to protect consumers from obtaining and using the loan that potentially may not be suitable for their financial objectives, situation, or needs. The interim order stops OCC from dealing in its loan. The order is valid for 21 days unless revoked earlier.

The design and distribution obligations (DDOs) require firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. ASIC is concerned that OCC failed to appropriately identify a target market for their loan and put in place appropriate controls on its distribution.

ASIC expects OCC to consider the concerns raised about the TMD and take immediate steps to ensure compliance. ASIC will consider making a final order if its concerns are not addressed in a timely manner. OCC will have an opportunity to make submissions before a decision is made about a final stop order. The interim order stops OCC from dealing in its loan.

ASIC reminds financial product issuers that under the DDOs, they must define target markets for their products appropriately, having regard to the risks and features of their products. Issuers also need to consider how their product will reach the target market, and have appropriate distribution conditions in place to ensure the product is directed towards the target market.

Background

The Scorebuilder and Safetynet loan is issued by OCC and distributed through RentPay Technology Pty Ltd under the continuing credit contract exemption in the National Credit Code. It includes two features:

• ‘Scorebuilder’ is promoted as being able to build a consumer’s credit score, and
• ‘Safetynet’ – a continuing credit contract which can be used by consumers to pay one week’s rent that is then repaid via four fortnightly instalments.

DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. A TMD is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.

ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.

The DDOs apply to issuers of credit products regulated under the National Consumer Credit Protection Act 2009 and those that fall within the credit facility definition in the Australian Securities and Investments Commission Act 2001.

Of the 23 DDO interim stop orders issued by ASIC to date, five remain in place.

18 interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns or where the products were withdrawn.

Editor's note:

Following the interim stop order issued on 6 February 2023, One Card Credit made amendments to its TMD that addressed ASIC's concerns. One Card Credit introduced qualification periods for all loans (of either 30 or 90 days depending on the customer’s assessed credit risk) requiring customers to make their rent payments in full and on time through the RentPay app before they are given access to draw down on the loan. There is no access to further drawdowns if a loan repayment or rent payment is missed. Missed payment fees will be clearly included in the total cap on fees and customer accounts will be closed if the customer misses five repayments in a twelve-month period, or their rent is not paid on time and in full for three months (not in succession) during the life of the loan. One Card Credit also made changes to its review triggers including if 10 per cent or more of loan accounts have missed payments at any time, or 10 per cent or more of accounts missed rental payments in the preceding month. The interim stop order was lifted on 17 February 2023 due to the action taken by One Card Credit.