The Federal Court has found Membo Finance Pty Ltd (Membo) and its sole credit representative, Richmond Group Financial Services Pty Ltd (RGFS), trading as ClearLoans, breached the National Consumer Credit Protection Act (the Credit Act) and has ordered the companies to pay over $6m in penalties.

The Court found both Membo and RGFS (by its involvement) failed to act efficiently, honestly and fairly when dealing with debtors in financial hardship and commenced court proceedings to enforce credit contracts in a state other than where the borrower or guarantor lived.

ASIC Deputy Chair Sarah Court said, ‘ASIC took this matter to Court at the height of the COVID-19 pandemic, when many consumers were experiencing financial hardship. This was a credit business that we believed was not fairly assessing hardship requests as required by law, and in many cases was making it more difficult for consumers to get back on track by failing to notify them of direct debit defaults.’

‘Credit providers must comply with their obligations to ensure financial hardship requests are properly dealt with, so consumers don’t fall further into debt,’ concluded Ms Court. 

Between 15 December 2017 and 16 December 2020, Membo and/or RGFS:

• failed to provide written decisions and reasons to borrowers who applied for their credit contracts to be varied due to financial hardship, including because of a change in the borrower’s circumstances;
• failed to consider hardship notices provided by borrowers prior to making inquiries of their guarantors to make payment;
• failed to issue notices warning borrowers or guarantors of a direct debit default on the first occasion a default occurred;
• failed to give borrowers and guarantors 30 days to correct a default before commencing enforcement proceedings, as required under credit laws;
• commenced court proceedings to enforce credit contracts in states or territories outside of where a borrower or guarantor lived;
• failed to ensure Membo’s representatives were adequately trained, particularly in relation to hardship applications; and
• failed to take reasonable steps to ensure that Membo’s representative complied with credit laws.

The Court made orders for Membo and RGFS to discontinue a number of enforcement proceedings against borrowers and guarantors.

In handing down his decision, Justice Yates concluded that the hardship provision of the Credit Act, ‘provides an important formal mechanism to protect consumers who may be vulnerable in times of financial hardship.’

Membo and RFGS made admissions regarding the misconduct, agreed to injunctions, the penalty amounts and to pay ASIC’s costs.

Background

The ultimate parent company of Membo and RGFS is Richmond Group Limited, located in the United Kingdom.

Membo and RGFS carried on a credit business trading as ClearLoans, which provided 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 were secured by a personal guarantee, usually given by a friend or relative of the borrower.

In cases of default by a borrower, ClearLoans attempted to collect from the guarantor.

Under the Credit 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.

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