The Federal Court has ordered Layaway Depot Pty Ltd (Layaway) pay a penalty of $375,000 for breaches of the Credit Act.
Layaway charged excessive interest rates on 70 loans taken out by consumers to buy electronic goods including mobile phones, televisions and speakers. For example, customers paid instalments which totalled $780 for a Bluetooth speaker which retailed for $200 and $1,200 for a mobile phone which retailed for just $249.
ASIC Deputy Chair Sarah Court said, ‘For a consumer to pay almost five times the market price for a mobile phone is excessive. For most of the consumers, their sole income was Centrelink benefits. ASIC will continue to take action where we see consumer harm in the provision of credit, especially where financially vulnerable consumers are involved.
‘ASIC took on this case because we believed Layaway contracts were deliberately structured to get around consumer protections that exist under the Credit Act. These protections, such as the maximum rate of annual cost that can be charged are in place to ensure credit is provided to consumers fairly, and people are not being taken advantage of.’
The Court found Layaway engaged in unlicensed credit activity and charged consumers in excess of the annual cost rate of more than 48% in respect of 70 payment arrangements.
The Court also ordered an injunction permanently restraining Layaway from engaging in a credit activity and entering into credit contracts with an annual cost rate that exceeds 48%.
Layaway consented to the orders being made.
Layaway marketed consumer electronics such as mobile phones and tablets to financially vulnerable consumers who may not have access to mainstream credit.
Section 9 of the National Credit Code (which is Schedule 1 to the National Consumer Credit Protection Act 2009) provides that goods leases with a right or obligation to purchase are to be regarded as sales of goods by instalments, which are deemed by the Code to be credit contracts.
The National Credit Code contains a prohibition in section 32A on lenders entering into a credit contract where the annual cost rate exceeds 48 per cent. The cost rate is determined by a formula that takes into account fees and charges and the timing of repayments.
More generally, from 12 June 2023, as a result of amendments to the consumer credit legislation introduced by the Financial Sector Reform Act 2022, a range of new protections will apply for consumers who take out small amount credit contracts (SACCs) and consumer leases, including a cap on the cost of consumer leases, a cap on the percentage of a consumer’s income that can be used to meet SACC or consumer lease repayments, and anti-avoidance provisions designed to disincentivise SACC and consumer lease avoidance practices.
ASIC’s Moneysmart helps Australians take control of their money with free tools, tips and guidance. Find out more about consumers leases and the real cost of rent to buy.