The Federal Court has found that Ferratum Australia Pty Ltd (in liquidation) charged prohibited fees and overcharged customers on small amount credit contracts. It also found that Ferratum had an inadequate system for calculating, recording and monitoring early payout amounts.

The action was brought by ASIC after an ASIC surveillance identified the misconduct, and a further investigation found systemic problems with Ferratum’s processes, which were known to Ferratum but largely ignored by its management.

ASIC Deputy Chair Sarah Court said, ‘Consumers entering into small amount credit contracts like these are often experiencing financial hardship. By charging unlawful fees and overcharging people looking to pay out their loan early to avoid hefty ongoing fees, Ferratum significantly compounded that hardship.

‘In one case, a customer borrowed $1,900 and was overcharged by $658, or 34% of the loan amount, when they paid out their contract three months early. The customer was also charged $40 in prohibited fees. This was a vulnerable consumer who was a single parent with dependants and had three other small amount credit contracts at the time.

‘ASIC pursued this matter because of the clear harm to consumers, many of whom were financially vulnerable. Protecting those consumers from misconduct by high-cost credit providers remains a priority for ASIC,’ concluded Ms Court.

The Court found that between March 2019 and August 2021, Ferratum breached consumer credit protection laws in relation to small amount credit contracts by:

• charging borrowers prohibited fees such as direct debit fees when using certain credit cards and fees to alter direct debit arrangements,
• entering into contracts with borrowers which imposed prohibited fees,
• incorrectly calculating the payout amount for early repayment in two-thirds of identified contracts, and
• failing to act efficiently, honestly and fairly by ensuring it had an accurate and reliable system to calculate, record and monitor early payout amounts.

When handing down judgment, Justice Kennett remarked that, ‘Ferratum was (or at least should have been) well aware of the deficiencies in its system and their potential to affect customers, yet persisted with that system.’

His Honour further said that while, ‘there is no evidence of a subjective intention on the part of Ferratum’s controlling minds to take unfair advantage of its customers, failing to implement a system that would charge those customers correctly fell short of what was “ethically sound”.’

The matter has been listed for a case management hearing on 5 October 2023 in order to set a timetable for a hearing on the question of the appropriate final orders.

Background

ASIC commenced the proceeding against Ferratum on 1 November 2021 who defended the allegations until its voluntary liquidation on 4 April 2023. The Court granted ASIC to leave to continue the proceeding notwithstanding Ferratum’s liquidation.

The trial before Justice Kennett took place on 5 June 2023.

At the time of the misconduct, Ferratum’s ultimate holding company was Multitude SE, a European public limited liability company based in Finland which provides mobile and digital financial services to consumers and small businesses globally.

Under national consumer credit protection laws, a provider of a small amount credit contract must not impose fees and charges apart from: an establishment fee, a monthly fee, a fee payable in the event of a default, or a government fee, charge or duty.

A borrower is also entitled to pay out their small amount credit contract at any time and can only be charged an amount that is calculated in accordance with the National Consumer Credit Protection Act.

If consumers have taken out a loan with Ferratum and are concerned that they may have been affected by this conduct, they can make a complaint to the Australian Financial Complaints Authority (AFCA) on 1800 931 678.

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Editor's note:

On 9 October 2023, the Court made declarations following its judgment on 7 September 2023 that Ferratum had contravened provisions of the National Credit Code and the National Consumer Credit Protection Act by charging prohibited fees, overcharging customers on small amount credit contracts and having an inadequate system for calculating, recording and monitoring early payout amounts. 

The proceeding will be listed for a hearing on penalty on a date to be fixed in the second half of February 2024, with an estimate of half a day.

Editor's note 2:

The Court has listed the matter for a hearing on penalty on 22 February 2024. 

Editor’s note 3:

The hearing on penalty took place on 22 February 2024.  Judgment has been reserved.