The Federal Court today found the business model used by Rent4Keeps to sell everyday goods, such as furniture, electronics and whitegoods breached the Credit Act.
Between 1 April and 30 June 2019, Rent4Keeps’ largest franchise, Darranda Pty Ltd, entered into 516 ‘lease’ agreements with customers, often from low socioeconomic backgrounds, who paid significantly more for items than they lawfully should have.
The Court found that Rent4Keeps and Darranda attempted to style their lending arrangements as “leases” for goods which the customer was not entitled to keep, when in fact customers did keep the goods, consistent with the business’s name. However, the Court found that they were not leases but instead credit contracts meaning that Darranda contravened the 48 per cent annual rate cap and other requirements under the Credit Act.
Deputy Chair Sarah Court said, ‘Today’s outcome is important. ASIC took this case because we were concerned that Rent4Keeps had a business model which was denying consumers important protections under the Credit Act.’
‘Many Rent4Keeps’ customers are vulnerable people with a poor credit rating, the majority of whom paid using Centrepay and were unable to access credit elsewhere in the market.
‘Rent4Keeps characterised its business model as helping people who could not otherwise afford the goods. However, by contravening the Credit Act rate cap obligation, hundreds of customers of the Rent4Keeps franchise were charged well above the amount that could lawfully be charged, and more than four times the retail cost of the goods, and did not receive other important consumer protections.
‘This case should send a strong deterrent message about business models in the credit industry which exploit the circumstances of financially vulnerable consumers.’
The Federal Court found that numerous deficiencies in Darranda’s business resulted in it failing to act efficiently, honestly and fairly in its credit activities, and that it fell short of conducting its business in a way that was “ethically sound”. The Court also found that Rent4Keeps was knowingly involved in Darranda’s contraventions.
Consumers typically paid more than four times the market price for everyday consumer goods, such as mobile phones and whitegoods. For example, one of the unemployed consumers was charged $4,095 over 18 months for a vacuum cleaner that could have been purchased for $999.
Justice Hespe in the Federal Court in Melbourne accepted ASIC’s submission that ’The failure to comply was a result of a breach of the standard of competence required to engage in licensed credit activities “efficiently, honestly and fairly.”’
Rent4Keeps is the head franchisor of consumer lease franchises across Australia providing home appliance and furniture rentals.
ASIC will seek financial penalties against Rent4Keeps and Darranda.
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Background
Rent4Keeps Pty Ltd operated a franchise-based business through which its franchisees, including Darranda Pty Ltd, provide essential goods such as fridges, washing machines and mobile phones to people on low incomes or who receive Centrelink benefits, to be paid via instalments.
Rent4Keeps is no longer providing credit contracts to consumers, however a related entity has been operating under the trading name “R4K” since 1 July 2023.
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.
Darranda is the Victorian ‘State Master’ of around 12 Rent4Keeps franchisees. It operates in both Victoria and South Australia. During the period concerned in the litigation, Rent4Keeps had a total of 33 franchisees across Australia.
At the time of the contraventions the National Credit Code contained a prohibition in section 32A on lenders entering into a credit contract where the annual cost rate exceeded 48 per cent, but this cap did not apply to consumer leases. The law has now changed so that the rate cap also applies to lease arrangements. The cost rate is determined by a formula that takes into account fees and charges and the timing of repayments.
ASIC’s Moneysmart has further information on consumer leases, rent to buy and how it works.
Editor's Note:
The matter has been listed before Justice Hespe at 9.30 am on 16 October 2024 for a case management hearing.