The Australian Securities and Investments Commission (ASIC) has targeted a short-term model of lending with its product intervention powers.
This model has been used by Cygno, Gold Silver Standard Finance, MYFI Australia and BHF solutions.
The business model allowed a short-term credit provider to be exempt from credit licensing, conduct and responsible lending obligations under the National Consumer Credit Protection Act 2009.
“ASIC is ready and willing to use the new powers that it has been given. The product intervention power provides ASIC with the power and responsibility to address significant detriment caused by financial products, regardless of whether they are lawfully provided,” Commissioner Sean Hughes said in an official earlier this week.
The regulator also reminded industry that there are civil and criminal penalties that come along with breaching this order.
In a previous interview speaking on the product intervention powers, the GRC Institute Strategic Engagement and Stakeholder Consultant Carole Ferguson told the GRC Professional, “It will be a big stretch for organisations that offer a lot of products. The legislation gives ASIC the power to issue a ‘product intervention order’ if the regulator is satisfied that a financial product or a credit product ‘has resulted in or will, or is likely to, result in significant detriment’ to retail clients or consumers (as applicable).”
Taking on Short-term Credit
Two months ago, ASIC released a consultation paper focused on Product the intervention power concerning short term credit loans to which they received 20 submissions and four of which came from affected customers.
The National Credit Providers of Australia (NCPA) supplied a two-paged response they also expressed their support for ASIC’s use of the intervention power saying that, “This is of particular concern to NCPA members and all the small and medium loans businesses that are subject to the regulatory controls and oversight (s5 of the National Credit Act defined as a short-term credit contract) of the very legislation enacted to protect consumers from harm caused by these dodgy financial operators and their products. The community expects that financial credit-related products should be fit for purpose and comply with responsible lending obligations and do not cause detriment to consumers.”
The Consumer Action Law Centre CEO Gerard Brody supported ASIC’s move against this model but suggested that there is more work to be done.
“We applaud ASIC for using their powers to protect people from reckless lenders, but the Government also needs to act on recommendations made by the 2016 Small Amount Credit Contract Review that is committed to implementing more than 1,000 days ago.”
ASIC Commissioner Hughes added, “ASIC will take action where it identifies products that can or do cause significant consumer detriment. In this case, many financially vulnerable consumers incurred extremely high costs they could ill-afford, often leading to payment default that only added to their financial burden.”