ASIC Consults on Second Use of Product Intervention Order

Source: Regulation Asia Editors, Regulation Asia 2020-07-10

ASIC names BHF Solutions and its associate, Cigno, saying they both enter into high-cost continuing credit contracts with retail customers without a credit licence.

ASIC (Australian Securities and Investments Commission) has issued a consultation paper on its second proposed use of its product intervention power to address significant detriment it has identified in the continuing credit industry.

This proposed intervention follows the product intervention order that ASIC made in September 2019, which banned a short term lending model where credit providers charge additional fees under separate contracts through associate companies.

In April, an Australian court dismissed a judicial review application brought by payday lender Cigno, which sought to quash the product intervention order. Cigno was required to pay ASIC’s legal costs.

ASIC says it has identified another class of financial products, namely continuing credit products, that are “likely to result in significant detriment” due to their “very high cost” to borrowers relative to the loan amount. Continuing credit products are also being issued to vulnerable clients, including many who are already in financial difficulty, the regulator says.

ASIC says is currently aware of two firms engaging in the concerning conduct. In the consultation paper, it names BHF Solutions and its associate, Cigno, saying they both enter into continuing credit contracts with retail customers and charge various fees in excess of the maximums prescribed in national credit regulations.

Cigno’s fees are said to include “financial supply fees”, weekly account-keeping fees, default fees, change of payment fees and drawdown fees. ASIC says the high fees payable on default create a financial incentive to offer credit to retail clients who are unable to meet repayments, and result in further financial hardship.

In a case study presented in the consultation paper, one client was charged almost AUD 1,100 in fees for a AUD 350 loan from BHFS issued in September 2019. By December 2019, the client still owed over AUD 1,200.

In another case, a client repaid AUD 309 on a AUD 250 loan issued in September 2019, but still owed Cigno and BHFS over AUD 900 as of December 2019.

Both BHFS and Cigno do not have a credit licence and are not members of AFCA (Australian Financial Complaints Authority), which mean clients do not have access to National Credit Act consumer protections or dispute resolution mechanisms.

The consultation paper, available here, is open for feedback until 6 August 2020.

ASIC’s power to intervene when it believes there is a risk of significant consumer detriment was granted last April.

ASIC Consults on Second Use of Product Intervention Order

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