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FCA responds to ASIC proposal to use its new product intervention powers to rein in unregulated payday lending – it can’t happen soon enough

Financial Counselling Australia notes the release today of an ASIC consultation paper about whether it should use its new product intervention powers to rein in the lending practices of companies operating outside the credit laws.

The answer is yes.  And it can’t happen soon enough.

Financial counsellors have been dealing with case after case of a short-term lender, using this business model: Cigno.

Cigno is not bound by the credit laws because of its unusual structure, which splits its brokering arm from its lending arm. In this way the company is able to charge fees far higher than those allowed by the legislation regulating other short-term lenders. Cigno acts as an agent for a separate company called Gold-Silver Standard Finance.

Many people who take out loans through Cigno and Gold-Silver Standard Finance suffer significant consumer detriment, the test that ASIC applies in deciding to use its powers.

Financial Counselling Australia has been documenting the harm caused by this lending and have compiled a number of case studies – available here.

The case studies provided to FCA by financial counsellors include the following issues:

  • loans given to people whose accounts showed they were already overdrawn;
  • loans given to people whose bank statements showed numerous gambling transactions;
  • refusals to provide financial counsellors with the bank statements or the loan approval information used to assess clients’ suitability for a loan and ability to repay loans;
  • a loan given to a woman fleeing family violence who told staff she couldn’t afford to feed her family so it was obvious she wouldn’t be able to make any repayments; and
  • loans given to people who already had other payday loans and were experiencing financial hardship.

Case study after case study documents the exorbitant cost of these loans and how a small loan quickly escalates, especially when the borrower misses a payment. For example, a $350 Cigno loan escalated to $889.45 in 11 weeks. First there were the regular charges, with a financial supply fee ($262.50); a lender fee ($17.50); a priority transfer fee ($16); 11 weekly account fees ($65.45); and a change of payment amount fee ($20). Because the client was fleeing family violence she couldn’t maintain the repayments so then the missed payment fees escalated, with two dishonour fees ($98); and fees of $30 each for two dishonour letters ($60).

Another client borrowed $175 and even after repaying $564 still owed $123. “Megan’s” $300 Cigno loan stood at $1037.20 even after she had paid $700 towards the debt.

Financial Counselling Australia will be arguing strongly for ASIC to use its new powers against companies such as Cigno that structure their business model to avoid consumer credit laws. The harm such companies cause has to stop.

For more information, contact Fiona Guthrie, CEO, Financial Counselling Australia: 0402 426 835


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