FCA welcomes Federal Court’s Cigno decision

Financial Counselling Australia welcomes today’s court decision which dismissed the appeal by short-term lender Cigno and its associated company Gold-Silver Standard Finance against its banning.

ASIC had used its new product intervention powers to ban Cigno and Gold Silver Standard because of the significant consumer detriment its products cause – the test that ASIC applies in deciding to use its powers.

Financial counsellors have provided numerous examples of the extraordinary harm caused to people who took out loans through Cigno, which operates outside the credit laws.

“This is a fantastic decision,” said Fiona Guthrie, chief executive of Financial Counselling Australia. “The fees that Cigno charged were exorbitant.  For example, one client took out a $350 Cigno loan and in 11 weeks that had escalated to $889.45.

“Another client borrowed $175 and even after repaying $564 still owed $123.

“This company lent money to people whose accounts showed they were already overdrawn; and it lent money to people whose bank statements showed numerous gambling transactions.”

FCA documented numerous case studies given by financial counsellors from all around the nation and they included the following issues:

• 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.

Cigno was 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 was able to charge fees far higher than those allowed by the legislation regulating other short-term lenders.

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