Today’s Full Federal Court decision to dismiss an application by Cigno Pty Ltd (Cigno), seeking to quash the Australian Securities and Investments Commission’s (ASIC) product intervention order to reign in short-term credit fees and charges, has been applauded by consumer advocates.
ASIC’s product intervention order halted a regulatory avoidance model involving Cigno that saw significant fees and charges added to ‘collateral contracts’ with consumers.
This model resulted in significant harm to many people across Australia, with some being signed up to contracts with fees costing upwards of 1,000 percent of the original loan amount. The product intervention order expired in March 2021.
Financial Rights Legal Centre Chief Executive Officer Karen Cox said it was an important win for thousands of consumers who have become tied up in debt and fees that far outweigh the small amount borrowed in the first place.
"Financial Rights has made numerous complaints to the regulator concerning very vulnerable consumers who have contacted our service for assistance with these loans," Ms Cox said.
"We urge ASIC to use its powers as clarified by the Court and recent amendments to close down these exploitative lending models for good."
Gerard Brody, CEO of Consumer Action Law Centre said it was an important decision that should give the regulator confidence to use its product intervention powers again where there is evidence of significant consumer detriment.
"We urge Treasurer Josh Frydenberg to make the original product intervention order in relation to short-term credit permanent, so that people won’t need to worry about being stung by this predatory lending model again in future," Mr Brody said.
Consumer groups supported the use of the product intervention power in submissions to ASIC’s consultation in 2019.
Fiona Guthrie, CEO of Financial Counselling Australia said the decision is a huge relief for financial counsellors.
"For the past few years we have seen too many clients unable to pay for food, rent or electricity because of loans to Cigno – loans that should never have been provided in the first place," Ms Guthrie said. "ASIC’s product intervention powers are meant to address significant detriment and that is what they have done. The Cigno loan model needs to be stamped out."
Since ASIC’s original product intervention order, a new ‘continuing credit’ model involving Cigno emerged that has sought to skirt around the law yet again. Financial counsellors and community lawyers have received calls from people who continue to be charged exorbitant amounts under this new model. ASIC consulted on a further product intervention order to address this new model in 2020 but has yet to make the order.
Consumer groups responded to the disappointing Federal Court decision on 23 June 2021 dismissing ASIC’s action against Cigno for unlicensed lending here.