Consumer groups and financial counsellors are urging the Australian Securities and Investments Commission (ASIC) to act now to put an end to the use of harmful lending models used to charge excessive fees on top of short-term loans.
For over four years, fringe lender Cigno has signed people up to short-term personal loan arrangements using two-contract lending models falling within exemptions to the national credit laws, charging consumers fees well above the maximum allowable under any form of regulated credit.
ASIC is currently consulting on a proposal to ban the two models that have been used interchangeably by Cigno.
“We have been getting calls from people for years struggling to deal with outrageous and completely unjustified fees charged by Cigno on small loans. The high fees charge with these loans cause actual harm at an inconceivable rate… our data indicates our lawyers answer calls about Cigno with comparable frequency to those about the largest credit providers in Australia,” said Consumer Action Policy Officer Tom Abourizk.
“The use of these lending models by Cigno has continued for too long, leaving people in harmful debt spirals,” said Abourizk.
“ASIC has a power to intervene where conduct in a market is causing significant detriment to retail clients. Cigno’s business models are as clear an example of such detriment that financial counsellors have seen,” said Fiona Guthrie CEO, Financial Counselling Australia.
“Thousands of people are paying fees at eye-watering levels that never should have been permissible. For example, a $60 loan can attract fees charged the same day of $420. People end up trapped in debt, repaying these small loans many times over, leaving them much worse off.”
“The various Cigno avoidance models have been in place now for too long and far too many people, and their children, have been harmed. We urge ASIC, and the Minister, to act as swiftly as possible,” she said.
Amy Knox (Acting Director of Casework) at Financial Rights Legal Centre said “…the business models of lenders like Cigno is designed to avoid the law and exploit the most financially vulnerable people in Australia.
“The interventions proposed by ASIC will reduce the number of truly shocking examples of exploitation we see at our Centre, including people being charged unjustifiable fees and chase for amounts vastly in excess of the amount borrowed – we have seen cases of more than $1000 being sought to repay a $150 loan.”
“ASIC’s intervention to shut down these exploitative and predatory lending models is urgently needed,” she said.