The business regulator has announced that it will exercise new powers for the first time in an attempt to shut down a controversial online payday lender.
- ASIC’s powers were strengthened earlier this year, following the Royal Banking Commission
- Consumer advocates say Cigno charged excessive fees and interest
- Cigno is not covered by the national consumer credit law, which means it may charge high rates
Under laws passed before the federal election, the Australian Securities and Investments Commission (ASIC) was given the power to prohibit or modify financial products where there was a risk of harming consumers.
Today, ASIC released a consultation paper proposing to use the new powers against Cigno Pty Ltd and its partner Gold-Silver Standard Finance Pty Ltd.
The regulator said it was targeting the lender’s model of charging fees under separate contracts, under which the combined fee could be up to around 990% of the loan amount.
Cigno offers loans of up to $ 1,000 which can be accelerated if the customer wants the money immediately.
ASIC said these loans must be repaid within 62 days, which increases the risk of default as repayments are based on the length of the loan, rather than the customer’s ability to repay.
“Unfortunately, we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short-term loan model,” said ASIC Commissioner Sean Hughes.
“Consumers and their representatives have given us many examples of the impacts of this type of loan model.
“Since we have only recently received this additional power, it is both timely and vital that we consult on our use of this tool to protect consumers from the significant harm resulting from this type of product.”
Cigno has long been criticized by consumer advocates and financial advisers as “predatory”, especially by those working in rural and remote communities.
Disability pensioner Rosita Stumpagee from the Kimberly region of Western Australia took out two Cigno loans totaling $ 250 in the past year.
She believed she repaid the full amount she owed, but has since received multiple text messages from a debt collection agency for $ 880.50.
“The loan started last year for [an] emergency, ”said Stumpagee.
“They loaned me $ 100. The second was $ 150.
“They keep texting me saying I owe $ 880 for two loans. $ 880, where? I didn’t get $ 500 or even $ 300. I didn’t get this. “
Consumer advocates say Cigno catches people with excessive fees and borrowers don’t realize they’re not paying off the principal.
They say Cigno is not regulated by the National Consumer Credit Protection Act (NCCP) because the company used a complex broker model to avoid the laws.
It also means that Cigno had not been subject to rules limiting the amount of interest that could be charged to customers.
“People don’t understand the structure of payday loans; that the first payments are only interest, before you even start paying the principal, ”said Amanda Young of the First Nations Foundation.
“Because Cigno is not covered by the NCCP law, they charge high rates.
“You can’t get them to respond to complaints.”
Research conducted by the First Nations Foundation found that in 2018, 23.1% of Indigenous people had access to extra-financial credit, such as payday loans, compared to 1.9% of the general population.
On its website, Cigno notes that it is not a lender, but “acts as an agent to help” consumers obtain loans from lenders.
“Currently our lender of choice is Gold-Silver Standard Finance Pty Ltd,” the website states.
“It can’t happen soon enough”
Advocates hoped ASIC would act quickly to use its newfound powers to root out bad practices harming vulnerable Australians.
Financial Counseling Australia chief executive Fiona Guthrie said ASIC’s decision to use its new powers “cannot come soon enough”.
“Financial advisers have dealt with case after case of a short-term lender using this business model,” Ms. Guthrie said.
“Cigno is not bound by credit laws due to its unusual structure, which separates its brokerage arm from its loan arm.
“Many people who take out loans through Cigno and Gold-Silver Standard Finance suffer significant harm to consumers, the test ASIC applies in deciding to use its powers.”
Consumer Action Law Center chief executive Gerard Brody said ASIC should consider compensation for affected consumers.
“Since 2015, Consumer Action’s legal practice has provided legal advice regarding Cigno 117 times, including 37 times since the start of the year,” he said.
“Many people who contact us, including financial advisers who support vulnerable clients, complain about the unaffordable and abusive loans facilitated by Cigno.
“It’s great that ASIC is using its new powers here.
“The message for Cigno and similar business models is that the time is up, you can no longer use tricky business models to avoid the law.”
ASIC said lenders would be contacted as part of the move.
“Before exercising our powers, we must consult with affected and interested parties,” said Mr. Hughes.
“This is an opportunity for us to receive feedback and additional information, including details of any other company providing similar products, before making a decision.”
The ABC has contacted Cigno for comment.