ASIC has released a consultation paper (CP 316) on the first proposed use of its new product intervention power. On this inaugural occasion, ASIC is looking to address significant consumer detriment in the short term credit industry.
Under their recommended Option 1: ASIC would use their product intervention power to:(a)make an industry-wide product intervention order by legislative instrument under s1023D(3) of the Corporations Act to prohibit credit providers and their associates from providing short term credit and collateral services except in accordance with a condition which limits the total fees that can be charged; and(b)if a new model, which seeks to circumvent the industry-wide product intervention order, evolves in response to the prohibition, amend the existing order or introduce a new order to address that model. 71
In ASIC’s view, Option 1 is preferable because:(a) the product intervention order will prevent the use of the short term lending model which is causing significant consumer detriment; (b) it will prevent other credit and collateral services providers from adopting this model; (c) it promotes protection for consumers who require small amount credit contracts but who are provided with short term credit (and services agreements) in reliance on the short term credit exemption; and (d) it is a more comprehensive and timely response than the other options.
The product intervention power allows ASIC to intervene where financial and credit products have resulted in or are likely to result in, significant consumer detriment. The new product intervention power is an important addition to ASIC’s regulatory toolkit. It reinforces ASIC’s ability to directly confront, and respond to, harms in the financial sector.
ASIC considers that significant consumer detriment may arise in relation to a particular model designed to provide short term credit at high cost to vulnerable consumers. These consumers include those on low incomes or in financial difficulty.
In its first proposed deployment of this power, ASIC is targeting a model involving a short term credit provider and its associate who charge fees under separate contracts. When combined, these fees can add up to around 990% of the loan amount.
While ASIC is presently aware of two firms currently using this model – Cigno Pty Ltd and Gold-Silver Standard Finance Pty Ltd – the proposed product intervention order would apply to any firm using this type of business model.
Announcing the consultation ASIC Commissioner Sean Hughes said, ‘Sadly we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short term lending model. Consumers and their representatives have brought many instances of the impacts of this type of lending model to us. Given we only recently received this additional power, then it is both timely and vital that we consult on our use of this tool to protect consumers from significant harms which arise from this type of product.’
‘Before we exercise our powers, we must consult with affected and interested parties. This is an opportunity for us to receive comments and further information, including details of any other firms providing similar products, before we make a decision’.
ASIC seeks the public’s input on the proposed intervention order by 30 July 2019. Submissions should be sent to: product.regulation@asic.gov.au.
ASIC anticipates making a decision on whether to make a product intervention order in relation to short term credit during the course of August 2019.
All intervention orders subsequently made must be published on ASIC’s website, and a public notice issued in relation to the intervention.
Download
Background
On 4 April 2019 ASIC published a media release welcoming the approval of new laws to protect financial service consumers (refer: 19-079MR).
ASIC also published a media release on 26 June 2019 confirming that it initiated consultation on the administration of its new product intervention power (refer: 19-157MR).
ASIC was unsuccessful in civil proceedings in the Federal Court in 2014 involving an earlier use of this short term lending model by two entities Teleloans Pty Ltd and Finance & Loans Direct Pty Ltd (refer: 15-165MR).
ASIC’s MoneySmart website has information about payday loans and alternatives and where to find free help with managing debt.
