Fringe lending practices in ASIC’s sights

In his inaugural speech as ASIC chair Joe Longo outlined the current financial environment’s impact on Australian consumers, making particular mention of a key segment of mortgage holders in current “volatile times”.

“In the current investment environment and throughout the financial services sector, consumer protection must remain in sharp focus,” Mr Longo explained.

“Against an aging population, volatility, complexity, and uncertainty make it a challenging time for investors, whether through superannuation or otherwise. That makes it more important than ever that products are appropriately designed, and that their marketing is targeted at the consumers they are appropriate for.

“These are the fundamental requirements of DDO, and ASIC is actively monitoring and enforcing these obligations," he said. 

The chair said that the regulator had “a range of targeted surveillance projects on foot", particularly focused on sectors where there there could be "consumer harm from poor design or distribution practices,” he said.

As well as highlighting that the regulator had concerns around "high-risk and niche investment products, including in some cases crypto-based products, to a very wide range of consumers", he added there was also concerns around "issuers promoting high-risk products as appropriate investments that will make up a significant portion of an individual consumer’s investment portfolio,” Mr Longo emphasised.

“This will not be tolerated and action will be taken,” he said.

The growing impact on home owners

He continued: “Rising interest rates and inflation are also putting increasing pressure on consumers of credit.

“For mortgage holders, that is exacerbated by uncertainty in property prices. Some consumers are facing hardship and arrears.

“Accessing mainstream credit and refinancing will be very challenging for this group,” he pinpointed.

“Some people are turning to fringe sources of credit that may cause harm, he warned.

“A key priority must be to protect consumers, especially the most vulnerable, “ he reminded.

“Harmful and predatory credit products and fringe lending practices is a particular area of focus for ASIC.

“Our targeted credit DDO surveillance work is focused on credit cards, buy now pay later products and small amount credit contracts.”

A basis for action moving forward

By day’s end, ASIC had officially announced its Enforcement Priorities for 2023, which will include enforcement action on predatory lending, as well as a continuing focus on disrupting investment scams, the regulator confirmed.

Protecting consumers from predatory lending practices has been made a focus after the regulator’s research showed more than 40 per cent of Australians hold two or more credit products.

Current economic conditions suggest further demand for credit cards, personal loans and short-term credit arrangements is likely to increase, it stated.

Throughout 2022, ASIC has also seen an increase in the collapse of property investment schemes, it highlighted.

ASIC will be prioritising enforcement action relating to how these property schemes have been managed, and will seek to hold individuals to account for their involvement, it warned.

While ASIC’s specific areas to target will change from year to year, it explained, in keeping with “shifting economic factors” and the “volatile risk environment”, five enduring priorities will remain:

- Misconduct damaging to market integrity including insider trading, continuous disclosure failures and market manipulation;

- Misconduct impacting First Nations people;

- Misconduct involving a high risk of significant consumer harm, particularly conduct targeting “financially vulnerable consumers”;

- Systemic compliance failures by large financial institutions resulting in widespread consumer harm; and

- New or emerging conduct risks within the financial system.

ASIC deputy chair Sarah Court announced the priorities at the forum, echoing the need to protect consumers from financial harm and uphold the integrity of Australia’s financial markets.

“This is the first time ASIC has identified particular areas of enforcement focus, which we now expect to do on an annual basis,” Ms Court explained.

“These priorities communicate our intent to industry and our stakeholders, and give a clear indication of where we will direct our resources and expertise,” she added.

“Australians have experienced a range of financial pressures in recent years, from the uncertainty of the COVID-19 pandemic to increased costs of living.

“On top of this, many have been affected by investment scams. We are prioritising the disruption of scams, including through working with other regulators, industry and social media platforms to reduce harm.”

[Related: Home loans most common breach report: ASIC]