ASIC sues Money3 for alleged responsible lending breaches

Money3 provides personal loans and consumer vehicle finance through direct, broker, and dealer channels within Australia. According to ASIC, a significant amount of Money3’s business is with consumers who are “unable to access a traditional bank loan for a variety of reasons”.

The regulator has alleged that, between May 2019 and February 2021, Money3 failed to properly assess whether certain borrowers (including First Nations peoples) could meet their repayment obligations before entering into loan contracts for the purchase of second-hand vehicles.

This would be a breach of the National Credit Act, which requires credit providers to make reasonable inquiries about a borrower’s financial situation and assess whether a loan contract will be unsuitable for the borrower.

ASIC outlined that a substantial proportion of Money3 customers were ‘sub-prime’ borrowers, either receiving Centrelink payments as their sole income or were on low incomes.

Specifically, ASIC is putting to the court that Money3:

• Entered into ‘unsuitable’ loans with six consumers over five credit contracts, meaning the consumer could not meet their repayments without experiencing financial hardship
• Failed to assess those loans as unsuitable by determining that the consumers could not meet the repayments without experiencing financial hardship
• Failed to make reasonable inquiries about, and verify, those consumers’ financial situation, requirements, and objectives
• Failed to take reasonable steps to ensure that its representatives complied with the credit legislation and were adequately trained and competent

The regulator is also alleging that, when approving loans, Money3 applied “arbitrary expense amounts” from an internal ‘product guide’, which were not based on the consumer’s financial situation and were substantially lower than their reasonably necessary expenses.

For example, it said that the lender’s serviceability assessment included general weekly living expenses of $200 (or $225 from August 2019), a minimum amount of $100 a week for rent, plus an amount of $50 a week for each dependent (non-adult) child. These were reportedly derived from its own staff survey, not the individual’s financial situation.

According to ASIC deputy chair Sarah Court, the regulator is particularly concerned with consumer loans that showed the purchase price of $8,000 for a second-hand vehicle but with additional fees (including an application fee, a broker fee, and extended warranty insurance) adding another $3,000.

Ms Court commented: “‘An $11,000 loan is a substantial sum for a consumer on a low income to repay without having been properly assessed as to whether they could afford to repay it.

“ASIC is concerned that Money3 did not properly assess these loans to determine whether the consumers could meet their repayments without causing harm.

“These loans were mainly provided to people on low incomes, adding to their financial distress.”

Ms Court added that, in some cases, the vehicle broke down, leaving the consumer with “an unusable car and a loan that they couldn’t afford, compounding the detriment”.

ASIC flagged that one consumer was a single mother, with three dependent children aged between four and eight, who had been unemployed for six years and living on Centrelink payments for about 16 years. Her sole source of income was Centrelink payments and child support payments. Money3 allegedly entered into the contract with the consumer after receiving an “incomplete application form” from a broker.

She traded in another vehicle for the vehicle financed by the loan, which broke down shortly after purchase and required repairs.

In its case, ASIC has alleged that as a result of the credit contracts, Money3 earned profits, including interest, and loan application or establishment fees on the loans, at the expense of the consumers.

ASIC added that, as a result of Money3’s alleged contraventions, each of the consumers fell into hardship and suffered distress as a result of the credit contracts.

“Taking strong action against credit providers who we consider have failed to consider the financial circumstances of vulnerable consumers is a key focus for ASIC this year,” Ms Court concluded.

[Related: Money3 funding cap rises to $665m]