ASIC takes short-term lenders to court

Cigno and BHF Solutions operate a lending model that provides small amount of credit to numerous consumers, and charges “substantial fees” on the amounts borrowed, ASIC said.

However, neither lender holds or has ever held an Australian Credit Licence as required by the NCCP Act.

In April last year, ASIC published a consultation paper on the proposed use of its new product intervention powers, and in July 2019, it announced plans to use them to address the “significant consumer detriment” in the short-term credit industry.

It singled out Cigno and its associate Gold-Silver Standard Finance, which are not covered by the NCCP Act.

When ASIC banned the short-term lending structure, Cigno filed a judicial review application in the Federal Court seeking to challenge ASIC’s product intervention order in respect of short-term credit.

In April 2020, the federal court dismissed an appeal made by Cigno to overturn ASIC’s product intervention order that banned its loan structure, with costs awarded to ASIC.

In May 2020, an appeal was filed with the Federal Court, which will be heard by the Full Federal Court on 19 November 2020.

According to ASIC, on or around the date the product intervention order was made, Cigno began operating its current business with BHF Solutions, in which it is looking to operate under the continuing credit exemption.

ASIC’s latest proceedings are in relation to this new model.

In these proceedings, ASIC has alleged that between 18 October 2019 and 31 March 2020:

• BHF Solutions contravened section 29 of the National Credit Act by engaging in credit activity without holding an Australian Credit Licence by entering into credit contracts with three borrowers and carrying on a business of providing credit; and
• Cigno contravened section 29 of the National Credit Act by engaging in credit activities without an Australian Credit Licence by performing obligations and exercising rights of BF Solutions in relation to the latter’s credit contract with the three borrowers and providing a credit service to the borrowers.

ASIC is seeking that both lenders declare contraventions of section 29 of the National Credit Act, and permanent and interim injunctions under section 177 of the act restraining BHF Solutions from engaging in the credit activities of being a credit provider under a credit contract and carrying on a business of providing credit.

ASIC is also seeking permanent and interim injunctions under section 177 of the act restraining Cigno from engaging in the credit activities of providing a credit service and performing the obligations, or exercising the rights, of a credit provider in relation to a credit contract or proposed credit contract.

The proceedings will be listed for directions on a date to be determined by the court.

In July this year, ASIC issued consultation paper 330, in which it proposed to use its product intervention powers to tackle “significant detriment” caused by continuing credit products. Its concerns relating to continuing credit contracts were identified during its investigation of short-term lending, it said.

[Related: AFCA backs push to ban credit product]