Lender penalised for charging excessive interest to consumers: ASIC

The Federal Court ordered Layaway Depot Pty Ltd (Layaway) to pay a penalty of $375,000 for breaches of the Credit Act after an investigation by the Australian Securities and Investment Commission (ASIC).

According to ASIC, Layaway marketed consumer electronics (such as mobile phones and tablets) to financially vulnerable consumers who may not have access to mainstream credit.

It was found that Layaway charged excessive interest rates on 70 loans taken out by consumers for the purpose of buying electronic goods. ASIC alleged that the lender had customers paying instalments that totalled $780 for a Bluetooth speaker that retailed for $200 and $1,200 for a mobile phone that retailed for $249.

The National Credit Code has a prohibition in section 32A on lenders entering a credit contract where the annual cost rate exceeds 48 per cent, to which the court found that Layaway had indeed engaged in unlicensed credit activity and charged above the 48 per cent threshold in respect of 70 payment arrangements.

In addition, the Court ordered an injunction to permanently restrain Layaway from engaging in credit activity and entering credit contracts with an annual cost rate that exceeds 48 per cent.

According to ASIC, the lender has consented to the orders being made.

ASIC deputy chair Sarah Court said: “For a consumer to pay almost five times the market price for a mobile phone is excessive.

“For most of the consumers, their sole income was Centrelink benefits. ASIC will continue to take action where we see consumer harm in the provision of credit, especially where financially vulnerable consumers are involved.

“ASIC took on this case because we believed Layaway contracts were deliberately structured to get around consumer protections that exist under the Credit Act.”

She added that protections such as the maximum rate of annual cost that can be charged are put in place to “ensure credit is provided to consumers fairly, and people are not being taken advantage of”.

As of 12 June 2023, a range of new protections will apply for consumers who take out small amount credit contracts (SACCs) and consumer leases as a result of amendments to the consumer credit legislation introduced by the Financial Sector Reform Act 2022, the regulator stated.

[RELATED: ASIC sues Money3 for alleged responsible lending breaches]

Written by Adrian Suljanovic

Last Updated: 02 June 2023

Published: 05 June 2023