ASIC to crack down on predatory lending

The corporate regulator will hold directors accountable in areas of emerging consumer harm, writes ASIC Deputy Chair Sarah Court. 

The conduct of directors has long been of interest to ASIC. Directors’ duties and the high standards they demand set the tone for corporate Australia. When these obligations are not met there can be significant harm to consumers and investors. The most egregious governance failures can lead to corporate collapse. For directors, this means a sustained regulatory focus from ASIC on offences such as breaching directors’ duties, concealing company assets and failing to comply with obligations to assist liquidators. It also means increased attention — and accountability — for areas of emerging consumer harm.

This year, in particular, ASIC will increase its focus on high-cost credit and predatory lending to consumers and small business. In today’s uncertain economic environment, with increased cost of living pressures and financial hardship, more people are likely to become the target of predatory lending practices, especially those on lower incomes. ASIC will not hesitate to step in to protect vulnerable Australians from these practices. We are particularly concerned where it appears business models have been designed to avoid consumer credit protections.

Unlicensed credit activity

Some may be familiar with ASIC’s long-running litigation against Cigno Pty Ltd and BHF Solutions Pty Ltd. Last July, the Federal Court found that the objective purpose of the lending model established by these companies was to avoid the provisions of the National Consumer Credit Protection Act 2009 (National Credit Act) and the National Credit Code.

ASIC was required to take further action last October — and this time joined to the proceedings a director of each of the companies. ASIC alleges BSF Solutions provided over $34m in loans, while the companies together charged over $70m in fees — without either entity holding an Australian credit licence. ASIC further claims the company directors were involved in the unlicensed activity and National Credit Act breaches.

The message here is that ASIC will pursue directors personally where significant corporate misconduct is alleged. The fact we continue to receive multiple complaints from consumer agencies about similar conduct by yet more related entities of these companies is symbolic of the regulatory and enforcement challenges we face in protecting consumers from what we consider to be unlawful lending practices.