ASIC to crack down on predatory lending

Thursday, 01 February 2024

Sarah Court  photo
Sarah Court
Deputy Chair, ASIC

    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.

    Consumer hardship

    Our attention in 2024 will also be focused on compliance with financial hardship obligations. In August, we sent a letter to the CEOs of 30 large lenders — from whom we are collecting data relating to financial hardship applications — to ensure they appropriately support customers in hardship. For a third of these lenders, we are also reviewing their hardship practices. We expect to release our full findings mid-year. However, our message to boards is they should not wait to improve their practices if deficiencies are found.

    Last September, we commenced civil penalty proceedings against Westpac, alleging the bank had failed to respond to customer hardship notices within the required 21-day timeframe. The case alleges 229 customers were impacted, all of whom had advised Westpac they were experiencing hardship. Many had also told the bank about their difficult circumstances and vulnerabilities, including their inability to work, the impacts of serious medical conditions or their carer responsibilities. This case remains before the court.

    We pursued this case because submitting a hardship notice can be a lifeline for people experiencing financial difficulties — but only where notices are responded to promptly. We will continue our focus in this area through 2024, and will not hesitate to act should similar issues with other lenders attract our attention.

    Our purpose in communicating these enforcement priorities is to provide company directors with an opportunity to review their practices before they become the recipient of regulatory attention. It is in the interest of all Australians that corporate Australia conducts itself to the highest standards, which requires greater accountability from all.

    This article first appeared under the headline 'Pursuing The Predators’ in the February 2024 issue of Company Director magazine.

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