The financial services regulator has found short-term lender Cigno and BHF Solutions operated a lending model that relied on an exemption in the National Credit Code that claimed it did not require an Australian credit licence.
Neither BHF Solutions nor Cigno holds, or has ever held, an Australian credit licence.
The lender, BHF Solutions, provided the credit and charged a fee under the credit contract to consumers. While Cigno, under a composite services agreement, separately charged very high fees (including the “financial supply fee”) to arrange and manage the credit.
However, the court has found these fees, combined with the lender’s fees, “exceeded the prescribed maximum charge allowed” in order to be exempt from holding a credit licence.
The Federal Court found the “financial supply fee” charged by Cigno was a charge “made for providing credit”.
It comes after ASIC commenced proceedings against Cigno and BHF Solutions in September 2020 seeking declarations of contravention and injunctions.
The Federal Court dismissed ASIC’s application (June 2021) on the breach of consumer credit provisions, but has upheld its recent decision.
Cigno and BHF Solutions have until 26 July to file an application for special leave to appeal to the High Court.
ASIC said credit providers “must comply with the cap on costs” if they are to remain exempt from the National Credit Act and Code.
In making its decision, the Court found that legislation must be looked at in a way that “looks to the substance of the credit arrangements” rather than their contractual form and ensure remedial provisions are “not easily avoided”.
ASIC commissioner Sean Hughes said ASIC expects companies to be candid about their credit arrangements.
“Credit regulation exists to protect consumers from unscrupulous and unfair lending practices and companies should not seek to bypass important consumer protections through artificial structures and mechanism,” Mr Hughes said.
ASIC appealed the Federal Court decision after concerns consumers were being charged significant fees, which gave rise to hardship, Mr Hughes said.
The National Credit Act and National Credit Code impose important obligations to protect consumers, including disclosure requirements, caps on fees and interest rates, hardship provisions and free access to independent external dispute resolution services.
[Related: Court dismisses ASIC case against short term lenders]