Are ‘predatory’ lenders giving the private credit market a bad name?

Over the last couple of weeks, there have been cases of private lending company Oak Capital allegedly stinging consumers. One, as reported by Broker Daily involved ASIC suing the lender over ‘unconscionable conduct’.

“As a result of loans being treated as unregulated, we allege Oak Capital deprived its clients of important consumer protections, including responsible lending obligations, the right to make a hardship application and protection from being charged excessive fees and interest,” said ASIC deputy chair Sarah Court.

Just a day earlier, Oak Capital made headlines after a borrower alleged the lender sent ‘bikie enforcers’ to his house to settle a debt.

Peter Aquino, the director of a building company told The Australian Financial Review that Oak Capital sent men who “looked like bikies” to his house after he missed a payment in March 2023.

“My partner was there, there was no need. I’ve got a one-year-old and a three-year-old. She was petrified,” Aquino said.

“I’m head to toe covered in tattoos. So if [my partner] says they were scary, it’s not like she lives with someone who doesn’t look intimidating. Do you know what I mean? She didn’t say they look like you, she said, ‘Peter, they were scary’.”

Speaking to Broker Daily, Tyalla Capital’s CEO and managing director James Ostroburski is disappointed that these headlines give the private credit market a bad name.

"This sector has long been plagued by unethical lenders and entities that fall into the category of predatory lending. While not every participant is problematic, a significant proportion of those operating in this market for an extended period have engaged in questionable lending practices," said Ostroburski.

"During the early days of Tyalla Capital, as we approach 18 months since our inception, we reviewed loan agreements from some of the larger private lending competitors. Alarmingly, we encountered instances of punitive default clauses, including instances where the penalty for default was 2 per cent of the loan principal per month."

"We began to observe troubling patterns in how private lenders managed defaults, even when they were merely a few days or weeks into the at-risk or default phase."

According to Ostroburski, the Banking Royal Commission served as a catalyst for private credit organisations to thrive.

"With 17 years of experience in both the banking and broking sectors, I've witnessed a remarkable transformation in lending practices. The regulatory landscape has notably evolved, especially following the Hayne Banking Royal Commission, which significantly impacted both brokers and customers."

"This evolution and tightening of the credit market for SMEs, investors and entrepreneurs has fostered an environment conducive to the growth of the private credit market, a trend we’ve observed over the past one to two years," he added.

Through this rise in private credit companies, so too has ASIC’s attention on practices in the space picked up, said Ostroburski, which is thankfully weeding out these “bad actors.”

"Regulatory scrutiny from ASIC in the private lending sector is increasing. I anticipate that within the next one to two years, we will see the implementation of regulations aimed at addressing the actions of unethical behaviours in this space," he said.

With this increased attention from regulatory bodies, the predatory lenders may be on their last legs.

"There are indeed some bad players in this space—lenders who operate with questionable motives ... I believe that some of these operators who impose excessive establishment and default penalties won’t be able to survive the next three to five years."

In his closing remarks, Ostroburski highlighted the importance of thoughtful regulation.

"Many long-established players in private lending continue to engage in irresponsible lending practices, with punitive default terms and above-market rates. Tyalla Capital fully supports ASIC’s increased involvement in the sector. However, it’s essential that any new regulation is implemented thoughtfully and at a sustainable pace. Our concern is to avoid outcomes that could restrict Australian businesses and investors from accessing the credit they need to grow," he concluded.

Related: ASIC sues lender over ‘unconscionable conduct’

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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