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The report shone a spotlight on the improvements small amount credit contracts (SACCs) have made to their target market determinations (TMDs) and their compliance with design and distribution obligations (DDO) after an intervention by the Australian Securities & Investment Commission (ASIC).
ASIC’s report focused on SACCs because of the “overrepresentation of financially vulnerable consumers” using these products, which led to higher risks of consumer harm.
The outcome of ASIC’s review found that SACC lenders’ TMDs were lacking in detailed descriptions of their product and target market.
The areas of concern highlighted by ASIC were:
- Product descriptions: ASIC found that in most cases, these definitions were insufficient at describing key features and attributes of the specific product.
- Defining target markets: The descriptions used of consumer classes were “too broad to be meaningful”. Credit issuers are at risk of breaching their obligations if they don’t provide enough detail when describing their target markets.
- Setting trigger reviews: Trigger reviews were also found to be too broad and “unlikely to lead to reviews of TMDs where a review would be appropriate”.
ASIC commissioner Sean Hughes stated: “All TMDs reviewed featured at least one of the shortfalls we identified.
“While SACC lenders have made changes to address the concerns identified, we expect all lenders to review their TMDs and product governance arrangements to ensure that they are complying with all of their obligations under the law.
“The nature of the DDO regime requires lenders to make continued improvements and refinements to their TMDs or products as they identify and respond to poor consumer outcomes resulting from these loans.”
ASIC actioned its first DDO interim stop orders earlier this year against three financial firms (Responsible Entity Services Limited, UGC Global Alpha Limited and UGC Global Alpha Fund Limited) after it was alleged that the firms had deficiencies in their TMDs for their products.
New bill passed to protect consumers
On 6 December 2022, the Financial Sector Reform Bill 2022 was passed by Parliament in order to improve national credit laws in regard to payday loans and consumer leases.
The bill’s goal is to guarantee consumers that payday lenders and consumer lease providers are not able to take more than 10 per cent of a person’s net income for loan repayments as well as prohibiting the charging of monthly fees for residual loans.
Furthermore, the bill’s purpose is to also put an end to “predatory” marketing and unsolicited communications exhibited by small credit lenders.
[RELATED: Bill passes to protect consumers from ‘predatory’ payday lenders]
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