Predatory lending directors will be held personally accountable: ASIC

The deputy chair of the Australian Securities Investment Commission (ASIC), Sarah Court, has warned that the corporate regulator will hold directors accountable in areas of emerging consumer harm.

While ASIC has long been interested in the conduct of directors of financial institutions and companies, it has now warned that its focus will be set on those breaching directors’ duties, concealing company assets, and failing to comply with obligations to assist liquidators – particularly when it comes to predatory and high-cost lending.

ASIC has previously revealed that it is intensifying its efforts against predatory lending practices, aiming to safeguard both vulnerable consumers and small businesses.

According to the deputy chair, the regulator is particularly concerned that more people are likely to become the target of predatory lending practices, especially those on lower incomes, given “today’s uncertain economic environment, with increased cost-of-living pressures and financial hardship”.

“ASIC will not hesitate to step in to protect vulnerable Australians from these practices,” Ms Court said.

“We are particularly concerned where it appears business models have been designed to avoid consumer credit protections.”

She flagged ASIC’s recent court action against Cigno Pty Ltd and BHF Solutions Pty Ltd, where it was 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 and the National Credit Code.

The regulator took further action by joining to the proceedings a director of each of the companies. ASIC claimed the company directors were involved in the unlicensed activity and National Credit Act breaches.

The ASIC deputy chair commented: “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 challenge we face in protecting consumers from what we consider to be unlawful lending practices.”

She also flagged that the regulator will be focused on compliance with financial hardship obligations and is reviewing hardship practices for a third of lenders to ensure they are appropriately supporting customers in hardship (full findings are expected to be released midyear).

“[O]ur message to boards is they should not wait to improve their practices if deficiencies are found,” she said, noting its recent civil penalty proceedings against Westpac, in which it alleged the bank had failed to respond to customer hardship notices within the required 21-day time frame,” Ms Court said.

“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[s] of all Australians that corporate Australia conducts itself to the highest standards, which requires greater accountability from all.”

[Related: ASIC to crack down on predatory lending]