ASIC has taken action in the Federal Court against Lightspeed Finance and its director, Mark Fitzpatrick, for failing to comply with an AFCA determination (see: ASIC v Lightspeed Finance Pty Ltd & Anor (proceeding QUD 114/2021).
ASIC’s action demonstrates the serious risk that a Financial Firm, and its directors, take in failing to comply with AFCA’s determinations. It also highlights the ongoing risks to lenders and finance brokers who seek to rely on the ‘business purposes’ exception to consumer credit laws.
Lightspeed is a finance broker. It arranged a $90,000 loan from a third party for its clients to allow them to complete works on a property secured by a mortgage. The borrowers completed declarations that the loan was ‘predominately for business purposes’, but this evidently was not the case given the funds were expressly provided to complete home renovations.
When the clients defaulted, the lender took possession, sold the home for more than twice the value of the loan.
The borrowers brought a complaint against Lightspeed to AFCA.
Lightspeed defended the claim and lost, and the former clients accepted AFCA’s determination.
While the original determinations are not readily available from AFCA’s website, the settlement arrangement pleaded by ASIC involves a complex and somewhat unusual structure whereby Lightspeed was required to repay the third party lender, and once paid the former clients would subsequently repay Lightspeed.
For unknown reasons, Lightspeed failed to comply with the AFCA determinations.
ASIC has now brought proceedings under s 47(1)(a) of the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010, which require a credit licensee to take reasonable steps to comply with resolving complaints before AFCA, including by giving effect to any determination made by AFCA.
These sections are civil penalty provisions which carry potential penalties of up to $10,500,000 for a company and $1,050,000 for an individual.
ASIC is seeking orders requiring Lighthouse and its director, Fitzpatrick, to pay damages to their former clients and civil penalties.
The case is particularly interesting because ASIC is not just stepping in to enforce a failure (or refusal) to comply with AFCA’s determinations – as you would expect. It is also through this action effectively stepping into the shoes of the borrowers to get them a resolution.
That is not something ASIC does often, if at all.
Of further interest, the claims mirror the “honestly, efficiently and fairly” obligations that apply to financial services providers and AFSL holders (and their representatives). There have been very little guidance to date about how those obligations should be extended to credit licensees.
The Lightspeed case is one to watch for anyone who holds a credit or financial service licence and is required to comply with external dispute resolution schemes, and is otherwise obliged to provide services “honestly, efficiently and fairly”.