ASIC closes out epic Federal Court Case against Lenders BHF and Cigno

Key takeaways:‍

• BHF Solutions Pty Ltd (BHF) and Cigno Pty Ltd and (Cigno) found to have engaged in credit activity without holding a license, and restrained from collecting any repayments of amounts advanced or fees charged from consumers.
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• BHF and Cigno previously operated a business model designed to circumvent credit licensing requirements, while charging substantial fees.

In the latest development of the long-running saga between ASIC, BHF and Cigno, the Federal Court:

• Declared that BHF and Cigno engaged in credit activity without holding a license between October 2019 and 14 April 2020 by operating the Business Model (see below); and
• Ordered that Cigno be restrained from collecting any repayments from consumers, and from providing any new loans, pursuant to the Business Model.

ASIC did not seek anypecuniary penalties against BHF or Cigno.

BHF and Cigno operated a business model (Business Model), where:

• BHF, under a credit contract, provided a loan and charged a fee to consumers; and
• Cigno, under a services agreement, separately charged very high fees (including a ‘financial supply fee’) for arranging and managing the credit.

The Business Model was designed to circumvent the licensing requirements pursuant to the National Credit Code, on the basis that only the fee charged by BHF, and not those charged by Cigno, would be considered a fee “for providing the credit” and covered by the Code.

In September 2020, ASIC commenced proceedings against BHF and Cigno in the Federal Court, arguing that the combined fee exceeded the prescribed maximum charge allowed in order to be exempt from holding a credit licence. While BHF and Cigno were initially successful in having the proceedings dismissed in the Federal Court, ASIC successfully appealed to the Full Federal Court (see our earlier article about the appeal here) and in turn was successful in the High Court (see our enforcement wrap noting the decision here). The Full Federal Court then remitted the matter to the Federal Court to make a determination of the relief against BHF and Cigno.

This brings to a close ASIC’s long-running case against BHF and Cigno. While it began long before ASIC announced its annual enforcement priorities (read about them here) it demonstrates ASIC’s willingness to doggedly pursue what it perceives as illegal and/or harmful consumer credit.  This is consistent with, and an example of, ASIC’s commitment to its specific Enforcement Priority for 2023 of targeting predatory lending practices or high-cost credit targeting vulnerable consumers including conduct by fringe or unlicensed lenders.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.