ASIC’s Big Stick for Small Amount Lenders
ASIC has commenced another civil penalty action against a ‘small amount lender’ reflecting its increased surveillance of and enforcement action against, and the increased regulatory risk for, the sector.
Short term loans of less than $2,000 are defined as ‘small amount credit contracts’ by the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code (together the Credit Legislation).
ASIC recently commenced civil penalty proceedings against Ferratum Australia Pty Ltd, an online lender providing loans between $500 and $1,900 over 6 – 12 month periods.
Section 31A of the National Credit Code prohibits certain types of charges being levied against borrowers in small amount credit contracts.
ASIC’s case alleges that Ferratum breached the Credit Legislation by:
- entering contracts with borrowers which contained fees prohibited by s 31A of the National Credit Code;
- incorrectly calculating and charging fees to borrowers, including early termination fees;
- failing to have systems and processes in place to prevent incorrect fees being charged to borrowers; and therefore
- Failing to provide credit services efficiently, honestly and fairly as required by s 47 of National Consumer Credit Protection Act 2009 (Cth).
ASIC’s media release, and links to relevant court documents, are available online [here: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-287mr-asic-commences-proceedings-against-ferratum-australia-for-charging-prohibited-credit-fees/]
ASIC’s case seeks penalties, including for breaching civil penalty provisions, against Ferratum. If ASIC succeed at trial, the breach of a civil penalty provision could result in fines to Ferratum totalling more than $1 million.
In the court documents made available by ASIC, ASIC has identified three “Relevant Periods”, covering loans to approximately 44,000 individual borrowers. However, the total amounts of the fees allegedly overcharged in this period total a fairly modest $14,881.00.
It therefore appears that the regulatory outcome sought by ASIC in this proceeding is tied less to direct consumer harm, and is more focused on sending a message to lenders like Ferratum that ASIC is monitoring the provision of small amount credit contracts closely, and that the size of the “stick” it will wield is tied to the extent of the breaches caused by the lenders, not the size of the credit contracts they enter with borrowers.
Anthony Jensen, Senior Associate