ASIC has been trying to shut down these 'predatory' lenders for years. Will it finally work?

Laura Platt was in desperate need of money to fix her car when she saw an advert for Cigno, which resulted in a “quick loan of up to $1,000.”

Key points:

• ASIC has banned the types of loans Cigno offers but the company appears to have prepared a new loan model
• Cigno made $60 million in five-and-a-half-month fees, court documents show
• Consumer advocates say national credit laws need updating to close legal loopholes

Platt uploaded a bank statement to Cigno’s website and a few hours later $300 went into his bank account.

“It was approved right away. And I didn’t really see the fine details,” Platt said.

Shortly after getting his first loan with Cigno, he managed to apply for $200, because he thought he had paid off his original debt.

However, Platt did not realize that his $300 loan also incurs high bookkeeping costs.

He has struggled to repay the loan. Two years later, after being hit with bookkeeping and late fees, he ended up paying Cigno $2,600, of which he still owes $32.

“[I am] really confused and stressed because I already paid the money,” he said.

“[I am] actually angry, to be honest, and then also worried about how many people this company robbed.”

Legal loophole

Consumer advocates say Ms Platt is one of many Cigno customers who have found themselves in a debt spiral after signing up for a loan with the Gold Coast-based company.

On its website, Cigno advertises products such as “Centrelink Loans without Credit Checks”, “Bad Credit Centrelink Loans”, “Payday Loans for Centrelink Customers” and “Online Loans for Centrelink Customers”.

“This model of lending causes more losses than any other form of credit,” said Tom Abourizk, director of policy at the Consumer Acton Law Centre.

“We’re seeing people being charged … eight times what they borrow, within a few months.”

Tom Abourizk, policy officer at the Center for Consumer Action Law, said the federal government must act urgently to update credit laws.(ABC News: Simon Tucci )

ASIC company regulators have been playing cat and mouse with Cigno for years.

Companies get around credit laws by using exceptions in the National Credit Code.

“This is the activity of moneylenders, and it is urgent to stop it as soon as possible,” Abourizk said.

Buy now, pay later companies and products upfront wages are also currently exempt from credit laws.

On July 15, ASIC exercised its special intervention powers to prohibit the lending model for short-term and sustainable credit used by Cigno and its associated lending entity BHF Solutions.

ASIC has banned one of those lending models in another intervention order, but that order expires in 2021.

That comes after ASIC won its appeal before the Full Federal Court against Cigno and BHF Solutions last month, in a ruling favoring the regulator’s position that the company offered a form of credit that was arrested by the National Credit Code for the amount of fees they charged.

It overturned a decision by the Federal Court in June 2021.

The judgment includes the example of a woman who, assuming she makes payments on time, is expected to pay $177.75 for a $200 loan fee and $231.80 for a $300 loan fee.

On Monday, Cigno and BHF Solutions filed an application seeking permission from the High Court to appeal the Federal Court’s decision. The Court of Appeal needs to consider whether or not to hear the appeal.

Meanwhile, Cigno is still offering loans on its website at slightly lower fees than those referred to in the Federal Court decision.

According to the Cigno website, customers must pay the lender’s fees and Cigno’s service fees.

The company says a typical $300 loan “might look like this”: A $129.90 Cigno account maintenance fee, and a $15 surcharge to change payments, a $79 dishonesty fee, and a $20 lender default penalty.

The website also states the fees will “varied depending on the loan and payment options you choose”.

An ASIC spokesman said regulators were investigating whether the model was legal.

“ASIC is aware that Cigno (Cigno Australia Pty Ltd) continues to offer services for arranging loans on its website. ASIC is looking at loan products and models including whether the action violates the Product Intervention Order,” an ASIC spokesperson said.

If so, this will be the third time Cigno has created a new lending model to address ASIC credit restrictions and laws.

“Cigno’s website looks like business as usual,” says Abourizk.

“This means people can still be scammed for the same excessive fees they charge on the loans they have arranged to date.”

Small loans make big profits

The amount of money Cigno earned from his loan was far from dime.

The full financial history of the company was not published, but Federal Court documents show that over a five-and-a-half-month period, Cigno arranged 166,045 loans totaling more than $46 million, and the total amount charged (above principal) for these loans was more than $61 million.

Cigno describes itself as “an agent to help you get a loan from a lender” rather than as a lender itself.

BHF Solutions describes itself as “Australia’s leading expert in business consulting and financial advisory”.

The ABC has contacted Cigno, BHF Solutions and the attorney’s office acting on behalf of both companies but had no response by the publication deadline.

Australian Financial Counseling chief executive Fiona Guthrie said the federal government must act urgently to update Australia’s credit laws.

“Once regulators try and close one hole in the law, they find another,” he said.

Fiona Guthrie of Australian Financial Counseling said Cigno was a predatory lender.(ABC News)

“What we need to do is close all exceptions in credit law so companies like this can’t operate when the whole business model is based on circumventing credit laws.”

Mr Abourizk said, depending on the outcome of the litigation, CALC would encourage ASIC to look at avenues for compensating Cigno customers.

“If there is scope for a remediation or compensation project, they should really look into it,” he said.

“Our concern is that they might find that cupboard empty if it gets to that point with Cigno, as other predatory lenders like this have done in the past.”

‘Predatory company’

Guthrie says Cigno’s model targets vulnerable people.

“Financial counselors would describe them as predatory companies,” he said.

“Financial counselors talk about clients who have autism, who have disability retirement benefits, who have very low financial literacy, who are victims of family violence, who are in a state of despair.”

Guthrie hopes the Court of Appeal will reject BHF Solutions and Cigno’s application to hear his appeal.

“We can’t have a company like this operating in the Australian market, it’s very dangerous,” he said.

“There is a cost to the wider community because we end up with people in financial and mental stress. They end up in hospital and end up in food assistance services.”

“This is clearly credit. It’s a model of credit lending that is avoided. And there’s no legal reason that it should continue.”

Platt said his struggle to pay back the fees added to his loan amount meant he was forced to cut back on basic necessities such as groceries.

“They’re cold-hearted and greedy and mean. They’re terrible,” Platt said.

“I would never recommend them.”

#ASIC #shut #predatory #lenders #years #finally #work