Payday lending group Fast Access Finance have been found guilty of engaging in credit activities without holding an Australian credit license by the Federal Court.
The Federal Court has found that payday lenders, Fast Access Finance Pty Ltd, Fast Access Finance (Beenleigh) Pty Ltd and Fast Access Finance (Burleigh Heads) Pty Ltd (the FAF companies) breached consumer credit laws by engaging in credit activities without holding an Australian credit licence.
ASIC claimed that the Fast Access Finance (FAF) companies – Fast Access Finance, Fast Access Finance (Beenleigh) and Fast Access Finance (Burleigh Heads) – constructed a business model which was deliberately designed to avoid the protections offered to consumers by the NCCP, including the cap on interest charges.
Consumers who were seeking small value loans, of amounts generally ranging from $500 to $2,000, entered into contracts that purported to be for the purchase and sale of diamonds in order to obtain a loan. Consumers in ASIC's case were completely unaware of the actual nature of the contracts into which they were entering and assumed that they were obtaining a traditional loan.
The Federal Court has now found that the true purpose of the contracts was to satisfy the consumer's need for cash and the FAF companies’ desire to make a profit from meeting such a need. The provisions in the contracts for the sale and resale of diamonds added nothing to the transaction.
According to the court, the effect of these contracts was to charge interest well in excess of the 48% interest rate cap that should have applied to these types of loans. In some cases interest of over 1000% was charged.
The Court also found that the FAF companies intended to conceal the true nature of the transaction from those responsible for enforcing the interest rate cap.
“Consumers seeking small amounts of credit are often desperate for money, making them vulnerable to manipulation by those who seek to operate outside the law,” ASIC deputy chairman Peter Kell said.
“Safeguards exist under the law to ensure people are not exploited. ASIC will act against companies which deliberately disregard their obligations under the National Credit Act.”
The peak body of the small lending industry, National Credit Association Providers (NCPA), lauded the decision.
“This is not an unexpected outcome by the court. The business divisions of Fast Access Finance outlined in ASIC’s release are not members," NCPA CEO Phil Johns said.
“We applaud ASIC’s actions to target unlicensed lenders, who make no effort to comply with today’s regulations and legislation. We hope see ASIC targeting more unlicensed lenders in the future."
Johns said it was important for small amount lenders to maintain transparency with consumers. But Johns said not all consumers taking advantage of the loans were "desperate", as suggested by ASIC.
“As the peak industry body representing regulated lenders, providing Short Amount Credit Contracts (SACCs) and Medium Amount Credit Contracts (MACCs), we always strive to be transparent with consumers, in order to educate them on their finance options. Those consumers who use SACCs and MACCs, a government regulated product, aren’t necessarily desperate, as the ASIC release states. They are everyday people trying to bridge the cash flow gap and may not have access to typical finance options, such as credit cards, for whatever reason.”