Payday “Parasitic” Loan Fees Beat ASIC in Court


ASIC first used its product intervention powers in 2019 to break agreements between the two companies. In an example cited by ASIC, a person who borrowed $ 120 ended up with a bill for $ 1,189, including a financial support fee, as well as a dishonor and weekly fee.

But Cigno later signed another model under a “permanent loan agreement”. It was with BHF Solutions, of which the sole director is Brenton Harrison, 33, from the Gold Coast. Mr. Harrison was previously involved in payday loan programs with the Swanepoel family.

ASIC then sued BHF and Cigno in September last year on the grounds that they had violated the national consumer credit protection law and described the fees as “parasitic” during the proceedings.

Similar setback

It argued that the companies provided loans to tens of thousands of customers even though none had an “Australian loan license under the National Credit Act”.

But BHF and Cigno, defended by Piper Alderman and Elliott May Lawyers respectively, defended the action. The law has a carve-out: the credit code does not apply to the provision of credit under a “continuing credit” contract, depending on factors such as the level of fees charged.

The case revolved around fees and whether it was the provision of credit or just the brokerage and processing of that loan.

An example cited was a woman who borrowed $ 200 on October 28, 2019 and had posted total repayments including fees of $ 377 by November 25. But only $ 15 of those fees came from BHF, which provided the actual funding. The rest came from Cigno, whom the woman had dealt with to borrow the money.

The companies had submitted Cigno’s fees and charges for the provision of “application, administration and collection services, not for the provision of credit”.

Judge John Halley accepted their petitions.

He wrote that “given the useful and protective purpose and aim of the code, one might think that this leads to a result that may not have been intended”. However, he cited a ruling by the Supreme Court that interpreting a provision of law “must preserve its ordinary and grammatical meaning, even if it leads to an outcome that appears inconvenient or unjust”.

The provisions of the Code did not permit any other reading, he noted, and could therefore not pursue ASIC’s claims for an injunction against the credit institution.

The setback is comparable to a case that ASIC lost in the Federal Supreme Court in 2014 against Teledarlehen und Finanz & Loans Direct, where Jan Swanepoel worked with his other son Ryan.

Cigno’s director Mark Swanepoel said in a statement of the recent case victory that ASIC “has wasted valuable taxpayer resources attacking legitimate, legal businesses because of its arrogance and incompetence”.

“We are very pleased with the result and will continue to struggle to provide valuable service to those who need it most, as we have done for many years,” he said.

ASIC Vice-Chair Sarah Court said the regulator had “taken this case to protect vulnerable consumers from what we believe to be a harmful credit model.”

ASIC would consider his response, she said.

Karen Cox, executive director of the Financial Rights Legal Center, said ASIC “did the right thing to initiate these legal steps.”

“Companies doing credit business must be licensed and subject to fee limits,” she said.

In the meantime, amendments have been tabled in Parliament to address a potential fee loophole in the product intervention powers laws. She wants to change the law so that ASIC is not prohibited from issuing a product intervention order that contains conditions relating to fees or charges that are to be paid by consumers for financial products.

ASIC can request that lock requests be made permanent. In March of this year, she let her original prohibition order expire. Cigno has also appealed to the Federal Supreme Court to lift the original prohibition order as part of the first use of his authority to intervene by ASIC.


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