The recent decisions in Cash Store and Make It Mine reached very different penalty outcomes for breaches of similar obligations. Cash Store resulted in a penalty of nearly $19 million while the penalty in Make it Mine was just over $1 million.
Both decisions provide valuable insights into how an Australian Credit Licensee or Australian Financial Services Licensee can minimise the amount of the penalty arising from a breach of their obligations. In particular the decisions highlight:
- The importance of having a good relationship with the regulator (ASIC) and responding in a timely manner to any issues identified by ASIC. Had The Cash Store resolved its issues when they were first identified by ASIC the Court may have halved the amount of their penalty. To put it another way a good compliance culture can go a long way in minimising the amount of a penalty arising from any breach.
- The deeper the pockets the bigger the penalties. In determining the appropriate penalty in Make It Mine, theCourt was careful to ensure that the licensee had the capacity to pay the fine. This suggests that a larger institution, with a greater capacity to pay, may have received an even bigger fine.
The Make it Mine decision also demonstrates that ASIC will continue to use its power to impose licence conditions that require appointment of independent reviewers to supervise ongoing compliance. Licensees should consider beating ASIC to the punch by conducting their own independent reviews.
Click here to view the table.
Click here to view the table.
What made Cash Store the largest civil penalty ever obtained by ASIC?
- The court determined that the requirement to make inquiries and to verify were separate breaches of the NCCPA. In contrast, the court in Make it Mine, treated this as a single contravention. This doubled the maximum penalty for breaches of section 130(1)(b) and (c) in Cash Store.
- There were multiple breaches of the same provisions caused in part by failure to address issues identified by ASIC and TCS’s knowing involvement in AFA’s breaches: The court split the breaches into 2 periods – pre and post ASIC making non-binding recommendations to address compliance issues. Although TCS and AFA made some changes following ASIC’s recommendations they were still not fully compliant and so the Court found new breaches of the same provisions arose after ASIC’s recommendations. This doubled the number of breaches committed by both TCS and AFA. The Cash Store case also included contraventions by two entities, the credit assistance provider and the credit provider. TCS as the provider of credit assistance was also found to be knowingly involved in AFA’s contraventions.
- Use of breach rates across a sample to determine breaches across the entire book: ASIC analysed a randomly selected sample (281 contracts out of a 325,000+ loan book spanning approx. 2.5 years) and extrapolated the percentage of breaches to argue that the whole book would have the same breach rate as the sample.
- ASIC was uncontested: ASIC was uncontested as TCS and AFA did not participate in the penalty hearing and TCS was in liquidation.
There were some factors in both cases that reduced the amount of the penalty
- Breaches of some provisions were treated as a single breach: Both decisions treated breaches of sections 128/129 and sections 128/130 of the NCCPA as single breaches rather than separate breaches.
- Breaches were not applied on a per contract basis. In both decisions the court applied the penalties on a “class of contraventions” basis rather than per contract.
What other factors reduced the amount of the penalty in Make it Mine?
- Focus on capacity to pay the amount of any penalty: In determining the amount of the penalty in Make it Mine the Court was careful to ensure that MIM had the capacity to pay the fine (noting that the penalty should not be “crushing”). In Cash Store there was no such consideration even though TCS was in liquidation. Overall, they placed weight on the principles of proportionality, totality and capacity to pay in fixing MIM’s penalty.
- Make it Mine’s willingness to make substantial changes to its systems, including accepting a compliance review licence condition on its credit licence. This involved engaging a consultant to review a sample of files and prepare a compliance report for MIM and ASIC. MIM also cooperated with the regulator and showed contrition. The Court also noted that MIM brought initial proceedings, seeking a declaration that it had breached the NCCPA/NCC.