ASIC continues to focus on the payday lending sector with Fair Go Finance Pty Ltd (Fair Go Finance) becoming the most recent lender to be investigated by the corporate regulator. The investigation centred on Fair Go Finance’s ‘Flexi Loan’ product. ASIC identified two ways in which this product contravened Schedule 1 of the National Consumer Credit Protection Act 2009 (National Credit Code).
Firstly, the consumer was required to repay the loan over a period that was substantially shorter than the three year period stated in the credit contracts. The period for repayment could be as short as 19 days. Consumers were also charged a default fee if they failed to meet the shorter repayment terms.
Secondly, ASIC identified that Fair Go Finance charged establishment fees that exceeded the maximum amount payable. Under s 31(1A) of the National Credit Code, fees must not exceed 20% of the adjusted credit amount in relation to the small amount credit contract. ASIC also reported that there were a number of instances where the total amount repaid by consumers over the term of the loan also exceeded the maximum amount allowed under the National Credit Code.
ASIC considered that the Flexi Loan product was set up in a manner that attempted to avoid the protections offered to consumers. Fair Go Finance has paid to ASIC $34,000 in infringement notices for overcharging interest and establishment fees on payday loans. Fair Go Finance will also refund approximately 550 consumers around $34,500 for the interest and fees it collected from consumers in excess of the amount permitted under the National Credit Code. Fair Go Finance has withdrawn the Flexi Loan product and is taking action to repay consumers and ensure its staff are aware of their responsibilities under the National Credit Code.
ASIC, in recent years, has taken action to address avoidance models whereby lenders seek to avoid protections offered by the National Credit Code. Other lenders to have come under scrutiny for the use of avoidance models include Fast Access Finance, Cash Store and Fast Easy Loans.