Payday lender Cash Converters failed to make reasonable inquiries about borrowers' income and expenses when it processed loans online and will refund A$10.8 million to borrowers who took out loans under 118,000 small amount credit contracts.
The Australian Securities and Investments Commission has issued an infringement notice and fined Cash Converters an additional $1.35 million.
ASIC said the lender did not verify borrowers' expenses in accordance with its responsible lending obligations. Instead of assessing actual expenses recorded in bank statements, Cash Converters applied an assumed benchmark.
Cash Converters has given ASIC an enforceable undertaking, requiring it to use an independent expert to oversee its customer remediation program and review its business operations and compliance.
This is the second big payout the company has made for poor lending practices in the past couple of years. Last year it paid $20 million to settle a class action brought by a group of borrowers.
These payouts have contributed to losses of $21/5 million in 2014/15 and $11.1 million in 2015/16.
The company is still under the pump, facing a class action on behalf of another group of borrowers and a separate claim filed on behalf of a borrower by the Consumer Action Law Centre.
Consumer Action Law Centre chief executive Gerard Brody responded to ASIC's announcement by calling for tougher rules for payday lenders.
He said the Government should implement recommendations of this year's Review of Small Amount Credit Contract Laws, which included setting a cap of ten per cent of net income as the maximum amount that could be repaid in each repayment period.
Other recommendations included equal repayments over the life of a loan, disclosure of an annualised percentage rate and a ban on unsolicited offers.