Federal Court awards $19m penalty against payday lender

The Federal Court has awarded penalties totalling A$18.975 million against payday lender The Cash Store (in liquidation), and loan funder Assistive Finance Australia for their failure to comply with consumer lending laws. The penalty is the largest civil penalty ever obtained by ASIC, and follows on from the Court's decision on 26 August last year.
 
The key responsible lending rule is that credit licensees or providers must not suggest, assist with or provide a credit product that is unsuitable for a consumer. This imposes an obligation on the lender to make proper inquiries about the consumer's income and living expenses and to obtain all necessary information to enable a meaningful suitability assessment to be made.

The court found that, far from complying with its responsible lending obligations, The Cash Store had "unconscionably" sold "useless" consumer credit insurance to customers, the majority of whom were on low incomes or in receipt of Centrelink benefits.

TCS is a wholly-owned subsidiary of a Canadian company, The Cash Store Australia Holdings, which is listed on the Toronto Stock Exchange. AFA is also a wholly-owned subsidiary of a Canadian company, Assistive Financial Corp.

Until September 2013, TCS operated as a payday lender with all loans being financed by AFA. It had approximately 80 stores throughout Australia and wrote approximately 10,000 loans per month of up to $2,200, each for a short period (usually two weeks or less). Typical of many payday lenders, TCS charged very high fees and interest on the loans - total fees and charges were typically around 45 per cent of the loan amount.

The Court found TCS breached a total of seven separate provisions of the Credit Act, and that AFA breached six provisions. TCS was also held liable for the breaches of AFA by reason of its having been knowingly concerned in the breaches by AFA, pursuant to s 169 of the Credit Act.

The maximum penalty for a corporation for breaching responsible lending and credit guide laws is $1.1 million for each contravention.

The Court also ordered AFA to pay ASIC's costs of the proceeding.