The Federal Court has found that payday lenders Fast Access Finance breached consumer credit laws by engaging in credit activities without holding an Australian credit licence.

ASIC claimed that the FAF group of companies constructed a business model which was deliberately designed to avoid the protections offered to consumers by theĀ National Consumer Credit Protection Act 2009(National Credit Act), including the cap on interest charges. Consumers who were seeking small value loans (of amounts generally ranging from $500 to $2,000) entered into contracts that purported to be for the purchase and sale of diamonds in order to obtain a loan. Consumers in ASIC’s case were completely unaware of the actual nature of the contracts into which they were entering and assumed that they were obtaining a traditional loan.

The Federal Court found that the true purpose of the contracts was to satisfy the consumer’s need for cash and the FAF companies’ desire to make a profit from meeting such a need. The provisions in the contracts for the sale and resale of diamonds added nothing to the transaction. The effect of these contracts was to charge interest well in excess of the 48% interest rate cap that should have applied to these types of loans. In some cases interest of over 1000% was charged.

The Court also found that the FAF companies intended to conceal the true nature of the transaction from those responsible for enforcing the interest rate cap.

Deputy Chairman Peter Kell said, ‘Consumers seeking small amounts of credit are often desperate for money, making them vulnerable to manipulation by those who seek to operate outside the law.’

‘Safeguards exist under the law to ensure people are not exploited. ASIC will act against companies which deliberately disregard their obligations under the National Credit Act.’

The matter will be listed for a further hearing, on a date to be set, in relation to the declarations sought by ASIC, civil penalties and compensation payable by the FAF companies. The maximum penalty payable by the FAF companies for engaging in credit activities without a credit licence is $1.1 million for each contravention.

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