Payday lender The Cash Store in court for irresponsible lending

ASIC has launched legal proceedings against the payday lending business operated by The Cash Store, seeking financial penalties for breaching consumer credit laws, including the responsible lending obligations, and engaging in unconscionable conduct.

ASIC’s civil penalty proceedings have been filed in the Federal Court of Australia in Melbourne against Australian credit licensees The Cash Store Pty Ltd (TCS) and Assistive Finance Australia Pty Ltd (AFA).

ASIC claims that TCS and AFA have provided unaffordable loans to a large number of their customers who were on low incomes or in receipt of Centrelink benefits. In addition, ASIC claims that TCS has acted unconscionably and unfairly in selling insurance in relation to these loans to these customers when it was unlikely that they could ever make a claim on that insurance.

‘ASIC is committed to maintaining the integrity of the credit industry by ensuring that providers of credit operate their businesses in compliance with the credit laws,’ ASIC Commissioner Greg Tanzer said.

‘The responsible lending provisions [of the National Consumer Credit Protection Act 2009(National Credit Act)] are important in protecting consumers from taking out loans they can’t afford and the prohibition against  conduct prevents businesses from taking unfair advantage of vulnerable consumers.’

ASIC is seeking declarations that TCS and AFA contravened their responsible lending obligations, TCS engaged in unconscionable conduct, and financial penalties for those breaches.

The proceedings are listed for a directions hearing in the Federal Court in Melbourne on 27 September 2013.

The maximum penalty for breaching the relevant credit laws is $340,000 for each contravention and the maximum penalty for a breach of the unconscionable conduct provision of the Australian Securities and Investment Commission Act 2001 small;” is $1.7 million for each contravention. ASIC alleges that TCS and AFA have committed multiple breaches of the credit laws.

TCS acts as a broker for consumers seeking small amount or payday loans. All the loans organised by TCS were provided by AFA. TCS is a wholly-owned subsidiary of a Canadian company, The Cash Store Australia Holdings Inc, and is listed on the Toronto Stock Exchange. AFA is also a wholly owned subsidiary of a Canadian company, Assistive Financial Corp.

The National Credit Act requires credit licensees to meet responsible lending conduct obligations.

The key responsible lending obligation is that credit licensees or providers must not suggest, assist with, or provide a credit product that is unsuitable for a consumer. Before a credit licensee suggests, assists with, or provides a new credit contract or lease to a consumer, the credit licensee (or provider) must:

make reasonable inquiries of the consumer about their requirements and objectives in relation to the credit contract
take reasonable steps to verify the consumer’s financial situation
based upon these inquiries, assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable, and
give the consumer a copy of the assessment if requested.

A contract will be unsuitable if the consumer would be unable to repay it without substantial hardship or it will not meet the consumer’s requirements or objectives. The requirements also apply where the credit limit on an existing contract is being increased.