Cash Converters Fined and Ordered To Refund Pay Day Loan Customers

Following an investigation by the Australian Securities and Investments Commission (ASIC), payday lender Cash Converters will refund $10.8 million to consumers who received small amount loans under approximately 118,000 small amount credit contracts. Cash Converters has also paid a $1.35 million penalty following the issuing of infringement notices by ASIC.

Background

Cash Converters Personal Finance Pty Ltd was granted an Australian credit licence in February 2011. The National Consumer Credit Protection Act 2009 (National Credit Act) (Cth) (the Act) requires credit licensees to meet responsible lending obligations. Before a credit licensee suggests, assists with, or enters into a new credit contract, the credit licensee must:

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

Further protection for consumers of payday loans were introduced in 2013 which introduced the presumptions of unsuitability which presume that a small amount loan will be unsuitable if either:

• the consumer is in default under another small amount loan; or
• the consumer has had two or more other small amount loans in the last 90 days.

If a licensee enters into a loan that triggers the presumption of unsuitability, they must ensure they are able to rebut the presumption and show the loan is suitable.

The Investigation

ASIC investigated Cash Converters' online lending practices, and had concerns about systemic failures in its responsible lending processes over a sustained period of time.

The Act allows infringement notices to be issued for strict liability offences and certain civil penalty contraventions where ASIC has reasonable grounds to believe a person has contravened the provision.  ASIC has agreed to accept an Enforceable Undertaking (EU) from Cash Converters following concerns that, in respect of small amount loans processed via its online website, with Cash Converters failing to make reasonable inquiries into consumers' income and expenses, particularly in situations where the small amount loan was presumed by the credit legislation to be unsuitable.

The regulator also had concerns that Cash Converters did not take reasonable steps to verify consumers' expenses in accordance with its responsible lending obligations. Instead of assessing the actual expenses recorded in a consumer's bank statements, Cash Converters applied an internally-generated assumed benchmark that had no relationship to the real expenses of the individual consumer.

For small amount loans that were likely to be unsuitable because of the consumer's circumstances, ASIC was concerned that Cash Converters failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation.

The Penalties

Cash Converters has paid penalties totalling $1.35 million following the issue of 30 infringement notices by ASIC, under the Act, where ASIC had reasonable grounds to believe that Cash Converters failed to assess small amount loans as unsuitable, and entering into those unsuitable loans, when the loans were presumed to be unsuitable under the credit legislation.

Under the EU accepted by ASIC, Cash Converters is required to:

• refund eligible consumers $10.8 million in fees through a consumer remediation program overseen by an independent expert who will report to ASIC; and
• engage that same independent expert to review its current business operations and compliance with the consumer credit regime and report to ASIC.

Reaction from ASIC

Peter Kell, ASIC Deputy Chairman said:

Consumers who had two or more small amount loans in the 90 days before taking out another small amount loan through Cash Converters' website during the period 1 July 2013 to 1 June 2016 should expect to be contacted in due course with information about their refund.

Comment from Cash Converters

Cash Converters released a statement saying it had co-operated with the ASIC investigation:

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Cash Converters to pay over $12M following ASIC probe – ASIC Media Release 16-380

Cash Converters to refund millions to pay day loan customers – abc.net.au