ASIC Action Against Radio Rentals Secures Customer Refunds

Thursday 25 January 2018 @ 10.16 a.m. | Legal Research | Trade & Commerce

The Australian Securities and Investments Commission (ASIC) has recently announced a package of regulatory outcomes against Thorn's (Thorn Australia Pty Ltd's) consumer leasing businesses Radio Rentals, RR and Rentlo Reinvented, to address past poor conduct and protect future customers.

The outcomes of the package include $6.1 million in refunds to customers and write-offs of default fees, and an additional $13.8 million in customer refunds of excess lease payments. Thorn Group Limited (the company that operates Radio Rentals) has also agreed to pay a $2 million fine after admitting to breaking national consumer laws.

Background

The agreement follows a lengthy investigation by ASIC into Thorn's lending practices, focusing on whether people signing the leases had the capacity to pay. There were more than 270,000 leases entered into between January 2012 and May 2015, with many of them breaching the National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act).

These contraventions relate to the responsible lending obligations of lease providers which require them to make inquiries and take steps to verify the consumer’s financial situation. This process exists in order to assess whether the lease is suitable for the consumer, before it is entered into.

Comment and Reaction From ASIC

Mr Peter Kell, acting ASIC Chairman, said the customers tended to be vulnerable people in tight financial circumstances and commented:

“Consumer lease customers tend to be vulnerable consumers in tight financial circumstances. Lease providers must ensure that they comply with their responsible lending obligations and should be engaging with their customers fairly. If customers are paying more than what is required, lease providers need to promptly fix this or face regulatory action. To all customers renting goods, check your contract to see what your options are at the end of your lease. You may be better off buying the good cheaply than continuing to pay your regular rental payments. You could end up paying much, much more than the product is worth.”

Company to Use Plain English in Contracts

Radio Rentals has agreed to simplify its lease contracts, by using "plain English" wording and will work with ASIC to improve communications with customers whose leases are ending or have ended.

The agreement with ASIC will not affect a class action taken against the company by thousands of customers over the Radio Rental's Rent, Try $1 Buy offer.

Thorn said in a statement that it had made significant changes to the way it conducted its consumer-leasing operations, placing the company at the forefront of the direction required of the industry. Acting CEO Peter Forsberg, was reported by the ABC (23 January 2018) as saying:

"The changes we have made to the consumer-leasing division put it on a sound footing to meet the needs of its customers and satisfy its responsible lending obligations. Consumer leasing is an important part of the financial system, as research shows that 3 million Australians are excluded from the financial mainstream."

Further Penalties Against Thorn

ASIC has also accepted an Enforceable Undertaking (EU) from Thorn, which aims to further address ASIC's responsible lending concerns and to also address concerns about Radio Rentals accepting and retaining excess payments from customers that were more than the lease required. Radio Rentals has already returned approximately $11.8 million of the $13.8 million to customers who overpaid.

Under the terms of the EU, Radio Rentals will (see Media Release, 23 January 2018):

  • refund or write-off approximately $6.1 million in default fees and charges relating to an estimated 60,000 leases as a result of the responsible lending conduct which is the subject of the civil penalty proceedings;
  • hold the balance of both the responsible lending refunds and the over-payment refunds that cannot be returned to customers in trust and ultimately donate it as a community benefit payment if the money is not claimed; and
  • appoint an independent expert to review its compliance with obligations under its Australian credit licence (including general conduct and responsible lending obligations) and oversee the refund program.

Recent Consumer Lease Action from ASIC

Recent action from ASIC has included:

  • The Rental Guys paid $100,000 to regional customers after ASIC found that they failed to make proper inquiries, conduct verification and carry out unsuitability assessments when contracting with customers from NSW regional Indigenous communities; and
  • ASIC cancelled the credit licence of Rent to Own after finding that it had actually entered into credit contracts (that purported to be consumer leases) where it charged consumers an annual interest rate more than the allowable maximum of 48 percent for credit contracts.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Sources:

Radio Rentals to refund $20m to customers over unaffordable leases (23 January 2018). Sarah Farnsworth, ABC News - abc.net.au

Media Release: ASIC acts against Thorn's Radio Rentals and secures multi million customer refunds for poor appliance rental outcomes (23 January 2018). ASIC- ASIC MR 18-017

Related Articles: