Payday lender foils ASIC
The Federal Court dismissed an ASIC application alleging violations of consumer credit provisions by Cigno Pty Ltd and BHF Solutions, finding that the lending model they were applying did not violate the National Consumer Credit Protection Act or the National Credit Code.
In 2019, BHF Solutions began to offer credit, under conditions designed to fall under an exception to the application of the National Credit Code. It changed its business model to come under another exception after ASIC issued a product service order in September 2019.
At the same time, BHF has entered into a âloan management facilitation agreementâ with Cigno. The loans came from Cigno, which charged a fee to help clients with their loan applications, verify the information in those applications and assess eligibility for funding, organize the debit of clients’ accounts, monitor payments and others. customer services.
In the example explored in the case (the Morrow loans), A $ 200 was advanced to the borrower, who ended up paying $ 177.75 in fees to BHF and Cigno for a loan that was repaid over two months. . The borrower then borrowed an additional $ 300 a few months later, then an additional $ 300 a few months later, paying fees each time.
The National Credit Code does not apply to short-term credit, when the provision of credit does not exceed 62 days, the charges and charges for credit do not exceed 5 percent of the amount of the credit and the maximum amount of interest does not exceed not exceed an annual percentage rate of 24 percent.
ASIC argued that the relationship between the Borrower and BHF, the Borrower and Cigno and between BHF and Cigno gave rise to a combination of contracts and arrangements which could be combined into one continuous credit agreement due to of the definition of a contract in the National Credit Code.
Citing various precedents, the court ruled that ASIC had not established the existence of an outstanding (âcompositeâ) credit agreement.
ASIC also argued that Cigno was the agent for BHF, while Cigno said its activity was âa facilitator for and on behalf of the borrowerâ.
The court ruled that “at all material times Cigno was acting as Ms. Morrow’s agent or on her own behalf.”
Finally, ASIC argued that Cigno’s fees related to the granting of loans by BHF and were therefore covered by the code, describing them as an “essential consideration for the granting of credit” and “an essential prerequisite for the granting of credit. ready in this case. . “
Cigno and BHF argued that this was not the case because the borrower had the option of proceeding with Cigno or directly with BHF.
The court accepted that the fees charged by Cigno were in exchange for providing services in accordance with the borrower’s service contract and not for credit purposes.
The court’s final word was: âFrom a point of view, given the beneficial and protective purpose and objective of the code, one might think that this produces a result that could not have been intended. But as the High Court stated, when interpreting a provision, “it must be given its ordinary and grammatical meaning, even if doing so leads to a result which may appear inconvenient or unfair”.