A Perth-based payday lender has paid a $42,500 fine to the Australian Securities and Investments Commission for failing to gather required account statements from consumers.
Under the National Consumer Credit Protection Act 2009, payday lenders must examine bank, building society or credit union statements covering the 90 day period before a consumer applies for a loan.
The legislation, which came into force in March 2013, was designed to crack down on predatory lending practices used by some companies.
Get business news first
Sign up to SmartCompany’s daily newsletter
On October 4, a customer applied for a loan at the Blacktown, NSW, branch of payday lender Abaz Pty Ltd, which trades as Moneyplus.com.au.
In its infringement notice, ASIC alleged Moneyplus.com.au breached the code by not obtaining bank statements in order to verify the customer’s income.
In a statement, ASIC Deputy Chairman Peter Kell said in addition to paying the fine, Moneyplus.com.au has updated its responsible lending policies and procedures to comply with the new requirements and has appointed an independent compliance consultant to review these practices.
“The enhanced responsible lending obligations aim to prevent payday or small amount lenders providing unsuitable loans and to reduce the risk that vulnerable consumers’ debts will spiral out of control,” Kell said.
Marcus Banks, a research fellow with the School of Economics, Finance and Marketing at RMIT and lead author of Caught Short, an investigation of the payday lending industry, testified for ASIC on the matter.
Banks told SmartCompany it is quite common for predatory lenders to attempt to work around legislation.
“It’s indicative of the innovation of the industry of working around legislation. That is common among many companies, and ASIC has picked up on this case as an example,” Banks says.
“In the last quarter of last year, 50 companies set up outside the regulatory canvas. Accordingly, the peak body and ASIC are trying to impose regulations, but it’s a much broader issue.”
“The industry is now split between those who work within the regulations and those who people in the industry itself refer to as ‘loan sharks’.”
Abaz director David Prosser told SmartCompany the 90-day requirement only applies to payday loans, but that his company takes its compliance obligations seriously.
“Essentially, we didn’t have 90 days of bank statements and that’s it in a nutshell,” Prosser says.
“Our loan assessments are good and we assess the loans and people’s suitability for them – it doesn’t make sense to have people default on loans.
“Customers in general have trouble providing statements going back for 90 days, and so in this case we made a business decision.”
The fine comes after The Cash Store, which was once one of the nation’s largest payday lenders, collapsed into administration in September of last year. A year later, ASIC won a Federal Court ruling finding the company breached consumer credit laws and acted unconscionably when selling insurance products.