Consumer groups are warning borrowers that two related short-term money-lending companies that charged fees of up to almost 1,000 per cent of the initial loan, and are being investigated by the corporate regulator the Australian Securities and Investments Commission (ASIC), are operating under a new name.
- ASIC is investigation Cigno and Gold-Silver Standard Finance over their short-term lending practices
- The companies are now operating under the name MyFi
- ASIC is considering using its product intervention power for the first time to shut the companies down
Company search records show Cigno and Gold-Silver Standard Finance are now operating under the name MyFi.
It is now proposing to use a new power to restrict the companies’ operations.
“We’ve seen contracts by these new companies that appear to be operating in a similar way to Cigno or Gold-Silver Standard finance did,” Patrick Sloyan of the Consumer Action Law Centre told 7.30.
“The intervention that [ASIC] have proposed for short-term credit and Cigno should hopefully capture those companies that are exploiting the same loophole.”
ASIC said the business model designed by these companies can lead of fees that “add to around 990 per cent of the loan amount”.
‘No chance of catching up’
Jordan Smith took out a $250 loan through the Cigno website in order to buy Christmas presents for his children.
“At the time I thought I was going to be able to make it,” he told 7.30.
“But I was wrong about that.”
Already deeply in debt, the 22-year-old Sydney factory worker missed repayment deadlines and the amount owing has now blown out to more than $1,000.
“When I did make repayments, it became very hard to buy food, and pay for rent and all that, so we fell behind in a lot of that as well,” Mr Smith said.
“[It was the] perfect storm. Everything fell apart at that point.
“Just couldn’t get back on track, no matter what I tried.
“You’ve got no chance of catching up — it just becomes a nightmare.”
What he did not realise at the time was that Cigno operated outside the National Credit Code.
That is because Cigno does not actually lend the money — it arranges for a fast-track loan through a related company, Gold-Silver Standard Finance — and both companies charge fees for their services.
“Cigno purports themselves not to be a lender — they are just a broker that accesses emergency cash for people, that they just act on behalf of another provider,” Lifeline financial counsellor Bill McNaughton said.
‘They’re targetting people who are desperate’
Michelle Webb’s son was targetted for loans by Cigno, despite having no income. (ABC News: Rachel McGhee)
Michelle Webb’s son, Amadeus, was offered a series of loans by Cigno even after the company was told he had no income.
“They’re targeting people who don’t have any money and who are desperate,” she told 7.30.
“They’ll sign and do anything to get their money there and then — they don’t have the money to pay for it.”
Now the Rockhampton mother is trying to untangle the resulting financial mess.
“One of the statements said he had [borrowed] $300 and he owed $3,000,” she said.
“We did try and contact them a few times but we were number 25 in the line, and it was hours of waiting.
“And … they wouldn’t answer our questions when we emailed them either.”
A statement shows just how fast the complex series of fees can accumulate once deadlines are missed.
Nine weeks after borrowing $200 and paying back nearly $550, Amadeus still owed more than $500.
“The three times that we told them he has no income, they still turned around and offered him another loan within three days,” Ms Webb said.
“And he got accepted without proving any income or anything.”
ASIC considering using product intervention
Patrick Sloyan says companies like Cigno should follow responsible lending practices. (ABC News)
Mr Sloyan said Cigno and Gold-Silver Standard Finance operate on the very edge of the law.
“It’s technically legal, it’s exploiting a loophole that’s in the law,” he said.
“Often people are very desperate when they go to companies like Cigno for fast cash.
“We don’t think it’s good enough that all the blame should be on the buyer.
“It’s up to Cigno to follow the law, abide by responsible lending practices and make sure they’re not exploiting people through tricky business models, as they have been for a number of years.”
ASIC is now moving to restrict the Cigno/Gold-Silver Standard Finance operations.
For the first time it is proposing to use its product intervention power, which is designed to stop a product that is likely to be significantly detrimental to the consumer.
And as far as financial counsellor Bill McNaughton is concerned, that can only be a good thing.
“Unfortunately it’s the poor and the weak that are being mainly targeted by this sort of product,” he said.
“And they probably need the help of the government and policy-makers to try and improve the situation.”
Cigno and Gold-Silver Standard Finance declined to respond to a series of questions 7.30 put to both companies.
Ms Webb’s son has now negotiated a settlement with Cigno, but Mr Smith’s debt is still outstanding.
He hopes any change will protect others who are vulnerable.
“I feel like they’ve taken advantage of me, I really do,” he said.
“If I knew someone was going to take out one of these loans, I would definitely talk them out of it.
“It’s a terrible idea.”