Rosita Stumpagee had two loans worth $250, but has been told she owes more than $800. (ABC News: Amy Bainbridge)
The corporate regulator has announced it will wield new powers for the first time in a bid to shut down a controversial online payday lender.
- ASIC’s powers were strengthened earlier this year, following the banking royal commission
- Consumer advocates say Cigno has been charging excessive fees and interest
- Cigno is not covered by the National Consumer Credit Act, meaning it can charge high rates
Under laws brought in before the federal election, the Australian Securities and Investments Commission (ASIC) was given the ability to ban or change financial products where there was a risk of causing harm to consumers.
Today ASIC released a consultation paper proposing to use the new powers against Cigno Pty Ltd and its associate Gold-Silver Standard Finance Pty Ltd.
The regulator said it was targeting the lender’s model of charging fees under separate contracts, under which combined fees could add up to about 990 per cent of the loan amount.
Cigno offers loans of up to $1,000 that can be fast-tracked if the customer wants the money immediately.
ASIC said those loans must be repaid within 62 days, increasing the risk of default because the repayments are based on the term of the credit, rather than the customer’s capacity to repay.
“Sadly we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short-term lending model,” ASIC commissioner Sean Hughes said.
“Consumers and their representatives have brought many instances of the impacts of this type of lending model to us.
“Given we only recently received this additional power, then it is both timely and vital that we consult on our use of this tool to protect consumers from significant harms which arise from this type of product.”
Cigno has long been criticised by consumer advocates and financial counsellors as being “predatory”, particularly by those working in rural and remote communities.
Disability pensioner Rosita Stumpagee from Western Australia’s Kimberly region took out two loans from Cigno worth a total of $250 in the past year.
She believed she had paid back the full amount she owed, but has since received multiple text messages from a debt collection agency for $880.50.
“The loan started last year for [an] emergency,” Ms Stumpagee said.
“They lent me $100. The second one was $150.
“They keep texting me that I owe $880 for two loans. $880, from where? I didn’t get $500 or even $300. I didn’t get that.”
The remote West Australian community of Tjukurla was among those targeted by the lender, according to locals. (ABC Goldfields: Tom Joyner)
Consumer advocates say Cigno catches people through excessive fees and borrowers do not realise are were not paying off the principal.
They say Cigno is not regulated by the National Consumer Credit Protection (NCCP) Act because the company used a complex broker model to avoid the laws.
That also means Cigno had not been subject to rules capping the amount of interest customers can be charged.
“People do not understand the structure of payday loans; that the first few payments are just interest, before they even begin to pay the principal,” Amanda Young from First Nations Foundation said.
“Because Cigno is not covered by the NCCP Act, they charge high rates.
“You can’t get them to respond to complaints.”
Research conducted by the First Nations Foundation found that in 2018, 23.1 per cent of Indigenous people accessed fringe credit — such as payday loans — compared to 1.9 per cent of the general population.
On its website, Cigno notes it is not a lender, but “acts as an agent to help” consumers obtain a loan from lenders.
“Currently our choice lender is Gold-Silver Standard Finance Pty Ltd,” the website states.
‘Can’t happen soon enough’
Advocates had been hoping ASIC would act quickly to use its new powers to stamp out poor practices harming vulnerable Australians.
Financial Counselling Australia chief executive officer Fiona Guthrie said ASIC’s move to use its new powers “can’t happen soon enough”.
“Financial counsellors have been dealing with case after case of a short-term lender using this business model,” Ms Guthrie said.
“Cigno is not bound by the credit laws because of its unusual structure, which splits its brokering arm from its lending arm.
“Many people who take out loans through Cigno and Gold-Silver Standard Finance suffer significant consumer detriment, the test that ASIC applies in deciding to use its powers.”
Consumer Action Law Centre chief executive Gerard Brody said ASIC should consider compensation for affected consumers.
“Since 2015, Consumer Action’s legal practice has provided legal advice in relation to Cigno 117 times, including 37 times since the start of the year”, he said.
“Many of the people contacting us, including financial counsellors supporting vulnerable clients, complain about unaffordable and exploitative loans facilitated by Cigno.
“It is very welcome that ASIC is using its new powers here.
“The message for Cigno and similar business models is time is up, you can no longer use tricky business models to avoid the law.”
ASIC said lenders would be contacted as part of the move.
“Before we exercise our powers, we must consult with affected and interested parties,” Mr Hughes said.
“This is an opportunity for us to receive comments and further information, including details of any other firms providing similar products, before we make a decision.”
The ABC has contacted Cigno for comment.