Payday lender The Cash Store hit with record penalty – Bank
Seven breaches of the Credit Act
Among other violations, the Federal Court found that The Cash Store (TCS) sold “unnecessary” consumer credit insurance to customers, most of whom were low-income or Centrelink beneficiaries.
In total, TCS violated seven different parts of the Credit Act, while Assistive Finance Australia (AFA), which funded the loans, violated six. TCS made around $ 1.3 million from selling the fake insurance.
The main accusation made by ASIC was that the loans were not suited to clients.
“This is a historic brief for the consumer credit scheme and essential reading for all credit licensees,” said Peter Kell, vice president of ASIC. “The large amount of the penalty imposed shows that ASIC and the Court take these obligations very seriously, as must all lenders, regardless of the amount of the loan.”
Eighty stores and a lot of loans
Until September 2013, TCS operated as a payday lender with all loans funded by AFA. It had about 80 stores across Australia and had taken out about 10,000 loans per month of up to $ 2,200, each for a short period (usually two weeks or less).
The fees and charges for The Cash Store – currently in liquidation – were typically around 45% of the loan amount.
CHOICE reported last year that one of Australia’s largest payday lenders, Cash Converters, posted a 38% profit increase for the third quarter of fiscal 2014 (ending March) through report for the same quarter in 2013.
Responsible lending rules
To meet their responsible lending obligations, credit providers – including payday lenders – should take the following steps:
obtain reasonable information from the consumer on his requirements and objectives in relation to the credit agreement;
take reasonable steps to verify the consumer’s financial situation;
assess whether the credit product is unsuitable for the consumer and proceed only if the credit product is not unsuitable; and
provide the consumer with a copy of the assessment upon request.
As of March 2013, payday loans up to $ 2,000 that must be repaid in 15 days or less are prohibited; fees are currently capped at 20% of the loan amount and interest at 4% per month.