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Two companies could each be penalised $7.7 million after the Federal Court found them guilty of breaching their responsible lending obligations.
ASIC launched proceedings in September 2013 against The Cash Store, a payday lender, and Assistive Finance Australia, its funder.
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The Federal Court ruled that both companies breached consumer credit laws and engaged in unconscionable conduct in the sale of insurance, according to ASIC.
ASIC said it put into evidence 281 loan contracts that it selected at random from more than 325,000 contracts.
The court found that on 99 per cent of occasions The Cash Store and Assistive Finance failed to comply with the requirement to make a preliminary assessment in accordance with the National Credit Act, according to ASIC.
They also failed to make reasonable inquiries regarding the customer’s financial situation with 95 per cent of contracts and failed to make reasonable inquiries regarding the customer's requirements and objectives with 80 per cent of contracts.
The Federal Court found that The Cash Store and Assistive Finance each breached seven separate provisions of the NCCP.
The maximum penalty for each contravention is $1.1 million, with the Federal Court set to decide on November 17 how much each company must pay in penalties.
ASIC described the federal court ruling as a “landmark case” for the consumer credit regime.
“It is essential reading for all credit licensees as it sets out how the responsible lending obligations work in practice,” the regulator said.
“The decision of the Federal Court makes it clear that to enable a meaningful assessment to be made as to whether a loan is suitable, credit licensees must inquire about the customer's current income and living expenses along with further information depending on the circumstances of the particular consumer involved.”
The Cash Store had about 80 stores throughout Australia and wrote approximately 10,000 loans per month of up to $2,200.
It is a wholly-owned subsidiary of a publically listed Canadian company and is now in liquidation.
Assistive Finance is a wholly-owned subsidiary of another Canadian company.
[Related: ASIC calls for more powers]
