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ASIC has issued a warning to brokers who fail to comply with responsible lending laws, following a “landmark” legal decision against two companies.
According to ASIC, the Federal Court last week awarded record penalties totalling $19 million against The Cash Store, a payday lender, and its funder, Assistive Finance Australia.
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It comes after ASIC updated its responsible lending guidelines in November last year in response to the landmark court case.
Both companies were found to have failed to comply with responsible lending obligations, and The Cash Store “had unconscionably sold 'useless' consumer credit insurance to customers” – a majority of whom were on low incomes or receiving Centrelink benefits.
ASIC said the penalty is the largest civil penalty ever obtained by the regulator, and demonstrates the importance of finance professionals “making proper inquiries about the consumer’s income and living expenses” before assessing a customer’s loan application.
“This is a landmark case for the consumer credit regime and is essential reading for all credit licensees,” ASIC deputy chairman Peter Kell said.
“The significant size of the penalty imposed shows ASIC and the court takes these obligations very seriously, as must all lenders, no matter how small the loan is.”
ASIC launched proceedings in September 3013 against The Cash Store and Assistive Finance, which were found to have failed to comply with making a preliminary assessment of customers in accordance with the National Credit Act on 99 per cent of occasions.
They also failed to make reasonable enquiries regarding the customer’s financial situation with 95 per cent of contracts and failed to make reasonable enquiries regarding the customer’s requirements and objectives with 80 per cent of contracts.
The Federal Court found that both companies breached seven separate provisions of the NCCP.
[Related: ASIC wraps more red tape around brokers]
