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The regulator has made orders imposing conditions on short lending in a move to end predatory practices.
The order, which came into effect today (15 July), was first flagged in December last year, with ASIC releasing a consultation paper to introduce product interventions for short-term lending and continuing credit lending under the Corporations Act 2001.
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The regulator had previously introduced powers to address harms from short-term lending in 2019, through its pre-existing product intervention capabilities.
However, this intervention order lapsed in March 2021, with ASIC not seeking to extend or continue these credit product intervention provisions “because of an ambiguity in the product intervention provisions in the Corporations Act 2001”.
This shifted last month, however, with the passing of the Treasury Laws Amendment (2021 Measures No. 4) Act 2021.
According to ASIC, this new amendment removed the ambiguity and ensured that the regulator could use its product intervention powers to “intervene in relation to the costs of a financial and credit product”.
ASIC has said these latest orders continue its work to “address predatory lending practices in this space”.
ASIC also confirmed its intention to potentially integrate powers to address the predatory practices within continuing credit contracts in July 2020, in consultation paper 330.
This move made by ASIC is said to reinforce consumer protections by “prohibiting the provision of short term credit and continuing credit contracts which involve unreasonably high fees charged to retail clients”.
ASIC has stipulated that these unreasonably high fees would be in excess of the cost caps in the “relevant exemptions in subsections 6(1) and 6(5) of the National Credit Code”.
According to the regulator, these intervention orders will “protect retail clients from predatory lending practices” while also preventing lenders from charging “unreasonable fees in relation to small amounts of credit”.
ASIC has also said that short-term lending will remain a priority for the regulator, “especially as credit conditions tighten”.
The regulator said it will continue to monitor the short-term credit and continuing credit contracts markets, taking further action “to address the risk of significant detriment and harm arising from the design and operation of these or similar products” when necessary.
ASIC commissioner Sean Hughes commented that the regulator had “identified significant detriment and harm especially to vulnerable consumers” and that it has “again exercised its powers to prevent borrowers being charged excessive fees to obtain these products”.
“These intervention orders will protect retail clients from predatory lending practices, and to prevent credit providers charging unreasonable fees in relation to small amounts of credit,” Mr Hughes said.
“This remains an area of concern for ASIC and will remain a priority especially as credit conditions tighten.”
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