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The personal lender has been found in violation of consumer credit protection laws by the Federal Court.
Ferratum Australia Pty Ltd, currently undergoing liquidation, was found in breach pertaining to small amount credit contracts spanning from March 2019 to August 2021.
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ASIC initiated legal proceedings against Ferratum on 1 November 2021 and this continued even after Ferratum’s voluntary liquidation on 4 April 2023.
The Court granted ASIC permission to pursue the case despite Ferratum’s liquidation.
The Court’s findings revealed that Ferratum had imposed “prohibited fees,” including direct debit charges linked to specific credit cards and fees for modifying direct debit arrangements, on borrowers.
Furthermore, Ferratum had entered into contracts that imposed prohibited fees and inaccurately calculated early repayment amounts in approximately two-thirds of identified contracts.
The Court also noted that the lender failed to uphold efficient, honest, and fair practices by lacking an accurate and reliable system for calculating, recording, and monitoring early payout amounts.
ASIC Deputy Chair Sarah Court said: “ASIC pursued this matter because of the clear harm to consumers, many of whom were financially vulnerable.”
“By charging unlawful fees and overcharging people looking to pay out their loan early to avoid hefty ongoing fees, Ferratum significantly compounded that hardship.
“In one case, a customer borrowed $1,900 and was overcharged by $658, or 34 per cent of the loan amount, when they paid out their contract three months early. The customer was also charged $40 in prohibited fees.
“This was a vulnerable consumer who was a single parent with dependants and had three other small amount credit contracts at the time.
Protecting such consumers from misconduct by high-cost credit providers remains a priority for ASIC, she said.
The Court determined that Ferratum was, or should have been, well aware of the deficiencies in its system and their potential to harm customers, yet the company persisted with the system.
While there was no evidence of a deliberate intention by Ferratum’s leadership to take unfair advantage of customers, their failure to implement an accurate charging system was deemed ethically unsound by the Court.
The matter is scheduled for a case management hearing on October 5, 2023.
[Related: ASIC slaps Ferratum Australia with lawsuit]
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