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The Federal Court has ruled in favour of ASIC’s action against Cigno Pty Ltd and BHF Solutions Pty Ltd.
The Australian Securities and Investments Commission (ASIC) has won its case against Cigno and BHF Solutions, with the Federal Court finding that both lenders engaged in credit activities with holding an Australian credit licence.
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As a result, ASIC has obtained permanent injunctions against Cigno and BHF Solutions in the interest of consumer protection.
The regulator stated that BHF Solutions was providing loans with fees under a credit contract to consumers, however, Cigno, under a services agreement, separately charged excessive fees for arranging and managing the credit.
Combined with BHF solution’s fees, these fees exceeded the prescribed maximum charge allowed in order to be exempt from holding a credit licence, according to ASIC.
Federal Court of Australia judge Justice John Halley found that the objective purpose of this lending model was to avoid the provisions of the National Credit Act and Code that are put in place to protect consumers from disproportionate charges/fees.
ASIC deputy chair Karen Chester commented on the court’s decision: “ASIC took this case to stop a harmful lending model, one which circumvented Australian credit laws and regulations and charged excessive fees and charges to many vulnerable consumers.
“ASIC expects that Cigno and BHF Solutions will notify any affected consumers to ensure they are not paying any fees or charges covered by the injunctions.
“ASIC also expects that both entities have processes in place to ensure ongoing compliance with the injunctions.”
BHF Solutions was writing more than 1,000 loans per day when ASIC first commenced with proceedings in 2020, taking the lender to court with the goal of stopping BHF Solutions and Cigno from using this harmful lending model.
The injunctions prevent both lenders from operating with this lending model or collecting repayments and fees from consumers on loans provided under the model.
In September 2020, ASIC alleged that:
• BHF Solutions contravened section 29 of the National Credit Act by engaging in credit activities without holding an Australian credit licence by entering into a credit contract with a borrower and carrying on a business of providing credit.
• Cigno contravened section 29 of the National Credit Act by engaging in credit activities without an Australian credit licence by exercising rights of a credit provider in relation to BHF Solutions’ credit contract with the borrower and providing a credit service to the borrower.
In an example provided by the regulator, a borrower with a $200 loan repaid in two months ended up paying $177.75 in fees to the lenders, before that same borrower went on to borrow another $600 and paid another $703 in fees.
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