Need to know
- ASIC has won a court case that's permanently shut down a Cigno payday loan product called the No Upfront Charge Loan Mode
- Another Cigno loan called the ‘continuing credit’ model was banned following a court decision in July 2023
- Customers of these and other Cigno loan models no longer have to make payments, but there's no oversight over whether Cigno is still trying to collect
Putting some of the most predatory lending models on record out of business has been a long-term undertaking for the Australians Securities and Investments Commission (ASIC).
The corporate regulator has been launching court cases against payday lender Cigno Australia and subsidiary BHF Solutions since at least 2020, when Cigno was approving extremely costly loans for about 1000 customers a day.
With each new regulatory intervention from ASIC came a countermove from Cigno to get around it, often by redesigning the loan model to fall just within the bounds of the complicated payday lending rules.
This unlicensed and unregulated company is well-acquainted with the loopholes in our credit laws that allow its exemption from the National Credit Act. As it exploited these, its customer base grew.
'No upfront charge' model the latest to fall
Though Cigno and its director Mark Swanepoel have proven a pugnacious litigant, ASIC has notched a number of wins. A Cigno loan called the 'continuing credit' model was banned following a court decision in July 2023, freeing customers from further payments.
An earlier product called the 'short-term credit' model was banned for loans issued between 14 September 2019 and 14 March 2021, and after 15 July 2022.
Most recently, in late May this year, ASIC won a court case that permanently shut down a Cigno product called the No Upfront Charge Loan Model.
A loan of $250 to be repaid in 73 days would attract a minimum of $290 in fees
This latest variation involved a loan agreement between the borrower and the Cigno-affiliated BSF Solutions (playing a similar role as BHF Solutions), and a separate account keeping agreement between the borrower and Cigno. Under the account-keeping agreement, Cigno charged sky high account keeping and default fees.
A loan of $250 to be repaid in 73 days, for example, would attract a minimum of $290 in fees, according to an analysis by the Consumer Action Law Centre (Consumer Action). Any default on a fee payment would cost the borrower $87 each time it happened.
Excessive fees overstep credit act exemption
The Federal Court ruled that these fees went beyond what payday lenders are allowed to charge.
By exceeding the cap, Cigno overstepped its exemption from the National Credit Act, which mainstream lenders such as banks have to follow. Cigno was thereby providing credit without a licence, the court found.
This latest legal win means that around 150,000 of the people who signed up to the 'no upfront charge' loan between July 2022 and December 2022 no longer have to make payments. A disproportionate number of these Cigno customers are First Nations Australians.
No oversight on payment collection
Cigno customers no longer have to make payments on the other banned loans either, but there's a catch.
Since it's unlicensed, the company doesn't have to report on the status of outstanding loans to ASIC, meaning there's no oversight on whether Cigno is still demanding payment on banned loans.
ASIC deputy chair Sarah Court acknowledged the long battle the regulator has waged against Cigno and its affiliates following the win in May, saying ASIC "has taken enforcement action over many years to respond to various business models" connected to the companies.
$34 million provided in credit, $70 million received in fees
With payday loans, also called short-term credit, the business lends you the money in short order without having to check on your financial situation.
Licensed creditors such as banks, on the other hand, have to make sure you're in a position to pay the money back and provide hardship arrangements if you can't.
Because they're unlicensed, payday lenders are not allowed to charge interest. They more than make up for this with high fees. For borrowers, these amount to the same thing.
Some people paid fees that would have equated to 800% per annum
In the case of the 'continuing credit' model, some people paid fees that would have equated to 800% per annum. For licensed lenders, annual interest rates are generally capped at 48% including fees and any other charges.
In the case of the 'no upfront charge' model, the numbers make the high cost of Cigno credit staggeringly clear. During the sixth months in 2022 that were the focus of the ASIC investigation, Cigno and BSF Solutions provided $34 million in credit. They then charged fees of $70 million on these loans, or more than double the total amount loaned.
In some cases, customers were charged six times what they borrowed, an equivalent annual interest rate of 600%.
Consumer group will keep the pressure on
Consumer Action has made stopping Cigno Australia and BSF Solutions a priority. The organisation has heard from many Cigno customers whose need for quick cash has landed them in a deep financial hole.
Last year, the organisation launched a free online tool designed to help Cigno loan customers break free from making further payments.
I honestly hope these businesses are finally shut down for good, and any future plans to skirt regulation are stopped
Consumer Action CEO Stephanie Tonkin
Following the ASIC win in May, Consumer Action CEO Stephanie Tonkin said "we consistently hear from the people harmed by these companies' activities, and the impacts – like families forced to skip on meals to pay eye-boggling fees – are shocking".
"I honestly hope these businesses are finally shut down for good, and any future plans to skirt regulation are stopped."
Cigno and BSF Solutions attempted to put a hold on the enforcement of the recent Federal Court ruling, which was dismissed. A hearing is scheduled for late June to consider further actions against the companies, including financial penalties.
We're on your side
In more than 60 years of making a difference for Australian consumers, we've never taken ads or sponsorship.
Instead we're funded by members who value expert reviews and independent product testing.
With no self-interest behind our advice, you don't just buy smarter, you get the answers that you need.
You know without hesitation what's safe for you and your family.
And you'll never be alone when something goes wrong or a business treats you unfairly.
Learn more about CHOICE membership today
Stock images: Getty, unless otherwise stated.
