ASIC has released Consultation Paper 316 Using the product intervention power: Short term credit (CP 316) on the first proposed use of its new product intervention power.
ASIC is targeting a model involving a short term credit provider and its associate who charge fees under separate contracts. When combined, these fees can add up to around 990% of the loan amount.
ASIC is proposing to make an industry-wide product intervention order by legislative instrument to prohibit credit providers and their associates from providing short term credit and charging for additional or collateral services where the total fees that can be charged exceed the maximum permitted under the short term credit exemption to prevent future specific use of the short term lending model structured around this exemption.
The model of lending is structured such that it benefits from the exemption in s6(1) of the National Credit Code (Sch 1 of the National Credit Act), and which involves the provision of short term credit at high cost to consumers, including consumers who may be on low incomes or in financial difficulties and so may not reasonably be able to afford the repayments.
While ASIC is presently aware of two firms currently using this model – Cigno Pty Ltd and Gold-Silver Standard Finance Pty Ltd – the proposed product intervention order would apply to any firm using this type of business model.
ASIC will review and consider all submissions made before determining appropriate regulatory action.
It will not make a decision on the proposed exercise of the product intervention power in relation to short term credit until the close of consultation.
