In Australian Securities and Investments Commission v Membo Finance Pty Limited (No 2) [2023] FCA 126 the Federal Court of Australia imposed penalties for contraventions of the National Credit Act and Code of $3,205,000 against credit licensee Membo Finance and $2,800,000 against Richmond Group Financial Services Pty Ltd, Membo’s sole shareholder and Membo’s sole credit representative which conducted the day-to-day functions of the ClearLoans business as Membo’s agent.

The defendants did not appear at the hearings on liability or penalty.

The contraventions took place during a period including the COVID-19 pandemic and mainly related to:

• failing to give notices in accordance with s 72(4) and s 72(5) of the Code in response to a hardship notice within the meaning of s 72(1) of the Code (Hardship Notice) given to Membo as credit provider by a debtor; and
• failing to do all things necessary to ensure that the credit activities authorised by Membo’s Australian credit licence were engaged in efficiently, honestly and fairly as required by s 47(1)(a) of the Credit Act.

The ClearLoans business operated under an unsecured guarantor lending model. Under this model, loans of between $3,000 and $15,000 were advanced to borrowers (debtors) under a credit contract for terms of 12 to 60 months with a fixed interest rate of 43% per annum. The loans were secured by personal guarantees. The debtors usually made fixed monthly repayments by direct debit or by card payment authority. When a debtor failed to make a monthly repayment, Richmond, as Membo’s agent, attempted to obtain payment from the guarantor, by way of direct debit or card payment. No other security was taken in respect of the loans.

Membo and/or Richmond:

• failed to provide written decisions and reasons to borrowers who applied for their credit contracts to be varied due to financial hardship, including because of a change in the borrower’s circumstances;
• failed to consider hardship notices provided by borrowers prior to making inquiries of their guarantors to make payment;
• failed to issue notices warning borrowers or guarantors of a direct debit default on the first occasion a default occurred;
• failed to give borrowers and guarantors 30 days to correct a default before commencing enforcement proceedings, as required under credit laws;
• commenced court proceedings to enforce credit contracts in states or territories outside of where a borrower or guarantor lived;
• failed to ensure Membo’s representatives were adequately trained, particularly in relation to hardship applications; and
• failed to take reasonable steps to ensure that Membo’s representative complied with credit laws.

Membo and Richmond were ordered to discontinue enforcement proceedings against debtors and to pay ASIC’s costs.

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Author: David Jacobson
Principal, Bright Corporate Law
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The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.