Payday lenders fined $ 730,000 for “simulated” diamond sales model


The Australian Securities and Investments Commission has stressed that it continues to focus on the payday lending industry after the Federal Court fined lender Fast Access Finance $ 730,000 last week for violating laws on consumer credit and participating in credit activities without holding an Australian credit license.

However, the company’s in-house lawyer says the magnitude of the fine indicates that the circumstances were not found to be as serious as ASIC argued.

ASIC first filed a lawsuit against three companies operating as Fast Access Finance in 2013, with the commission alleging that the companies used a business model in which consumers wanting low-value loans were required to sign documents for the buying and selling diamonds in order to get the loan. .

ASIC alleged that no diamonds were involved in the transactions and that consumers did not intend to buy or sell diamonds.

On the contrary, the regulator argued that the documents for buying and selling diamonds were in fact “designed to disguise what, in effect, were loan transactions to which the National Consumer Credit Protection Act 2009 (National Credit Law) applied ”and that the companies intended“ to conceal the true nature of the transaction from those responsible for enforcing the interest limit ”.

In September 2015, the Federal Court found that, in relation to one of the transactions, the Fast Access Finance loan model “involved a pretext or a sham, created as a mere piece of machinery, to disguise the true nature of the transaction.” , which was the granting of credit. Neither party intended that the sales contract would create a seller and buyer relationship ”.

The court concluded that the diamond sales and purchase contracts added nothing to the loan transaction, but had the effect of allowing interest well in excess of the 48% interest rate cap for the loans. loans, in some cases up to 1000%.

In deciding sanctions against the three companies last week, Judge Dowsett said the sale of diamonds “was designed to disguise the true nature of money-lending transactions” to “circumvent the interest rate limit, which was 48% “.

The Court also took into account that it was likely that Fast Access Finance and its screening officers had at least a strong suspicion that the model violated relevant legislation.

Fast Access Finance in-house legal counsel Rob Legat said SmartCompany this morning, he believes the magnitude of the fine imposed shows that the Federal Court did not find the circumstances to be as serious as alleged.

“The amount determined by the court was well below both the maximum available and the amounts awarded in recent similar cases,” Legat said.

The maximum fine payable for each violation was $ 1.1 million, according to an ASIC statement in 2015.

“We believe this reflects an assessment by the court that the circumstances were well below the level of seriousness represented by ASIC,” Legat said.

In a statement on the sanctions decision, ASIC Vice President Peter Kell drew attention to the Commission’s recent focus on lenders using models that avoid respecting consumer protections on the loans.

“ASIC will continue to crack down on lenders who use avoidance models in an attempt to deprive consumers of these important protections,” he said.

The Commission also drew attention to nine other cases in which it sued payday lenders for avoidance models, pointing out that this is an area of ​​continued interest going forward.

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