Cigno action against ASIC product order dismissed

The order, made in September 2019, was ASIC’s first under its product intervention powers. It banned a model of short-term credit, where a provider and associate could charge fees under separate contracts, reporting the product could result in significant detriment due to the excessive overall costs.

However, Cigno made an appeal against the order, arguing ASIC had not installed the order for a class of products, rather it was targeting a specific product provided under a GSSF and Cigno arrangement.

The lender’s argument had been that defining a class of products would require grouping them together by shared characteristics.

But the Federal Court dismissed the application in April, with Justice Angus Stewart finding ASIC had not been merely concerned with GSSF and Cigno, and there had been at least one other similar product from other providers previously operated under the same model.

On Tuesday (29 July) the court upheld the decision, finding in favour of ASIC’s application of the product intervention order provision.

The court also ruled that ASIC is entitled to consider not only the characteristics of a relevant financial product when assessing consumer detriment, but also the circumstances in which it is supplied.

ASIC deputy chair Sarah Court commented that ASIC has made the product intervention order to target “predatory lending”.

“We welcome this important decision, which will assist ASIC to protect vulnerable consumers from harmful short-term credit practices in future,” Ms Chair said.

The product intervention order lapsed in March, but ASIC did not seek to extend it, citing ambiguity in the product intervention provisions written in the Corporations Act 2001 and the National Consumer Credit Protection Act 2009.

However, the government passed laws last week that removed the ambiguity and boosted ASIC’s ability to intervene, in the Treasury Laws Amendment (2021 Measures No.4) Bill 2021.

Notably, ASIC also recently copped a dismissal from the court over separate court proceedings against Cigno and another short-term lender, BHF Solutions, relating to an arrangement the two companies had where Cigno referred customers to BHF Solutions for short-term loans.

ASIC had alleged the companies had contravened the National Consumer Credit Protection Act, by charging substantial fees and not holding credit licences.

However, the court ruled the lending model had not made breaches of the act, noting that Cigno had charged fees for supplying services – and ASIC had not argued the services were false.

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