Two lenders have agreed to change their operating models following an ASIC intervention.
Cash Loan Money Centres and Sunshine Loans have agreed to stop offering 'leaseback' arrangements to consumers who want a payday loan.
ASIC was concerned that the companies were using business models which deliberately attempt to avoid the protections for consumers contained in the small amount lending provisions in the NCCP.
According to ASIC, consumers who approached a Cash Loan Money Centre for a payday loan were signed up to an arrangement where the consumer 'sold' a household item such as a washing machine or fridge to the business, in return for a sum of money, and simultaneously 'leased' the goods back from the business.
In practice, the goods never changed hands, and the business never actually saw the household goods, or confirmed the current market value before 'purchasing' them from the consumer.
Similarly, under the model used by Sunshine Loans, a consumer would approach the business for a payday loan, and enter into an agreement to assign the rights to use their mobile phone or car to the lender for a fee, and then simultaneously lease the rights back.
ASIC was primarily concerned that, in both cases, consumers were charged considerably more than the amount allowed under the legislative cap on costs for payday loans.
In one example, a consumer received $1,000 and repaid a total of $1,682.10, when the statutory maximum the consumer would have repaid for a small amount loan of the same amount was $1,280.
"Where we see business models or arrangements being used which are designed to avoid obligations imposed by the consumer credit legislation, we will take action,” ASIC deputy chairman Peter Kell said.
“Payday lenders and their advisers need to ensure any change to their lending models are legitimate and do not seek to avoid the small amount lending provisions,” Mr Kell said.
After ASIC intervention, Cash Loan Money Centres and Sunshine Loans have ceased using these models and are now offering consumers a small amount credit contract.