The corporate watchdog yesterday released a report which found payday lenders need to improve compliance with some of the key consumer protection laws operating in the industry.
The review found that payday lenders are falling short in meeting important new obligations introduced as part of the small amount lending reforms in 2013.
ASIC deputy chairman Peter Kell confirmed the payday lending sector is on notice to improve its practices or further enforcement action is “inevitable”.
“ASIC’s particular focus on payday lending is part of our wider scrutiny of the broader consumer credit regime, which takes in banks and other non-bank lenders,” Mr Kell said.
“Our actions demonstrate ASIC’s commitment to address particular consumer credit risks in our market.”
ASIC’s review of 288 consumer files for 13 payday lenders – who are responsible for more than 75 per cent of payday loans made to consumers in Australia – found some lenders engaging in conduct that risks breaching responsible lending obligations.
The review found particular compliance risks around the tests for loan suitability, which must be considered when the consumer has multiple other payday loans or is in default under a payday loan.
The ASIC review also identified concerns where payday lenders set their loan terms at 12 months or more, thereby charging the consumer more fees in circumstances where a consumer requested a shorter term and paid the loan back in that shorter time.
The report also found systemic weaknesses in documentation and record-keeping, including around the issue of the consumer’s objectives and needs.
ASIC’s review follows a series of enforcement actions against payday lenders, including the recent Cash Store decision. This decision saw penalties of almost $19 million handed down by the Federal Court for irresponsible lending and unconscionable conduct.
Following the work and the conduct that has been uncovered, ASIC has commenced investigations and further follow-up work in certain cases, and will consider enforcement action or other regulatory action.
“ASIC has a strong focus on the payday lending sector as its customers include some of the most financially vulnerable members of the community.
“ASIC will use its powers to reduce the risk of payday lenders providing unsuitable loans and to reduce the risk that financially vulnerable consumers get caught in a debt spiral, where new loans are effectively used to pay back old loans,” Mr Kell said.
ASIC notes the 2013 small amount credit reforms will be independently reviewed after 1 July 2015. ASIC will continue its focus on enforcing the current provisions and raising industry standards.