ASIC has succeeded in its appeal before the Full Federal Court which has found unanimously that a ‘financial supply fee’ charged by Cigno Pty Ltd is a charge ‘made for providing credit’.
The Full Federal Court decision reverses the outcome in the Federal Court in June 2021(21-144MR).
Cigno and BHF Solutions operated a lending model purporting to rely on an exemption in the National Credit Code and claimed they did not require an Australian credit licence.
The lender, BHF Solutions, provided the credit and charged a fee under the credit contract to consumers. However, Cigno, under a composite services agreement, separately charged very high fees (including the ‘financial supply fee’) to arrange and manage the credit. These fees, combined with the lender’s fees, exceeded the prescribed maximum charge allowed in order to be exempt from holding a credit licence.
Credit providers must comply with the cap on costs if they are to remain exempt from the National Credit Act and Code.
In making its decision, the Court found that legislation must be looked at in a way which ‘looks to the substance of the credit arrangements rather than their contractual form and ensures that the remedial provisions of the Code are not easily avoided by carefully structured credit arrangements.’
ASIC Commissioner Sean Hughes said ‘ASIC expects companies to be candid about their credit arrangements. Credit regulation exists to protect consumers from unscrupulous and unfair lending practices and companies should not seek to bypass important consumer protections through artificial structures and mechanisms which expose consumers to additional harm and avoidable cost.
‘ASIC took on this case and appealed the Federal Court decision because we were concerned that vulnerable consumers were being charged significant fees which gave rise to hardship and they were not afforded the consumer protections provided by the National Credit Act and Code.’
The National Credit Act and National Credit Code impose important obligations to protect consumers, including disclosure requirements, caps on fees and interest rates, hardship provisions and free access to independent external dispute resolution services.
Cigno and BHF Solutions have 28 days to file an application for special leave to appeal to the High Court, should they choose to do so.
ASIC sought declarations only from the Federal Court.