In November last year, Lavan Legal published an article on the liability findings of the Federal Court in Australian Securities and Investments Commission v Cash Store Pty Ltd (in liquidation) FCA 926 (Liability Judgment). In the article, we noted how the decision was a timely reminder for financiers that proper steps need to be taken in respect of compliance with the “responsible lending obligations” contained in the National Consumer Credit Protections Act 2009 (Cth) (Credit Act).
On , Justice Davies delivered her findings on the question of penalty in Australian Securities and Investments Commission v The Cash Store Pty Ltd (in liquidation) (No 2) FCA 93 (Penalty Judgment) and, in a record win for the Australian Securities and Investments Commission (ASIC), awarded penalties totalling $ million against The Cash Store Pty Ltd (in liquidation) (The Cash Store) and Assistive Finance Australia Pty Ltd (AFA).
Background to proceedings
- The Cash Store and AFA had breached their “responsible lending” obligations under Ch 3 of the Credit Act;
- The Cash Store had engaged in unconscionable conduct contrary to s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by selling a consumer credit insurance policy known as the Cash Store Australian Protection Plan (CCI), and orders that The Cash Store and AFA be liable to pay pecuniary penalties in respect of each contravention.
The alleged contraventions related to 325,756 credit contracts that The Cash Store had arranged and AFA had financed between . The loans provided under the relevant contracts were for short term periods between 1 and 36 days and were for amounts up to $2,200 (commonly known as “payday loans”). ASIC did not tender all 325,756 credit contracts at trial rather it relied on a random sample of 281 contracts.
Between , The Cash Store also marketed and sold more info here CCI to its customers in respect of 182,838 of the 268,903 credit contracts entered into in that period. Only 110 policies resulted in a claim, and of those, only 43 received a settlement or were expected to receive a settlement.
Findings on liability
Justice Davies observed that there were clear deficiencies in The Cash Store’s practices and processes, which resulted in systemic failures by The Cash Store to comply with its obligations under the Credit Act and to properly assess whether a credit contract would be unsuitable for the consumer. In particular, it was observed that in relation to the 281 contracts tendered, The Cash Store failed to:
- provide The Cash Store credit guide in relation to 96 contracts;
- make preliminary assessments in relation to 277 contracts;
- make reasonable inquiries about the customer’s requirements and objectives in relation to 224 contracts;
- make reasonable inquiries about the customer’s financial situation in relation to 268 contracts; and
- verify the customer’s financial situation in relation to 151 contracts.
Justice Davies held that the breaches of the Credit Act by The Cash Store were also breaches by AFA as the credit provider. The fact that AFA had outsourced all of its credit activities to The Cash Store did not shield it from liability. Similarly, The Cash Store was found to have been “knowingly concerned in or a party to AFA’s contraventions of its responsible lending obligations” and was thereby taken to have contravened those provisions itself.
Justice Davies found that The Cash Store had engaged in unconscionable conduct contrary to s 12CB of the ASIC Act by selling CCI to customers from . Justice Davies’ reasoning focused on the fact that “CCI was unlikely to [have] been of any use to customers” and accordingly, the insurance was not likely to have ever conferred a benefit.