The product intervention measure was passed by Parliament in April this year, and now ASIC has released a consultation paper proposing to use it against short-term credit providers whose fees can add up to nearly 990% of the loan amount.
Under the legislation, ASIC is required to consult with businesses whose products "present serious and immediate harm" for a minimum of four weeks before exercising its powers to ban the products for 18 months.
For market-wide interventions, the consultation period can run longer.
Stopping harm before it happens
The idea of ASIC's new powers of intervention is to take financially harmful products off the market before they cause the harm, or at least put the brakes on the harm they cause.
Short-term credit often comes in the form of payday loans, which target people hard pressed for cash and often sends them into a self-perpetuating spiral of debt.
Its purveyors circumvent responsible lending laws by technically not charging interest, just outrageously high fees.
CHOICE gave the payday lending industry a collective Shonky in 2015.
Cigno and Gold-Silver Standard Finance put on notice
ASIC has singled out short-term credit providers Cigno and Gold-Silver Standard Finance as prime offenders but says it aims to put a stop to any lending business operating on such a business model.
"Sadly we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short-term lending model," says ASIC commissioner Sean Hughes.
"Consumers and their representatives have brought many instances of the impacts of this type of lending model to us. Given we only recently received this additional power, then it is both timely and vital that we consult on our use of this tool to protect consumers from significant harms which arise from this type of product."
Consumer groups say bring on the intervention
CHOICE CEO Alan Kirkland says ASIC's new product intervention powers are "a significant improvement to ASIC's regulatory toolbox".
"In most consumer markets, if a dangerous product causes widespread consumer harm, then the product can be pulled from the shelves. It's welcome news that ASIC now wields these powers," Kirkland says.
"Short-term credit providers, such as Cigno, exploit a loophole in the current law, and take advantage of vulnerable people with exorbitant interest rates," Kirkland adds. "It's long overdue that this loophole is closed. Today's announcement places predatory financial companies on notice. If your business model is based on causing significant consumer detriment then expect to face the wrath of ASIC's new wide-ranging powers."
Consumer Action Law Centre CEO, Gerard Brody, welcomes the action by ASIC, saying the consumer rights organisation is all too familiar with the underhanded tactics of predatory lenders.
"Since 2015, Consumer Action's legal practice has provided legal advice in relation to Cigno 117 times, including 37 times since the start of the year," Brody says. "Many of the people contacting us, including financial counsellors supporting vulnerable clients, complain about unaffordable and exploitative loans facilitated by Cigno."
"It is very welcome that ASIC is using its new powers here. The message for Cigno and similar business models is time is up: you can no longer use tricky business models to avoid the law."
Consumer Action has urged ASIC to follow-up with interventions against credit repair services, debt negotiation and budgeting services, 'junk' add-on insurance cover, funeral insurance and expenses-only products, buy now pay later schemes and dealer-issues warranties.
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