Need to know
- Cigno and its subsidiary BHF Solutions are notorious for lending to vulnerable people at sky-high payback rates, often leaving them worse off
- Dodging each new ASIC regulation has become business as usual for this lender
- Consumer groups are calling for an end to loan repayment models that dwarf the amount of the original loan
The Australian Securities and Investments Commission (ASIC) first wielded its new product intervention powers in September 2019 to ban a form of short-term lending "which has been found to cause significant consumer detriment".
It was a good choice.
Generally speaking, short-term lending products – also called 'payday loans' because people often take them out against their forthcoming paycheck – leave people financially worse off than they were before.
When the paycheck finally arrives, it's often not enough to pay off the loan. So people who were already in a tight spot end up in a tighter one. And on it goes.
The ongoing debt cycle, fuelled by high fees, is what makes these businesses so profitable.
Unlicensed and exempt
The payday lenders in the 2019 ASIC case – Cigno, Gold-Silver Standard Finance and BHF Solutions – didn't need a credit licence and were exempt from responsible lending obligations because they stayed within the law by keeping fees to no more than five percent of the loan amount (for loans up to 62 days) and capping annual interest at 24%.
Cigno tacked on significant upfront, ongoing and default fees under a separate contract
But then, in a characteristic move, they turned around and tacked on significant upfront, ongoing and default fees under a separate contract that could potentially add up to 1000% of the original loan amount.
They had effectively dodged the regulations, at great cost to their customers.
The 2019 ASIC intervention order "ensures that short-term credit providers and their associates do not structure their businesses in a manner which allows them to charge fees which exceed the prescribed limits for regulated credit," ASIC said at the time.
With the rates of repayment that predatory lenders such as Cigno demand, it's not a long shot to compare them to loansharking operations.
ASIC commissioner Sean Hughes said: "ASIC will take action where it identifies products that can or do cause significant consumer detriment. In this case, many financially vulnerable consumers incurred extremely high costs they could ill afford, often leading to payment default that only added to their financial burden."
The ban took effect on 14 September 2019 and will remain in effect for 18 months from that date unless it's extended or made permanent.
Lenders who flout it face up to five years in prison and fines of up to $1.26 million per offence.
Up to their old tricks
But the penalties on offer do not seem to have deterred the likes of Cigno.
True to character, Cigno and BHF Solutions (owned by Cigno) didn't flout the 2019 ban – they just manoeuvred around it so they could get back to exploiting hard-pressed people.
Many financially vulnerable consumers incurred extremely high costs they could ill afford, often leading to payment default that only added to their financial burden
ASIC Commissioner Sean Hughes
They're now flogging a new lending model that's as rapacious as the previous one (once again, it involves high fees), and ASIC is proposing to shut that model down too.
We think that's an excellent idea.
ASIC was calling for submissions from people and businesses that would probably be affected by a ban until early August, part of its product intervention process.
Consumer Action, the Financial Rights Legal Centre and Westjustice made a joint submission that includes many disturbing case studies (see below).
The crux of Consumer Action's case against the Cigno lending model highlights the issues.
- The issuing of loans by use of a model that avoids compliance with responsible lending laws and other consumer protections.
- Excessively high fees (including establishment, default and ongoing account maintenance fees).
- Loans that appear wholly unsuitable for the borrowers and require unrealistic repayments.
- The difficulties Consumer Action's clients have reported when trying to contact Cigno to discuss issues with their loans.
- Cigno and BHF Solutions not being members of the Australian Financial Complaints Authority (AFCA), leaving borrowers with limited access to justice.
- Aggressive debt-collection tactics.
The various fees and charges of the Cigno lending model mean loans can double in size or worse over a short period of time.
Cigno's call to customers: Stop the ASIC ban
In the midst of the submission process, Cigno published a page on its website urging its customers to join forces, send submissions to ASIC urging it to stop the ban, and save the company from being forced to charge them less. (The webpage created a submission document for you at the click of a button.)
"As with most things in life there are two sides to every story," Cigno CEO and director Mark Swanepoel wrote. "ASIC and the mainstream media claim we prey on the vulnerable and less sophisticated, charging all our customers exorbitant fees and exploiting the very people we claim to be helping. The reality is that ASIC, the government regulator, have formed their view based on a very small percentage of our customers.
We are fighting a large group of hypocrites – the leaches [sic] of society who steal more and more freedom and choices from everyday people behind the veil of good intentions
Cigno CEO and director Mark Swanepoel
"We have a situation where a government regulator wants to control your decision making based on what they believe is best, and will skew information to reach that objective. We also have the mainstream media who are always looking for a sensational headline to get readership or viewership and push a certain political agenda."
'Hypocrites'
If the political agenda is to put the brakes on predatory lending, Swanepoel may have a point. But it's not just a political agenda, Swanepoel says. It goes deeper than that.
"We are fighting a large group of hypocrites – the leaches [sic] of society who steal more and more freedom and choices from everyday people behind the veil of good intentions," he continued.
It's the kind of astroturfing tactic CHOICE has called out in the past: companies posing as consumer-minded while pursuing their own self-serving agenda.
Payday lenders such as Cigno and its subsidiary BHF Solutions appear to take an amoral approach to the human impact of their products.
Consumer Action case studies: hearing from the victims of high-cost credit
Both Consumer Action and the Financial Rights Legal Centre have come to the aid of many vulnerable consumers whose financial situations were worsened by short-term credit.
Here are the recent stories of a few Consumer Action clients. There are many more.
Chris's story – trying to support his family overseas
Chris took out a Cigno loan for $200 to help support his family overseas and was required to repay $330 in two $165 instalments. He made the first repayment but missed the second one, for which he was charged $90.
Chris reported that Cigno then attempted to direct debit the amount he owed plus further amounts totalling about $250, without any warning. He didn't have enough money in his account.
Chris told Consumer Action the default fees were not explained to him before he took out the loan.
Chris tried to contact Cigno repeatedly to discuss the debt, but his calls and emails went unanswered
He then put a block on his account on direct debits by Cigno.
Chris recounted that after receiving a notice telling him he owed $420 and one telling him to remove the direct debit block on his account, he wrote an email to Cigno threatening to take them to court.
Cigno finally responded, offering to settle the debt if he paid the original second $165 payment.
Chris said he did this, after which Cigno somehow managed to debit an additional $30 from his account. He was eventually refunded this amount, after again complaining to Cigno.
Larni's story – stung for more than double the original loan
In January 2020, Larni, who says she suffers from physical and mental illnesses and receives the disability support pension, entered into a credit agreement with BHFS for a $250 loan, and an associated services agreement with Cigno.
Under the services agreement, Larni was required to repay nearly $400 within two weeks.
She was unable to make this repayment and, within a month, the total fees charged by BHFS and Cigno were nearly as much as the loan itself.
Larni told Consumer Action that since January or February 2020 COVID-19-related issues have forced her to move multiple times and that she has sometimes been homeless.
Larni was unable to make this repayment and, within a month, the total fees charged by BHFS and Cigno were nearly as much as the loan itself
Despite this, Larni managed to pay Cigno more than $400 in early April, but by this point the fees Cigno had charged her meant she still owed more than $100 on her account. Soon after making this payment, Larni told Cigno she was in financial hardship.
She told Consumer Action she then agreed to a payment plan to repay the rest of the fees.
Larni made the first two payments under the plan, but a day after she made the second payment (and notifying Cigno of this by email), Cigno debited another payment from her account. It took Cigno six days to refund this amount.
All in all, Larni has repaid more than double the amount of the loan. Despite Cigno being aware of her hardship, Larni told Consumer Action, Cigno has repeatedly contacted her for further payments and indicated they are going to refer her case to a debt collector.
Elise's story – contacted by Cigno 14 times in one week
Elise cares for a family member and receives the disability support pension. In early January 2020, to make sure she had enough money to buy food for her family and pay for a medical appointment, Elise took out a $250 loan with BHFS, through Cigno. She entered a continuing credit contract with BHFS, and a services agreement with Cigno.
Despite the first payment under both agreements not being due for more than two weeks from the date of the loan, Cigno contacted Elise 14 times in the second week of the loan by text and email, claiming payments were due.
Feeling continually harassed, Elise repaid more than $380 within 12 days of taking out the loan.
Elise wrote to Cigno multiple times complaining about the impact on her of Cigno's behaviour. She told Consumer Action she was unable to get through to Cigno by phone.
Feeling continually harassed, Elise repaid more than $380 within 12 days of taking out the $250 loan
Elise complained that Cigno had made a direct debit without her consent when she had been ahead in repayments, resulting in her suffering financial hardship and being unable to make other debt repayments.
Cigno continued to contact Elise by email and text to request payments. After she complained about Cigno's excessive contact and demanded they stop, Cigno continued to contact her repeatedly for several weeks by text message and email for more payments, and threatened her with further actions.
Elise also had to contact her bank to cancel a deduction Cigno made from her account without her consent during this time. Despite Elise being ahead on repayments under the loan and services contract, Cigno subsequently charged Elise multiple default fees within six weeks of her entering the loan.
(Note: some of the case-study names have been changed at their request.)
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