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Australia's corporate watchdog is being accused of conducting a "half-baked" investigation into loan schemes run by Cash Converters, the nation's biggest payday lender.
Key Points:
- Cash Converters was ordered to refund loans to online customers
- Some customers who took out loans in store were not covered by ASIC investigation
- ASIC says its investigation produced a "good outcome" for consumers
Consumer advocates say the Australian Securities and Investments Commission's (ASIC) investigation into Cash Converters last year was inadequate, and thousands of customers may have missed out on refunds.
In November, Cash Converters agreed to pay fines and refund loans to the tune of $12 million after an ASIC investigation revealed it had not properly checked if customers who took out loans could afford to pay them back.
The ABC has learned the same lending practices that landed Cash Converters in hot water, appear to have been used for customers in other sections of its business that were not included in ASIC's investigation.
"Unfortunately ASIC's investigation in this particular case was half-baked," said the Consumer Action Law Centre's Director of Legal Practice Jillian Williams.
"I think unfortunately there are too many people who have missed out on compensation they are entitled to because ASIC struck a deal with Cash Converters that meant that only some people would be obtaining compensation as a result of Cash Converters' unlawful behaviour."
While many people who took out loans online will be compensated, those who took out similar loans by going into the store were not covered by ASIC's investigation.
During its investigation ASIC raised concerns about the company's 'benchmarking' method, which uses an internally-generated figure to assess the living expenses of the loan applicant.
That same benchmarking method has been used for a number of customers who took out loans in store, yet they are not eligible for a refund from Cash Converters.
"The people who have missed out are likely to be the most vulnerable because they're the people who don't get online and borrow money," Ms Williams said.
"They go into their local store which may be near a Centrelink office or near the venue at which they gamble."
Cash Converters told the ABC it was operating in a heavily regulated industry.
"We recognise that there is more scope for improvement in our industry and we are proactively building relationships with regulators, ombudsmen and advocacy groups, to be at the forefront of regulatory reform that will benefit the industry generally and our customers specifically," a spokeswoman said.
The company said customer satisfaction with its service was high.
"Cash Converters continues to work collaboratively with the industry regulator, ASIC, and takes very seriously its responsibility to operate with the highest levels of integrity."
Former customer hits out at loan 'predators'
Andrew Ientile took out 21 loans in various Cash Converters stores over a 19 month period as he struggled with a gambling addiction.
"I needed the money to cope with my basic living expenses, so I was just aiming to have enough money to get me through the week," he said.
Mr Ientile initially borrowed just $550, but the loans soon grew to as much as $1,400.
Photo:
Mr Ientile still receives marketing text messages and emails from Cash Converters. (Supplied)
His loan documents show his capacity to repay his debts was assessed using the benchmarking method.
"Basically they're predators, they're more than willing to take advantage of people that are wanting to go back to them for sure," he said.
"And just the raw number of loans that were approved, it's staggering, it actually makes me think how do they actually do it?"
Because Mr Ientile borrowed money in store rather than online, he is not covered by ASIC's action against Cash Converters.
"It just kind of struck me as a little bit odd that it was only the online ones that got fined, not the in store ones," he said.
He still receives marketing text messages and emails from Cash Converters telling him he is entitled to borrow more money.
ASIC defends investigation
ASIC senior executive Michael Saadat said its investigation into online lending produced a "good outcome" for consumers.
"It was a decision about being able to reach the most significant outcome we could for the most number of consumers in the time available, and so in balancing all of those factors we decided to focus on the online process," Mr Saadat said.
"Anybody who's got any concerns can certainly go to the Ombudsman and have their case heard."
In 2013 payday lending laws were tightened and fees were capped, although interest rates remain high.
Last year's government-commissioned review of small amount credit contracts made a series of recommendations to protect vulnerable borrowers.
"One of them that I would call out is probably the recommendation ensuring that no more than 10 per cent of a consumer's income is devoted to making repayments on these payday loans," Mr Saadat said.
"What that recommendation will do once it's implemented is ensure that consumers already on low incomes don't have those incomes completely overwhelmed by the repayments for those loans."
Topics: consumer-finance, business-economics-and-finance, australia