The Times Australia
The Times World News

.

How 'bad credit' lender Cigno has dodged ASIC's grasp

  • Written by Lucinda O'Brien, Research Fellow, The University of Melbourne
How 'bad credit' lender Cigno has dodged ASIC's grasp

Cigno is exactly the sort of business the Australian Securities and Investments Commission had in mind when it asked for stronger powers to ban the sale of harmful financial products[1].

Cigno offers short-term loans (commonly called payday loans) of as little as $50 to people with what it calls “bad credit[2]”. Its customers reportedly include disability pensioners[3], teenagers and people affected by mental illness or addiction.

It describes itself as an “emergency cash specialist[4]”, offering help to people who can’t get loans from any other source. Consumer advocates call it a predatory lender[5], targeting desperate and vulnerable consumers.

Critics say Cigno traps its customers in a “debt spiral[6]”, forcing them to take out new and higher loans to pay off their old ones.

Payments straight out of bank accounts

In most cases, Cigno takes payments straight out of customers’ bank accounts, along with any late fees or dishonour fees. Many customers find themselves without enough money[7] left over for food or rent.

In a 2019 consultation paper[8], ASIC found Cigno’s fees were much higher than those of other payday business models.

The paper included case studies of customers who ended up owing Cigno almost 10 times[9] what they originally borrowed, due to fees and charges.

In one case, a disability pensioner who borrowed $350 ended up owing $2,630, including late fees and ongoing weekly “account-keeping” fees. In another, an unemployed woman who borrowed $120 ended up with a debt of $1,189.

Operating outside the credit law

Cigno can charge these extraordinary fees because it operates outside the scope of the consumer credit laws that apply to ordinary payday loans, making use of gaps in the National Credit Act.

In 2020 the corporate regulator took legal action[10] against Cigno in the Federal Court, alleging its loans broke the law.

It lost the case, but then won on appeal to the full bench of the court. Now Cigno wants to challenge this outcome in the High Court.

Cigno's website offers short-term cash loans Up to $1,000.
Cigno’s website offers short-term cash loans Up to $1,000. cigno.com.au

The regulator asked the federal government for a new, wide-ranging product intervention power[11] to avert such costly and drawn-out legal battles.

In 2019 it was given the power to make a product intervention order[12], banning or limiting the sale of a financial product that causes “significant detriment” to consumers.

Such orders can remain in force for up to 18 months. Breaches can result in civil and criminal penalties. So far ASIC has made three product intervention orders aimed at Cigno’s lending practices.

Read more: What 1,100 Australians told us about living with debt they can't repay[13]

The first order[14], in 2019, banned a Cigno lending model that took advantage of the National Credit Code’s “short term credit” exemption.

Under this exemption, the National Credit Act does not apply if a loan is offered for 62 days or less, the associated fees are no more than 5% of the amount lent, and the effective annual interest rate is no higher than 24%.

Before making the order, the corporate regulator was required by law to undertake a lengthy consultation process.

New model for Cigno

During this time Cigno launched a new lending model that took advantage of a separate, “continuing credit[15]” exemption under the Credit Code. This exemption applies to certain loans for which the only charge is a periodic or other fixed charge of up to $200.

The short term credit order came into effect on September 14 2019. Within two days, according to ASIC, Cigno was issuing loans using the new model[16].

Consumer advocates say the transition was so smooth some Cigno customers were unaware of the change, and Cigno’s business “hardly skipped a beat[17]”.

New order against Cigno

In July 2020 the corporate regulator began consulting on a second order aimed at Cigno’s new lending model, which took advantage of the exemption for “continuing credit” contracts under the National Credit Code.

However, it didn’t issue this order until July 2022. This was partly because Cigno mounted a challenge[18] to the first order in the Federal Court. It lost this challenge in April 2020, and again on appeal in June 2021.

In the meantime, in March 2021, the regulator’s “short term credit” order lapsed.

Another lending model

ASIC says it understands[19] that companies related to Cigno may have begun to issue new loans, using the original lending model.

The regulator issued the continuing credit order in July 2022. At the same time, it issued a third order[20], closely based on the original short term credit order.

Yet Cigno continues to offer loans via its website.

This has raised suspicions[21] that it has moved to yet another lending model, again dodging the regulator.

Read more: Loan shark regulators need a lesson in behavioural economics[22]

It seems likely that the regulator’s product intervention orders will have limited success against persistent, well-resourced lenders like Cigno.

To address the harmful impacts of high-cost lending we need stronger consumer credit laws – including broad anti-avoidance clauses to prevent lenders from using gaps in the law to target vulnerable consumers.

The Conversation contacted Cigno for a response but received no reply by publication deadline.

References

  1. ^ stronger powers to ban the sale of harmful financial products (papers.ssrn.com)
  2. ^ bad credit (cignoloans.com.au)
  3. ^ disability pensioners (www.abc.net.au)
  4. ^ emergency cash specialist (cignoloans.com.au)
  5. ^ predatory lender (consumeraction.org.au)
  6. ^ debt spiral (consumeraction.org.au)
  7. ^ without enough money (www.financialcounsellingaustralia.org.au)
  8. ^ 2019 consultation paper (download.asic.gov.au)
  9. ^ almost 10 times (download.asic.gov.au)
  10. ^ legal action (asic.gov.au)
  11. ^ product intervention power (treasury.gov.au)
  12. ^ product intervention order (download.asic.gov.au)
  13. ^ What 1,100 Australians told us about living with debt they can't repay (theconversation.com)
  14. ^ first order (asic.gov.au)
  15. ^ continuing credit (asic.gov.au)
  16. ^ using the new model (download.asic.gov.au)
  17. ^ hardly skipped a beat (consumeraction.org.au)
  18. ^ challenge (asic.gov.au)
  19. ^ understands (download.asic.gov.au)
  20. ^ third order (asic.gov.au)
  21. ^ raised suspicions (www.abc.net.au)
  22. ^ Loan shark regulators need a lesson in behavioural economics (theconversation.com)

Read more https://theconversation.com/how-bad-credit-lender-cigno-has-dodged-asics-grasp-187887

Times Magazine

Building a Strong Online Presence with Katoomba Web Design

Katoomba web design is more than just creating a website that looks good—it’s about building an online presence that reflects your brand, engages your audience, and drives results. For local businesses in the Blue Mountains, a well-designed website a...

September Sunset Polo

International Polo Tour To Bridge Historic Sport, Life-Changing Philanthropy, and Breath-Taking Beauty On Saturday, September 6th, history will be made as the International Polo Tour (IPT), a sports leader headquartered here in South Florida...

5 Ways Microsoft Fabric Simplifies Your Data Analytics Workflow

In today's data-driven world, businesses are constantly seeking ways to streamline their data analytics processes. The sheer volume and complexity of data can be overwhelming, often leading to bottlenecks and inefficiencies. Enter the innovative da...

7 Questions to Ask Before You Sign IT Support Companies in Sydney

Choosing an IT partner can feel like buying an insurance policy you hope you never need. The right choice keeps your team productive, your data safe, and your budget predictable. The wrong choice shows up as slow tickets, surprise bills, and risky sh...

Choosing the Right Legal Aid Lawyer in Sutherland Shire: Key Considerations

Legal aid services play an essential role in ensuring access to justice for all. For people in the Sutherland Shire who may not have the financial means to pay for private legal assistance, legal aid ensures that everyone has access to representa...

Watercolor vs. Oil vs. Digital: Which Medium Fits Your Pet's Personality?

When it comes to immortalizing your pet’s unique personality in art, choosing the right medium is essential. Each artistic medium, whether watercolor, oil, or digital, has distinct qualities that can bring out the spirit of your furry friend in dif...

The Times Features

What Makes a Small Group Tour of Italy So Memorable?

Traveling to Italy is on almost every bucket list. From the rolling hills of Tuscany to the sparkling canals of Venice, the country is filled with sights, flavors, and experiences ...

Latest data suggests Australia is overcoming its sugar addiction

Australia is now meeting the World Health Organization’s (WHO) guidelines[1] on sugar, which recommend keeping sugar below 10% of daily energy intake. New data[2] published ...

Do you really need a dental check-up and clean every 6 months?

Just over half of Australian adults[1] saw a dental practitioner in the past 12 months, most commonly for a check-up[2]. But have you been told you should get a check-up and c...

What is a Compounding Pharmacy and Why Do You Need One in Melbourne?

Ever picked up a prescription and thought, this pill is too big, too bitter, or full of things I cannot have? That is where a compounding chemist becomes important. A compounding p...

Deep Cleaning vs Regular Cleaning: Which One Do Perth Homes Really Need?

Whether you live in a coastal home in Cottesloe or a modern apartment in East Perth, keeping your living space clean isn’t just about aesthetics, it’s essential for your health and...

Rubber vs Concrete Wheel Stops: Which is Better for Your Car Park?

When it comes to setting up a car park in Perth, wheel stops are a small feature that make a big difference. From improving driver accuracy to preventing costly damage, the right c...