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.
Cigno offers short-term loans (commonly called payday loans) of as little as $50 to people with what it calls “bad credit”. Its customers reportedly include disability pensioners, teenagers and people affected by mental illness or addiction.
It describes itself as an “emergency cash specialist”, offering help to people who can’t get loans from any other source. Consumer advocates call it a predatory lender, targeting desperate and vulnerable consumers.
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 left over for food or rent.
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.
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.
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.
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” 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.
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 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
Yet Cigno continues to offer loans via its website.
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.
- ^ stronger powers to ban the sale of harmful financial products (papers.ssrn.com)
- ^ bad credit (cignoloans.com.au)
- ^ disability pensioners (www.abc.net.au)
- ^ emergency cash specialist (cignoloans.com.au)
- ^ predatory lender (consumeraction.org.au)
- ^ debt spiral (consumeraction.org.au)
- ^ without enough money (www.financialcounsellingaustralia.org.au)
- ^ 2019 consultation paper (download.asic.gov.au)
- ^ almost 10 times (download.asic.gov.au)
- ^ legal action (asic.gov.au)
- ^ product intervention power (treasury.gov.au)
- ^ product intervention order (download.asic.gov.au)
- ^ What 1,100 Australians told us about living with debt they can't repay (theconversation.com)
- ^ first order (asic.gov.au)
- ^ continuing credit (asic.gov.au)
- ^ using the new model (download.asic.gov.au)
- ^ hardly skipped a beat (consumeraction.org.au)
- ^ challenge (asic.gov.au)
- ^ understands (download.asic.gov.au)
- ^ third order (asic.gov.au)
- ^ raised suspicions (www.abc.net.au)
- ^ Loan shark regulators need a lesson in behavioural economics (theconversation.com)
Authors: Lucinda O'Brien, Research Fellow, The University of Melbourne