Australia is taking the payday loan industry seriously.
On Monday, the Australian Securities and Investments Commission (ASIC) announced Monday it has suspended the credit license of PAID International Ltd, a payday loan lender. The suspension will be in effect until April of next year.
According to the government body, the suspension was implemented because the company, previously known as First Stop Money, had been insolvent and ceased providing any payday loans. Leadfish, a subsidiary of PAID, also had its credit license canceled by ASIC. Both of these firms collected “leads” and provided loan matching services through websites online as well as retail store fronts.
Reports say that an external administrator had been appointed earlier this year and the firm continued to trade. The company then entered into a deed of company arrangement (DOCA).
In October of 2014, the administrator had agreed to replay close to $1 million to more than 6,000 customers who had paid excessive fees on about 20,000 loans for bad credit. To this date, PAID has refunded nearly half a million dollars of that money to consumers as part of an agreement with ASIC.
Regulators to Payday Loan Industry: You’re on Notice
This past spring, the ASIC released a report that concluded payday loan lenders needed to improve compliances with various important consumer protection laws. Regulators say that payday lending firms are not meeting the new rules and obligations that were introduced in 2013.
According to the organization’s review of 288 consumer files from 13 payday lenders, many lenders participated in practices that may have breached responsible lending regulations. These 13 payday lenders account for three-quarters of payday loans.
Peter Kell, ASIC deputy chairman, stated that the payday lending business has been put on notice to better its business practices. Otherwise, enforcement will be “inevitable” and it will put a strain on the industry.
“ASIC’s particular focus on payday lending is part of our wider scrutiny of the broader consumer credit regime, which takes on banks and other non-bank lenders,” Kell said in a statement. “Our actions demonstrate ASIC’s commitment to address particular consumer credit risks in our market.”
When digging deeper, the ASIC said that the biggest potential compliance risks are found in tests for loan suitability. In other words, many payday loan storefronts aren’t conducting thorough background checks to find if customers have multiple payday loans or faces possible default under a payday loan.
In addition, the ASIC also reviewed concerns in the realm of payday lenders establishing their rate terms at 12 months or more. This means customers are charged with more fees, even when some customers asked for shorter terms or to pay back the loan in a shorter period of time.
The ASIC has put out warnings. A few months ago, The Cash Store, a bankrupt payday lender, was slapped with a record $19 million fine by the Federal Court for violating consumer credit laws. It turned out to be the biggest civil penalty obtained by ASIC.
Overall, the ASIC believes the industry needs to boost its standards.