The Australian Securities and Investments Commission (ASIC) has warned it will take action against lenders who try to move vulnerable consumers onto contracts with fewer protections.
ASIC said a review found some providers of small and medium credit amounts may be entering into unsuitable contracts with consumers or failing to distribute their products to an appropriate target market.
“We were disappointed to uncover that some lenders may be seeking to shift consumers into other forms of credit, some of which involve greater risk,” ASIC Commissioner Alan Kirkland said in a media release.
The ASIC review was conducted following changes to laws governing small amount credit contracts in 2022 and 2023 under the Financial Service Reform Act 2022 (FSR Act).
It said lenders who had changed their products after these changes needed to consider their regulatory obligations, in particular considering a consumer’s requirements and objectives before entering into a credit contract.
People who used small amount credit contracts were subject to additional protections because they were often financially vulnerable.
ASIC said it would also be concerned about business models that may be attempting to avoid the additional consumer protections imposed on small amount credit contracts.
Lenders should also set appropriate review triggers in their target market determinations to adequately monitor the risk of distribution of products outside of their target market.
“ASIC has a strong record of taking enforcement action in response to lending practices that cause harm to vulnerable consumers,” Kirkland said.
“Lenders are on notice that if we detect serious breaches of the law, we will consider taking further action.”
ASIC continued to investigate business models designed to avoid consumer credit protections as part of its enforcement priorities and would consider enforcement action in relation to the conduct of lenders in the small amount credit contract sector.
The corporate regulator’s observations are set out in the Report 805 Falling short: Compliance with the small amount credit contract obligation.
