In an ASIC media release issued on Wednesday 22 October 2014, ASIC reported on how it had intervened in the activities of two so-called “payday lending” companies and persuaded them to change their business model.
Two businesses involved were Cash Loan Money Centres and Sunshine loans. What these companies had been doing is instead of lending money to customers, they structured the deal as a sale and leaseback arrangement. In effect that avoided the interest rate caps that apply to lending arrangements.
Deputy Chairman of ASIC, Peter Kell is quoted as saying:
“Where we see business models or arrangements being used which are designed to avoid obligations imposed by the consumer credit legislation we will take action”.
What is interesting to us is that there are in fact no “anti-avoidance” provisions per se contained in the National Credit Code. Proposals to introduce a comprehensive range of anti-avoidance measures into the National Credit Code were abandoned by Governments more than 12 months ago.
However, it is always open to courts, and for that matter, ASIC, to regard convoluted lending/leasing schemes to be in the nature of “shams”. A recent example of this was in relation to a lending operation in Queensland which was structured as a diamond trading scheme. In that circumstance the Queensland Civil Administrative Tribunal struck down the arrangement on the basis it was, amongst other things, “a sham”. That matter is currently the subject to civil penalty proceedings brought by ASIC in the Federal Court and it will be interesting to see the outcome of those proceedings.
In the meantime, lenders need to be aware that if they artificially structure lending arrangements to avoid the provisions of the National Credit Code this will be frowned upon by ASIC and most likely will then be subject to their investigation and intervention. And we must not forget that ASIC has within its “armoury” the ability to take action based upon the prohibition against engaging in “misleading or deceptive conduct”. A wolf dressed in sheep’s clothing is still a wolf!