ASIC is wielding for the first time a new product intervention power. The watchdog proposes to issue an order temporarily shutting down a loophole allowing lenders and associates to charge fees that equate to effective interest rates as high as 990 per cent of the loan amount. The ban could become permanent.
“We have already seen too many examples of significant harm affecting particularly vulnerable members of our community,” ASIC commissioner Sean Hughes says.
“We have already seen too many examples of significant harm affecting particularly vulnerable members of our community”: ASIC commissioner Sean Hughes. Josh Robenstone
The loans in question can be for as little as $50. They need to be repaid within a maximum of 62 days, sometimes earlier.
“Payday lenders attract people that don’t have access to mainstream finance,” Consumer Action Law Centre policy officer Patrick Sloyan says.
“We even see people that don’t have the cash … to buy dinner that night, or they’ve got an electricity bill that’s overdue – they’re faced with disconnection.”
The payday lender is a quick cash lifeline. “But in return for that, they charge quite high fees and quite high interest,” he says.
According to ASIC’s discussion paper, that meets the technical requirements of an exemption in the National Credit Code. Small amount credit contracts legally are capped in fee terms, such as an establishment fee of 20 per cent, or a defaulting borrower can’t be obliged to pay more than double the initial loan.
The catch is Gold-Silver’s loan won’t come through for two weeks. But a borrower can go to “helping” firm Cigno to have that Gold-Silver loan “fast-tracked”, with money possibly in a bank account that same day. Of course, there are associated fees.
So the amount targeted for repayment was $263.60, paid over four fortnights. But when the borrower defaulted, dishonour and weekly fees ballooned the bill to $1189.
How Cigno pitches to borrowers. Company website
ASIC drily pointed out a similar amount borrowed under a contract regulated by the National Credit Act would mean her initial targeted repayment would be $153.60.
Cigno has a different characterisation of its loan processes. “We believe in a fair go!” goes the advertising blurb. “We always encourage our customers to only borrow when they need to, and to always borrow what they need and can afford to repay.”
Round 2 for ASIC
ASIC actually unsuccessfully tried to nullify this model before. That was in a 2014 Federal Court case against Teleloans and Finance Loans Direct (FLD).
While acknowledging financial connections between the two companies, Justice John Logan ruled in 2014 against ASIC’s attempt to have the loan and fee dealings brought under the National Credit Code. A key issue was that the code’s wording was not applicable given how contracts were designed – one for credit from the lender and the other for services from the “helper” business.
Neither Teleloans nor FLD now operate. But some key people in those earlier companies are linked to the current operation targeted by ASIC. Some even saw tough times themselves.
He was bankrupted in 2003, according to insolvency records, and discharged three years later. But corporate records also show in 2006, his then wife’s firm Pro-Site Construction Services, which cleaned building sites, had administrators from SV Partners appointed.
Still, John Swanepoel was by 2007 helping with his son Ryan’s new lending firm FLD. John was, on behalf of Ryan, approaching “various people for investment funds to grow the FLD business,” said a statement of agreed facts in the 2014 case. Documentation used by Teleloans and FLD, such as call scripts, was “developed in consultation” with John.
Business at first was slow, with FLD writing less than 10 loans per week. It grew as acquaintances poured in money. One man’s superannuation fund invested $252,000, reaping returns of 18 per cent annually.
“Don’t harass me,” he tells AFR Weekend. “If you want to do a proper story, maybe we can talk. However you’re just looking for emotional shit to put in your little magazine.
— Jan “John” Swanepoel
He lists his address in a gated Gold Coast hinterland community. A property search indicates it is a spectacular $1.77 million five-bedroom home with a swimming pool, with the owner being a company with family ties.
From rugby to lending
In fact, the current loan operation is a family business. John’s son Mark, 28, is the sole director of the newer financial “helper” outfit Cigno. Mark, a graduate of the elite Southport School, had a stint playing Super Rugby with the ACT Brumbies and Western Force as halfback between 2009 and 2013.
Mark Swanepoel during his rugby days. Colleen Petch
He’s still a big bloke. “I’m not prepared to make a statement now,” he politely says. He points AFR Weekend off the property. “Cheers,” he says.
Mark and Ryan – who is 30 and didn’t respond to queries – also dabble in other businesses. Queensland Liquor Licence records show they are directors of the business trading as Swannie’s Lounge Bar and Restaurant, where char-grilled eye fillets cost $34 or caramelised prawn gyoza $15.
The restaurant opening in 2016 was a great party; Gold Coast mayor Tom Tate turned up. The venue is just below lender Cigno’s office and bar staff take meal orders from upstairs.
Paul Rice’s loan with Cigno turned problematic.
But on the street of Cigno’s office, no one answers the buzzer. Cigno’s registered office is with HS Accountants. They are based in the same building – its director Brenton Harrison was also a director of Teleloans.
But a staffer, through the intercom, says: “Directors are not here, and there’s no comment from HS.”
One person willing to chat is Paul Rice, 68, a former schoolteacher living in rural Baddaginnie, about 200 kilometres north of Melbourne.
The loan with Cigno turned problematic. He is unsure of the final amount he allegedly owed – perhaps more than $1500 – but says he had never previously run into loan trouble.
“They gave up pretty quickly when I said it was in the hands of [the Consumer Action Law Centre],” he says.
The centre’s Patrick Sloyan says they hope ASIC might turn its broad product intervention powers toward other areas such as “junk” insurance or even buy-now pay-later schemes.
“People accessing these loans are often very desperate”: Consumer Action Law Centre policy officer Patrick Sloyan. Rob Gunstone
But this situation casts a light on borrowers and their responsibility for taking loans. “People accessing these loans are often very desperate,” Sloyan counters. “We don’t think it’s sufficient that companies should shirk their responsibility when their products are setting people up to fail.”
Still, the reality is people use such payday lenders. Sloyan says that raises a question for government.
“If this is the only way low-income and vulnerable people can access funds, and be exploited in the process,” he says, “that’s a huge problem.”