“Construction requires a direct relationship between the charge and the granting of credit by looking at the circumstances or conditions under which the charge is made or imposed and the reason for the charge,” he concluded.
“It examines the substance of credit agreements rather than their contractual form and ensures that the corrective provisions of the Code are not easily circumvented by carefully structured credit agreements.”
Cigno’s only manager is Mark Swanepoel, 31, who The Australian Financial Review in 2019, it was revealed that a former Super Rugby half-back was involved in an earlier payday loan venture. The director of BHF Solutions is Brenton Harrison, 34, also from the Gold Coast. Mr. Harrison has previously been involved in payday loan schemes with the Swanepoel family.
ASIC Commissioner Sean Hughes told the Financial analysis that the regulator had asked the court for clarification that the regulated credit protections for consumers should “be maintained”.
ASIC was concerned that the structure adopted by Cigno and BHF “was really an artificial construct that allowed them to seed all the costs into the entity that is not the credit provider and say, ‘Well, it has nothing to do with granting credit,'” he said. .
“What we want to get out of this decision is that when a company extends credit, whether to experienced borrowers or vulnerable consumers, it fully complies with its obligations.
The case focused on whether the loans were credits that would fall under the National Credit Code, which sets limits on how much consumers can be charged. Cigno and BHF had argued in court that the proposed credit was not considered in the code because the BHF lending entity’s fees were below a regulated level of $200 per year.
If Cigno’s charges were included, they greatly exceeded this amount. The case used the example of a woman who borrowed three times using Cigno. The first loan of $200 made on October 18, 2019 involved repaying $375 by November 25, 2019. Other loans also incurred default charges.
“Regardless of the point of view, the total fees charged [for the] small and short-term loans were very high,” the Full Court found.
“If the fee were converted to an annualized percentage interest rate, the rate would be approximately 800% (ignoring, for simplicity of calculation, prepayment of installments that shorten the term of the loan with respect to these payments).”
The judgment referred to $46.7 million in BHF loans granted over a period of 5.5 months and Cigno charging $61.1 million in fees.
The case was against Cigno Pty Ltd and BHF Solutions Pty Ltd. Cigno’s website now lists itself as Cigno Australia Pty Ltd and the lender as BSF Solutions Pty Ltd – both entities have the same directors as the previous companies.
Mr Hughes said ASIC had engaged in consultation on the re-use of its broader product ban power over short-term lending, which Cigno had previously engaged in, and against the prosecution of credit contracts. It would potentially affect anyone offering arrangements similar to those in which Cigno had been involved, Mr Hughes said.
“We are currently considering placing this order,” he said.
Mr Swanepoel told the Financial analysis that “we are extremely surprised and disappointed” by the court’s decision, and that an appeal to the High Court was being considered.
“The decision creates considerable uncertainty which, if maintained, will have far-reaching consequences for many players in the financial industry,” he said.
Mr. Harrison did not answer questions.