ASIC takes action against Swoosh for alleged responsible lending failures and DDO breaches
The Australian Securities and Investments Commission (ASIC) has initiated civil penalty proceedings against Ausfinancial Pty Ltd, trading as Swoosh Finance, in the Federal Court. The proceedings allege that Swoosh breached its responsible lending obligations and design and distribution obligations (DDO).
Key Allegations
ASIC claims that Swoosh failed to adequately assess the financial situation of 11 consumers before offering them credit contracts. These consumers were reportedly in challenging socio-economic circumstances, with some having multiple existing loans and showing signs of financial distress, such as negative bank balances and credit defaults. The loans, typically secured against vehicles, ranged from $2,000 to $3,000, with high upfront fees and an annual interest rate of 47%.
Furthermore, ASIC alleges that Swoosh did not review its target market determinations (TMDs) despite receiving increasing complaints directly from customers or via the Australian Financial Complaints Authority (AFCA). This failure to review and update the TMDs is considered a breach of the DDO.
Legal Framework
The allegations against Swoosh include breaches of:
- Corporations Act 2001: Specifically, section 994C(4) concerning the DDO.
- National Consumer Credit Protection Act 2009: Sections 128, 130(1), 131(1), and 133(1) related to responsible lending obligations.
ASIC’s Stance
ASIC Deputy Chair Sarah Court emphasised the importance of financial institutions conducting thorough inquiries into consumers’ financial situations to prevent financial hardship. ASIC is committed to enforcing compliance with the DDO, ensuring that financial products are appropriately targeted and TMDs reviewed.
Implications for Lenders
This case serves as a critical reminder for lenders to rigorously adhere to responsible lending practices and regularly review their TMDs to ensure they remain appropriate. Lenders must ensure that their products are suitable for the consumers they are targeting and that they are not contributing to financial distress.
Stay Compliant and Informed
Lenders should take proactive steps to review and enhance their compliance frameworks. Regular reviews and updates to TMDs, especially in response to review triggers, are essential to align with regulatory expectations and mitigate risks. For assistance with external reviews of your TMDs and DDO Governance Framework, or tailored advice on general compliance with your obligations, contact our team at Hindsight Legal Advisers. We are here to help you navigate the complexities of financial regulations and ensure your lending practices are robust and compliant.
Need help complying with the DDO regime?
If you are a financial institution and are looking to understand your obligations under the DDO regime or if you are looking to review your processes or policies as result of these ASIC proceedings, please get in touch with us.