The “greedy and evil” payday lender Cigno’s cat-and-mouse game with ASIC continues
Laura Platt was in dire need of money to fix her car when she saw an ad for Cigno touting “quick cash advances of up to $1,000.”
- ASIC has banned the types of loans Cigno offers, but the company appears to have developed a new lending model
- Cigno earned $60 million in fees in five and a half months, court documents show
- Consumer advocates say national credit laws need to be updated to close loopholes
Ms. Platt uploaded a bank statement to Cigno’s website, and a few hours later, $300 landed in her bank account.
“It was approved immediately. And I didn’t really pay attention to the fine details,” admits Ms. Platt.
Shortly after getting her first loan from Cigno, she successfully applied for $200, thinking she had paid off her original debt.
However, Ms Platt was unaware that her $300 loan had also incurred high maintenance fees.
She’s struggling to pay off the loans, and two years later, after being hit with maintenance and arrears fees, she finally paid Cigno $2,600, of which she still owes $32.
“[I am] totally confused and stressed because I’ve already paid off the money,” she says.
Consumer advocates say Ms Platt is one of many Cigno customers who have found themselves spiraling into debt after taking out a loan from the Gold Coast-based company.
On its website, Cigno advertises products such as “Centrelink loans without credit check”, “Centrelink loans with bad credit”, “Payday loans for Centrelink customers” and “Online loans for Centrelink customers”.
“This credit model does more damage than any other form of credit,” said Tom Abourizk, policy director at the Consumer Acton Law Centre.
Business regulator ASIC has been in a cat-and-mouse game with Cigno for years.
The company circumvents credit laws by using exceptions in the National Credit Code.
“It is loan shark activity and it is desperate that it needs to be stopped as soon as possible,” says Abourizk.
Buy now, pay later businesses and wage advance products are also currently exempt from the credit laws.
On July 15, ASIC used its special powers of intervention to ban the lending models used by Cigno and its affiliated lending company BHF Solutions for short-term and continuous lending.
ASIC had already banned one of these credit models in another intervention order, but that order expired in 2021.
It came after ASIC won its appeal in Full Federal Court last month against Cigno and BHF Solutions in a ruling that sided with the regulator that the companies offer a form of credit that is exempt from the National Credit Code because of the amount is recorded by fees they charged.
It overturned a decision of the Federal Supreme Court from June 2021.
The ruling included the example of a woman who was expected to pay $177.75 in fees on a $200 loan and $231.80 in fees on a $300 loan provided she made her payments payments on time.
On Monday, Cigno and BHF Solutions filed a motion in the High Court seeking leave to appeal the Federal Court’s decision. The High Court must consider whether or not to accept the appeal.
Meanwhile, Cigno still offers loans on its website with fees slightly lower than those mentioned in the Federal Court’s ruling.
According to Cigno’s website, customers must pay the lender’s costs and Cigno’s service fees.
A Cigno maintenance fee of $129.90 applies to loans between $50 and $1000. Customers must also pay a $15 repayment modification fee, a $79 dishonesty fee and a $20 lender late penalty.
The site also states that costs “will vary depending on the loan and payment options you choose.”
A spokeswoman for ASIC says the regulator is investigating whether the model is legal.
“ASIC is aware that Cigno (Cigno Australia Pty Ltd) continues to provide credit brokerage services on its website. ASIC is reviewing the credit product and model, including whether the conduct violates the Product Intervention Orders,” said a spokeswoman for ASIC said.
If so, it would be the third time Cigno has devised a new lending model to circumvent ASIC’s prohibitions and lending laws.
“On Cigno’s website, it looks like everything is going on as usual,” notes Mr. Abourizk.
“It means people can still be hit with the same inflated fees they used to charge for the loans they’ve arranged so far.”
Small loans bring big profits
The amount of money Cigno has made from his loans is anything but small change.
The company’s full financial history is not public, but federal court documents show that over a five-and-a-half month period, Cigno arranged 166,045 loans totaling over $46 million, as well as the total amount paid for those loans in fees (plus to capital) was more than 61 million US dollars.
Cigno describes itself as an “agent who helps you get a loan from lenders” rather than being a lender himself.
BHF Solutions describes itself as “Australia’s Leading Experts in Management Advice and Financial Advice”.
The ABC has contacted Cigno, BHF Solutions and the law firms acting on behalf of the two companies, but received no response as of the publication date.
Financial Counseling Australia chief executive Fiona Guthrie argues the federal government must act urgently to update Australia’s credit laws.
“As soon as regulators try to fill one loophole in the law, they find another,” she says.
Mr. Abourizk says depending on the outcome of the court case, CALC will encourage ASIC to look for ways to compensate Cigno’s customers.
“If there are opportunities for a remediation or compensation project, they should definitely check it out,” he explains.
“Our concern is that if Cigno goes as far as other predatory lenders like this one have done in the past, they might find that the cupboards are empty.”
Ms. Guthrie says Cignos’ model targets vulnerable people.
“Financial advisors would call them robbery companies,” she said.
Ms Guthrie hopes the High Court will dismiss BHF Solutions and Cigno’s application for appeal.
“We can’t let companies like that operate in the Australian market, it’s so dangerous,” she argues.
“There are costs to the wider community because we have people in financial and psychological distress. You end up in the hospital and you end up with food relief services.”
“It’s pretty clearly a loan. It is an avoided lending model. And there is no legal reason why it should continue.”
Ms. Platt says her efforts to repay the fees added to her loan amount have meant she’s had to go without essentials like groceries.
“They are cold-hearted and greedy and evil. They’re terrible,” says Ms. Platt.
“I would never recommend her.”