1. Executive Summary
In Australian Securities and Investments Commission v The Cash Store Pty Ltd (in liquidation) [2014] FCA 926, Davies J found systemic responsible-lending contraventions by The Cash Store Pty Ltd (TCS) and its credit provider, Assistive Finance Australia Pty Ltd (AFA), in connection with short-term, low-value “payday loans”.
TCS arranged and AFA funded 325,756 credit contracts between 1 July 2010 and 24 September 2012. Because of the volume, ASIC relied on a statistically selected sample of 281 contracts to establish the nature and extent of the alleged failures. The Court made contract-specific declarations based on that sample; the possible extrapolation of the findings across the broader loan population was left for the penalty phase.
The Court found widespread failures to:
- give required credit guides;
- make reasonable inquiries about consumers’ requirements and objectives;
- make reasonable inquiries about consumers’ financial situations;
- take reasonable steps to verify financial information; and
- conduct legally adequate preliminary and final suitability assessments.
Davies J described TCS’s failures as “gross and systemic” and found that revised policies introduced in March 2012 did not cure the deficiencies.
TCS also engaged in statutory unconscionable conduct under s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) by selling consumer credit insurance to financially vulnerable payday-loan customers. The insurance was usually of little or no practical value, particularly for unemployed borrowers and customers with very short loan terms, while generating substantial revenue for TCS.
This was a liability judgment. Pecuniary penalties and costs were reserved for a later hearing.
2. Citation and Context
Case: Australian Securities and Investments Commission v The Cash Store Pty Ltd (in liquidation)
Neutral citation: [2014] FCA 926
Court: Federal Court of Australia
Judge: Davies J
Date: 26 August 2014
File: VID 958 of 2013
Place: Melbourne
Procedural stage: Liability determination; penalties deferred.
TCS operated a nationwide payday-lending business and provided credit assistance. AFA funded the loans and was the credit provider. Neither respondent appeared at the liability hearing; both filed submissions, although AFA reserved its right to be heard on penalty and costs.
The principal statutory framework was Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth), including the responsible lending obligations applying separately to credit assistance providers and credit providers.
3. Business Model and Scale
During the relevant period, TCS arranged and AFA funded 325,756 credit contracts. ASIC obtained an electronic dataset of those contracts and engaged Professor Ian Gordon of the University of Melbourne’s Statistical Consulting Centre to identify a statistically valid random sample. TCS produced files for 281 sampled contracts but could not locate the remaining requested files.
The sampled material demonstrated recurring deficiencies in the collection and verification of information. Files often failed to record:
- a sufficiently specific loan purpose;
- complete living expenses;
- other debts;
- verified income;
- verified rent or mortgage commitments;
- a proper suitability assessment; or
- evidence that the consumer received the required credit guide.
The Court accepted ASIC’s methodology in reviewing the sampled contracts and identifying contraventions.
4. Responsible-Lending Contraventions
Requirements and objectives
A credit assistance provider must make reasonable inquiries about the consumer’s requirements and objectives before assessing whether a proposed contract is unsuitable.
The Court rejected vague descriptions such as “personal”, “living expenses”, “cash shortage”, “shopping” and “entertainment” as insufficient in the circumstances of many sampled loans. Davies J found failures to make reasonable inquiries about requirements and objectives in 224 contracts.
The Court did not adopt ASIC’s position mechanically. It found that some descriptions, including “food”, “work shoes”, “doctor, insulin” and lower-value “bills” loans, were sufficiently specific when considered with the amount borrowed.
Financial situation
Davies J stated that assessing whether a consumer has a real chance of complying with repayment obligations requires, at minimum, a sufficient understanding of income and expenditure. Reasonable inquiries must therefore include the consumer’s current income and living expenses, with further inquiries depending on the individual circumstances.
The Court found failures to make reasonable inquiries about the consumer’s financial situation in 268 sampled contracts.
Verification
TCS and AFA were required to take reasonable steps to verify the consumer’s financial situation. The Court found inadequate verification in 151 sampled contracts. These findings included failures concerning income, employment, rent or mortgage commitments and other core financial information.
Preliminary assessments
TCS was required to assess whether each proposed credit contract would be unsuitable.
Of the 281 sampled contracts:
- 197 had no preliminary assessment on file;
- 48 contained a deficient assessment; and
- only 36 contained an assessment addressing rent or mortgage, utilities and other expenses.
The Court found contraventions concerning preliminary assessments in 277 contracts.
Credit guides
From 2 October 2011, TCS and AFA were required to provide their respective credit guides. The Court found:
- TCS failed to provide its credit guide in 96 contracts; and
- AFA failed to provide its credit guide in 93 contracts.
5. AFA’s Outsourcing and Supervision Failures
AFA outsourced its credit-provider functions to TCS. The Court held that outsourcing did not relieve AFA of its statutory obligations.
Davies J noted that the evidence disclosed no recorded supervision by AFA. In response to requests for documents concerning compliance monitoring, written directives, loan reviews, correspondence and meeting minutes, TCS repeatedly stated that no such documents existed.
The Court found that AFA committed corresponding contraventions as credit provider, including failures to:
- conduct final assessments;
- inquire about requirements and objectives;
- inquire about financial circumstances;
- verify financial information; and
- provide its credit guide.
Governance significance
A credit provider cannot rely solely on the policies or processes of an intermediary. It must maintain evidence of:
- oversight;
- sampling and review;
- escalation;
- written instructions;
- corrective action; and
- assurance that outsourced processes comply with the law.
6. Systemic Nature of the Failures
Davies J found a systemic failure by TCS to comply with Part 3 of the Credit Act and properly assess whether loans would be unsuitable.
Loan officers routinely failed to make and verify the required inquiries. Preliminary assessments were frequently absent or legally inadequate, and required disclosure documents were often not provided.
TCS had itself acknowledged in a May 2012 annual compliance certificate that it lacked adequate systems to:
- comply with licence conditions and credit legislation;
- maintain organisational competence; and
- ensure representatives were properly trained and competent.
Despite that acknowledgement, TCS later told ASIC it had not identified any relevant breach. The Court found that position plainly contradicted by the evidence.
The decision illustrates that revised policies are not effective controls unless they are implemented, monitored and shown to change frontline conduct.
7. Consumer Credit Insurance and Unconscionable Conduct
TCS sold a consumer credit insurance product described as a payment protection plan in connection with 182,838 loans, representing approximately 68% of relevant contracts during the sales period.
Customers paid approximately $2.278 million in premiums. TCS retained about $1.301 million in commission and marketing or distribution fees. Only 110 policies generated claims, and only 43 claims were paid or expected to be paid, totalling approximately $25,118.
The insurance was commonly sold:
- to customers receiving Centrelink benefits;
- to unemployed borrowers who could not use key unemployment or disablement benefits; and
- for loan terms so short that the likelihood of an insured event occurring was extremely low.
TCS trained staff to overcome customer objections and did not routinely explain the product’s details. Although TCS characterised its role as essentially clerical, the Court found it actively marketed, promoted and sold the insurance.
Davies J concluded:
“Sales of CCI by TCS are characterised by moral obloquy and the opprobrium of unconscionability”: at [94].
The Court found that the insurance was almost invariably inappropriate for payday-loan customers and was most unlikely to provide a benefit. TCS therefore contravened s 12CB of the ASIC Act.
8. Contraventions
| Entity | Act | Provision | Conduct | Sample finding |
|---|---|---|---|---|
| TCS | Credit Act | s 113(1) | Failure to provide TCS credit guide | 96 contracts |
| TCS | Credit Act | ss 115–117 | Inadequate requirements and objectives inquiries | 224 contracts |
| TCS | Credit Act | ss 115–117 | Inadequate financial situation inquiries | 268 contracts |
| TCS | Credit Act | ss 115–117 | Inadequate verification | 151 contracts |
| TCS | Credit Act | ss 115–116 | Missing or deficient preliminary assessments | 277 contracts |
| AFA | Credit Act | s 126(1) | Failure to provide AFA credit guide | 93 contracts |
| AFA | Credit Act | ss 128–130 | Corresponding assessment, inquiry and verification failures | Various |
| TCS | ASIC Act | s 12CB | Unconscionable sale of consumer credit insurance | Systemic conduct |
9. Orders and Remedies
The Court made declarations corresponding to the sampled individual contracts and found that TCS engaged in unconscionable conduct in connection with the insurance sales.
| Remedy | Status |
|---|---|
| Responsible-lending declarations | Made |
| ASIC Act unconscionability declaration | Made |
| Pecuniary penalties | Deferred |
| Costs | Reserved |
| Extrapolation beyond sampled contracts | Reserved for penalty submissions |
No penalty amount should be attributed to this judgment.
10. Compliance Recommendations
| Audience | Control type | Risk indicator | Practical control |
|---|---|---|---|
| Board | Governance | High-volume lending to financially vulnerable consumers | Responsible-lending risk dashboard and board attestations |
| Credit assessment | Preventative | Generic purposes such as “personal” or “living” | Require sufficiently specific loan purpose |
| Operations | Preventative | Missing or incomplete expense information | Mandatory income, expenditure and debt fields |
| Verification | Detective | Reliance solely on consumer declarations | Bank-statement, income and liability verification |
| Outsourcing governance | Governance | Credit provider has no evidence of intermediary oversight | Contract reviews, sampling, directives and escalation records |
| Compliance | Detective | New policy adopted but breaches continue | Post-implementation testing and branch-level monitoring |
| Insurance governance | Preventative | Add-on insurance sold broadly regardless of eligibility | Eligibility and value assessment before offer |
| Remediation | Corrective | Systemic sampled failures | Population analysis, customer review and compensation assessment |
11. Broader impact
- Signals ASIC’s focus on responsible lending practices, particularly in the payday lending sector
- May lead to increased scrutiny of lending practices across the financial services industry
- Highlights the potential for unconscionable conduct findings in cases of systemic failures
- Demonstrates ASIC’s willingness to take strong enforcement action to protect vulnerable consumers
- Could result in more conservative lending practices, particularly in high-risk sectors
- May prompt a review of add-on product sales practices across the financial services industry.
- May impact regulatory policies or legislative amendments aimed at strengthening consumer protections within the credit industry.
This case is particularly significant as it addresses misconduct in the payday lending sector, which often involves vulnerable consumers. It underscores lenders’ heightened responsibility when dealing with consumers who may be in financial distress. The substantial penalties imposed demonstrate the serious consequences of systemic failures in responsible lending practices and align with broader regulatory trends towards stronger consumer protection in financial services. The case also highlights the importance of ensuring that any additional products sold, such as consumer credit insurance, are actually beneficial and suitable for the client.