Cash Converters pays out $12m after ASIC probes ‘unsuitable loans’

The payday lender has been forced to refund $10.8m and fined $1.35m following an ASIC probe of its lending practices.

Young couple standing in front of closed Cash Converters store on Gouger Street, Adelaide.

Cash Converters has been forced to refund $10.8 million to customers and copped a $1.35m fine in the wake of a regulatory probe into its lending practices.

The investigation by the Australian Securities and Investments Commission related to a three-year period from mid-2013, during which allegations were made the payday lender did not make reasonable inquiries into consumers’ financial situation and consequently offered “unsuitable loans”.

Cash Converters (CCV), Australia’s largest payday lender, flagged a potential hit from the probe in August, immediately booking an impairment of $12-$13m.

The refund to customers represents 118,000 small amount credit contracts, colloquially known as payday loans, while the penalty related to 30 infringement notices from ASIC under the National Consumer Credit Protection Act.

Issues stemmed from Cash Converters processing of small loans through its website, with inadequate procedures to assess the needs of its customers and provided inappropriate loans as a result.

“ASIC had reasonable grounds to believe that Cash Converters failed to assess small amount loans as unsuitable, and entering into those unsuitable loans, when the loans were presumed to be unsuitable under the credit legislation,” the regulator said.

Deputy chairman Peter Kell said the watchdog was cracking down on the sector amid concerns of exploitation.

“ASIC is seeking to protect financially vulnerable consumers, many of whom are recipients of welfare payments, from falling victim to unsuitable payday loans,” he said.

“Payday lending is a high priority area for ASIC, and we will continue to pursue lenders who do not follow their responsible lending obligations.”