Lender PAYDAY Nimble, which offers clients ‘smart little loans’ at super high interest rates, has been wildly shaken by the securities regulator following a thorough investigation into its lending practices .
Nimble is due to reimburse more than $ 1.5 million to more than 7,000 clients after the Australian Securities and Investments Commission found out it had failed to meet responsible lending obligations.
The watchdog said it found “significant gaps” in Nimble’s compliance when granting short-term loans.
Nimble has already sparked controversy for its television commercial encouraging young people to take out payday loans for living expenses like paying utility bills, instead of using their utility provider’s hardship program.
ASIC found that Nimble did not properly assess the financial condition of many consumers, relying instead on algorithms that did not properly take into account consumers’ financial information.
He also “not always recognized” when consumers were getting repeat loans from payday lenders in a short period of time, and even when repeat loans were identified, Nimble “did not take sufficient or appropriate action like required by law before providing a loan to the consumer “.
The company also failed to “make appropriate inquiries into consumer requirements and goals.” The inquiries that were made were “of a general nature and did not provide sufficient information for Nimble to fully understand the needs of the consumer”.
“This is an important outcome for financially vulnerable consumers,” ASIC Vice President Peter Kell said in a statement.
“This result is yet another example of ASIC’s strong focus on the payday lending industry. This remains a high priority area for ASIC, and we expect the industry to continue to improve their game. ”
As part of its commitment to ASIC, Nimble must pay more than 7,000 customers for more than $ 1.5 million under a remediation program overseen by Deloitte.
It will also donate $ 50,000 to Financial Counseling Australia and will need to hire an external compliance consultant to review its current business operations and compliance with the consumer credit regime.
The refund process must be completed within six months so that affected customers can be contacted shortly. ASIC says consumers who believe they have taken an inappropriate loan with Nimble should contact Nimble first.
If they are not satisfied with Nimble’s response, consumers can file a complaint with the Credit and Investments Ombudsman.
In a statement, Nimble chief executive Sami Malia said the company “regrets any inconvenience” to affected customers and has been working with ASIC to resolve the issues through system enhancements.
“Nimble quickly identified and resolved these issues. They received approximately 1.2% of the loans taken out during the period from July 1, 2013 to July 22, 2015, ”said Mr. Malia. “These application evaluation issues were completely unintentional and were resolved in collaboration with ASIC. There was no adverse finding against Nimble.
Mr. Malia said Nimble takes pride in the service it provides to customers.
“Nimble always strives to have the best credit reporting systems and has made a significant investment in its application assessment processes that allow Nimble to continue to make responsible lending decisions,” he said. he declares.
Gerard Brody, managing director of the Consumer Action Law Center, welcomed the decision, but said it highlighted the need for stronger laws in the industry.
“To be honest, I didn’t find it surprising,” he said.
“The consumer industry has known for years that there is a systemic problem in the payday lending industry and the ASIC investigation confirmed our concerns that these lenders are not doing due diligence and don’t make sure people are able to repay the loans. “
Mr Brody said the move should be a “wake-up call” for payday lenders. “It really highlights why we need tougher laws to protect consumers,” he said.
“While ASIC can take action and get refunds of $ 1.5 million, that’s after the damage occurs.”
Consumer Action has asked for a 48 percent interest rate cap on all consumer loans, whereas currently small loans below $ 2,000 can often have annual effective interest rates of up to 400 percent.
He also wants a tighter limit on how much of a borrower’s income a payday lender can deduct to pay off a loan. Consumer Action says that figure should be capped at 5 percent.
“In our experience with clients, people have a really mixed relationship with payday lenders,” he said.
“They are often in dire financial straits and see this as the answer that will give them some relief, but they quickly realize that the relief is short term and when the repayments come in they realize they are getting ripped off.” . “
Mr Brody said Consumer Action had helped people who were addicted to payday loans get rid of them through legal aid and financial advice.
Phil Johns, chief executive of the National Credit Providers Association’s highest body representing payday lenders, called Mr. Brody’s comments “misleading.”
“Nimble does not lend to anyone who receives benefits, so drawing the conclusion that anyone who uses ‘payday loans’ is ‘financially desperate’ is misleading in this case and does not represent the vast majority who use this product with success, ”he said. .
And he said payday loan interest rates shouldn’t be calculated on an effective annual basis.
“The key word is ‘annual’ and only makes sense once a loan has a term of one year, so for any loan with a term of less than one year, it is misleading”, a- he declared.
“In any case, if a consumer agreed to pay a small amount of credit over a 12-month period, they would be billed based on capped government fees and regulations, not interest rates. “
Commenting on the ASIC’s investigation, Johns said any lender that focuses on sales and not on compliance “will be out of business in five years.”
“It is clear that under principle-based legislation, lenders must take the most conservative view of the law, not necessarily the rule of law,” he said. “A constant theme of ASIC is that there must be an individual assessment of a consumer’s situation.”