ASIC commences proceedings against Cigno and BHF Solutions over unlicensed credit activity

ASIC has commenced proceedings in the Federal Court against Cigno Pty Ltd (Cigno) and BHF Solutions Pty Ltd (BHF Solutions) for alleged contraventions of the National Consumer Credit Protection Act 2009 (National Credit Act).

BHF Solutions and Cigno operate a lending model that provides small amounts of credit to a large number of consumers and charges substantial fees on the amounts borrowed. Neither BHF Solutions nor Cigno holds, or has ever held, an Australian credit licence as required by the National Credit Act.

ASIC alleges that between 18 October 2019 and 31 March 2020:

  1. BHF Solutions contravened section 29 of the National Credit Act by engaging in credit activity without holding an Australian credit licence by entering into credit contracts with three borrowers and carrying on a business of providing credit; and
  2. Cigno contravened section 29 of the National Credit Act by engaging in credit activities without an Australian credit licence by performing obligations and exercising rights of BHF Solutions in relation to BHF Solutions’ credit contracts with the three borrowers and providing a credit service to the borrowers.

The National Credit Act requires firms who engage in specified credit activities to be licensed or authorised. The National Credit Act and National Credit Code impose important obligations on firms that provide protections for consumers including disclosure requirements, a cap on fees and interest rates and access to hardship and free and independent external dispute resolution services.

ASIC is seeking:

  • declarations of contravention of section 29 of the National Credit Act by both BHF Solutions and Cigno;
  • permanent and interim injunctions under section 177 of the Act restraining BHF Solutions from engaging in the credit activities of being a credit provider under a credit contract and carrying on a business of providing credit; and
  • permanent and interim injunctions under section 177 of the Act restraining Cigno from engaging in the credit activities of providing a credit service and performing the obligations, or exercising the rights, of a credit provider in relation to a credit contract or proposed credit contract.

The proceeding will be listed for directions on a date to be determined by the Court.

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Background

Cigno previously operated a similar model under the short term credit exemption under s6(1) of the National Credit Code. On 12 September 2019, ASIC made a product intervention order by way of legislative instrument in relation to short term credit (19-250MR) and Cigno ceased operating this model. The order came into effect on 14 September 2019. The order followed ASIC’s consultation on the proposed intervention to stop significant consumer detriment in short term credit. On or around the date the product intervention order was made, Cigno commenced operating its current business with BHF Solutions, in which it seeks to operate under the continuing credit exemption.

ASIC’s proceedings commenced today are in relation to the new model.

In relation to the short term credit product intervention order, a judicial review application was filed by Cigno on 20 September 2019 in the Federal Court of Australia which sought to quash the order (19-264MR). In April 2020, the Federal Court dismissed Cigno’s application with costs awarded to ASIC (20-089MR). In May 2020, an appeal was filed with the Federal Court of Australia, which will be heard by the Full Federal Court on 19 November 2020.

In July 2020, ASIC released Consultation Paper 330 (CP 330) on the proposed use of its product intervention power to address significant detriment identified in the continuing credit industry (20-159MR).

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