Laura Platt was in desperate need of money to fix her car when she saw an ad for Cigno, which gave “quick cash loans of up to $1,000”.
Key points:
- ASIC has banned the types of loans offered by Cigno, but the company appears to have established 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 must be updated to close legal loopholes
Ms Platt uploaded a bank statement to Cigno’s website and a few hours later $300 arrived in her bank account.
“It was approved, straight away. And I didn’t really look at the details,” admits Ms. Platt.
Shortly after getting her first loan with Cigno, she successfully applied for $200, because she thought she had paid off her original debt.
However, Ms. Platt did not realize that her $300 loan had also incurred high account maintenance fees.
She has struggled to repay the loans and two years later, after being hit with account management and late fees, she has ended up paying Cigno $2,600, of which she still owes $32.
“[I am] completely confused and stressed because I’ve already paid the money,” he says.
“[I am] angry, to be honest, and also concerned about how many people this company is ripping off.”
Legal loopholes
Consumer advocates say Ms Platt is one of many Cigno customers who have found themselves in a debt spiral after signing a loan with the Gold Coast-based company.
On its website, Cigno advertises products such as ‘Centrelink Loans No Credit Check’, ‘Centrelink Bad Credit Loans’, ‘Payday Loans for Centrelink Customers’ and ‘Online Loans for Centrelink Customers’ .
“This lending model is causing more harm than any other form of credit,” says Tom Abourizk, director of policy at the Consumer Acton Law Center.
“We’re seeing people charged … eight times what they borrowed, in the space of months.”
Tom Abourizk, policy officer at the Consumer Action Law Center, says the federal government must act urgently to update credit laws. (ABC News: Simon Tucci)
Corporate regulator ASIC has been in a cat and mouse game with Cigno for years.
The company avoids credit laws by using exemptions from the National Credit Code.
“It’s a loan shark activity, and it’s desperate that it needs to stop as soon as possible,” says Abourizk.
Buy now pay later businesses and payday advance products are also currently exempt from credit laws.
On 15 July, ASIC used its special intervention powers to ban the short-term and continuous credit lending models used by Cigno and its associated credit institution BHF Solutions.
ASIC had already banned one of these lending models in another intervention order, but that order expired in 2021.
It came after ASIC won its appeal at the Full Federal Court against Cigno and BHF Solutions last month, in a decision that sided with the regulator’s position that the companies were offering a form of captured credit by the National Credit Code due to the amount of commissions they charged.
It overturned a Federal Court decision in June 2021.
The ruling included the example of a woman who, assuming she made her payments on time, was expected to pay $177.75 in fees for a $200 loan and $231.80 in fees for a $200 loan. 300 dollars
On Monday, Cigno and BHF Solutions submitted an application to the High Court for leave to appeal the Federal Court’s decision. The High Court will have to consider whether or not to hear the appeal.
In the meantime, Cigno continues to offer loans on its website with slightly lower fees than those referred to in the Federal Court ruling.
According to Cigno’s website, customers must pay the lender’s costs and Cigno’s service charges.
Loans between $50 and $1000 attract a Cigno account maintenance fee of $129.90. Customers also face $15 charges to change refunds, a $79 dishonor fee and a $20 lender default penalty.
The website also states that the cost “will vary depending on the loan and payment options you choose.”
An ASIC spokeswoman says the regulator is investigating whether the model was legal.
“ASIC is aware that Cigno (Cigno Australia Pty Ltd) continues to offer services to arrange loans on its website. ASIC is reviewing the product and lending model, including whether the conduct is in breach of product intervention orders,” a spokeswoman of ASIC. said
If so, it would be the third time Cigno has created a new lending model to avoid ASIC’s bans and credit laws.
“Cigno’s website appears to be business as usual,” observes Abourizk.
“It means people can still get hit with the same exorbitant fees they’ve been getting on the loans they’ve arranged up until now.”
Small loans generate big profits
The amount of money Cigno has made from its loans is far from small change.
The company’s full financial history is not public, but Federal Court documents show that in a five-and-a-half-month period, Cigno arranged 166,045 loans totaling more than $46 million, and the total amount charged in fees (in addition to the principal) for these loans. was over $61 million.
Cigno describes itself as an “agent to help you get a loan from lenders” rather than a lender.
BHF Solutions describes itself as “Australia’s leading expert in business consulting and financial advice”.
The ABC has contacted Cigno, BHF Solutions and the law firms acting on behalf of the two companies, but did not hear back by the time of publication.
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 close one loophole, they find another,” he says.
Financial Counseling Australia’s Fiona Guthrie says Cigno is a predatory lender. (ABC News)
“What we need to do is close all exemptions to credit laws, so companies like this can’t operate, when their entire business model is based on avoiding credit laws.”
Abourizk says that depending on the outcome of the court proceedings, CALC will encourage ASIC to seek avenues to compensate Cigno’s customers.
“If there is scope for a remedial or compensation project, they should absolutely be looking at it,” he explains.
“Our concern is that they may find that the cupboards are bare if it gets to this point with Cigno, as other predatory lenders like this have done in the past.”
‘predatory company’
Ms Guthrie says Cigno’s model targets vulnerable people.
“Financial advisers would describe them as a predatory company,” he said.
“Financial advisers are talking about clients who have autism, who are on Disability Support Pensions, who have very low financial literacy, who are victims of family violence, who are in desperate circumstances.”
Ms Guthrie hopes the High Court will reject BHF Solutions and Cigno’s application to hear her appeal.
“We can’t have companies like this operating in the Australian market, it’s so dangerous,” he argues.
“There are costs to the wider community because we end up with people under financial and mental stress. They end up in the hospital and they end up on food assistance services.”
“It’s clearly credit. It’s an avoided credit lending model. And there’s no legal reason why it should go forward.”
Ms Platt says her struggles to pay the fees added to her loan amount have meant she has had to cut back on essentials such as groceries.
“They are cold-hearted, greedy and evil. They are horrible,” says Ms Platt.
“I would never recommend them.”