In a significant legal triumph, the Federal Court has ruled that Ferratum Australia Pty Ltd (in liquidation) engaged in charging prohibited fees and overcharging customers on small amount credit contracts. This case exposes a grave breach of trust and financial misconduct, with ASIC taking a resolute stand to protect consumers.
Unearthing the Misconduct
The roots of this story trace back to an ASIC surveillance operation that uncovered Ferratum’s wrongdoing. Further investigation unearthed systemic issues within Ferratum’s processes, which were not only known to the company but largely ignored by its management.
Victims of Overcharging
Consumers entering into small amount credit contracts are often grappling with financial hardship. Ferratum’s unlawful fees and overcharging practices exacerbated their difficulties. In one particularly egregious case, a borrower who took out a $1,900 loan was overcharged by a staggering $658, which equates to 34% of the loan amount when they repaid their contract three months early. This customer, a single parent with dependents, was also slapped with $40 in prohibited fees.
The harm inflicted on vulnerable consumers was undeniable.
ASIC Deputy Chair Sarah Court emphasizes the gravity of the situation, stating that “by charging unlawful fees and overcharging people looking to pay out their loan early to avoid hefty ongoing fees, Ferratum significantly compounded that hardship.” Protecting these consumers from misconduct by high-cost credit providers remains a top priority for ASIC.
Breaches of Consumer Credit Protection Laws
The Court’s judgment reveals that between March 2019 and August 2021, Ferratum violated consumer credit protection laws related to small amount credit contracts by:
- Charging borrowers prohibited fees, including direct debit fees when using certain credit cards and fees to alter direct debit arrangements.
- Entering into contracts with borrowers that imposed prohibited fees.
- Incorrectly calculating the payout amount for early repayment in two-thirds of identified contracts.
- Failing to ensure an accurate and reliable system to calculate, record, and monitor early payout amounts, thereby violating the principles of acting efficiently, honestly, and fairly.
Justice’s Remarkable Observations
Justice Kennett, while delivering the judgment, made compelling observations. He noted that Ferratum was well aware of the deficiencies in its system and their potential to harm customers but persisted with that system.
While there was no evidence of a subjective intention to take unfair advantage of customers, the failure to implement a fair charging system was considered ethically unsound.
The Path Forward
The matter has been scheduled for a case management hearing on October 5, 2023, to establish a timetable for final orders in this case.
ASIC initiated proceedings against Ferratum on November 1, 2021, with Ferratum defending the allegations until its voluntary liquidation on April 4, 2023. The Court granted ASIC leave to continue the proceedings despite Ferratum’s liquidation.
This case not only highlights the importance of adhering to consumer credit protection laws but also underscores ASIC’s commitment to safeguarding consumers from unscrupulous practices. It serves as a stark reminder to financial institutions that acting ethically and fairly is not just a legal obligation but a moral imperative.
