Small amount credit contract providers – DDO and ASIC enforcement

ASIC's enforcement in the small amount credit contract (SACC) space has continued, with its issue of an interim stop order preventing City Finance Lending Pty Ltd (City Finance) from issuing its SACC to consumers.

ASIC alleges deficiencies in City Finance's Target Market Determination (TMD). All SACC providers are required to issue a TMD to consumers. The TMD must provide consumers with information about:

• the class of consumers that form the target market for the SACC;
• specify any restrictions and conditions on the distribution of the SACC;
• specify review triggers that would suggest the TMD was no longer appropriate; and
• specify maximum review periods.

In the City Finance case, ASIC alleges that the TMD does not appropriately define the target market for City Finance's SACCs, including that the TMD did not:

• define what an acceptable source of income is (for consumers that are within the target market);
• specify which potential consumers require credit for an unacceptable purpose; and
• specify which potential consumers are excluded from the target market on the basis that they do not have the financial capacity to repay the SACC and any fees.

ASIC also found that statements within the TMD were inconsistent with City Finance's website.

The stop order issued to City Finance also indicates that ASIC expects credit licensees to include the following details in relation to its distribution conditions:

• details about how SACCs can be issued to only consumers that fall within the defined target market;
• specify what information must be obtained from a consumer or third party to determine whether the consumer is within the defined target market and how that information is to be obtained;
• specify how the information will be used by the credit licensee to make a decision as to whether the consumer falls within the defined target market; and
• explain the controls that are in place within the origination and approval system to ensure the SACC is likely to reach consumers within the defined target market.

ASIC's Report 805 also highlights the expectations ASIC has of SACC providers in relation to the design and distribution obligations, specifically in relation to the review of TMDs. ASIC expects that credit licensees which are SACC providers will review their TMD's on a regular basis and when review triggers occur. SACC providers must remember that the publishing of a TMD is not a set and forget task. Review triggers should be monitored to ensure that when they occur, the TMD is reviewed and amended. Maximum review periods should also be diarised and action taken by senior management to implement the review of the TMD in accordance with these timeframes.

Further Reading

• ASIC Issues DDO stop order against City Finance Lending Pty Ltd
• ASIC Report - Payday Lenders
• ASIC Report 805: Falling Short - Compliance with the small amount credit contract obligations
• ASIC Regulatory Guide 274: Product design and distribution obligations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.