Hundreds of Indigenous people in remote WA communities are being signed up to loans by a “predatory” payday lender they can neither afford nor understand, locals and advocacy groups say.
- Advocates allege a Gold Coast payday lender is targeting vulnerable Aboriginal communities
- Aboriginal people have accrued thousands in fees for loans worth a couple hundred dollars
- ASIC is aware of the problem but is yet to use new product intervention powers against the firm
People living in the Ngaanyatjarra Lands claim that Gold Coast-based Cigno Loans has charged borrowers — some of them teenagers — fees up to 10 times the original amount, withdrawn directly from their bank accounts.
Most of those affected rely on fortnightly Centrelink payments as their sole source of income and have very poor financial literacy.
This has led to growing financial stress among Aboriginal people who, at the time they took out a loan, may not have understood their obligations as a borrower.
“For people out here, they are just tailor-made for [exploitation],” said Damian McLean, Warburton community services manager.
“It is ruthless and predatory.”
According to Cigno’s website, borrowers are given up to eight weeks to repay a loan, with the first repayment due within 20 days.
There is an upfront fee of 5 per cent, with interest after that ranging from 35 to 115 per cent, plus potentially an assortment of 13 other fees and charges.
Loans of up to $1,000 are processed quickly and borrowers can have the cash in their bank accounts within hours of applying.
“[Aboriginal people] just get locked into this endless cycle of payments with Cigno because they’ve been cut off with no income at all,” Mr McLean said.
Causing problems nationwide
The company was able to skirt national consumer credit laws because of its unusual structure that split its brokering arm from its lending arm, advocates said.
By doing this, they are able to use a loophole to charge fees far beyond what is normally allowed of a payday lender.
According to the corporate regulator, ASIC, the amount charged by Cigno when a borrower defaults is not capped and can lead to “significant further charges”.
Cigno claims it acts as an agent for a separate company called Gold-Silver Standard Finance, but both share the same business address on a shopping strip on Queensland’s Gold Coast.
An ABC reporter who attended the address in Southport found only a non-descript entrance next to a restaurant with no obvious signs of occupation.
In some cases, repayments and fees are withdrawn directly from customers’ bank accounts on the same day their Newstart payments are deposited.
Warburton teenager Letisha West said she took out a $100 loan on Cigno’s website last year in order to buy food, having heard about the company via word of mouth.
By the time her debt was repaid months later, she said she had been charged more than 10 times the loan amount in fees after missing repayment deadlines.
“Because many people were talking about it, I was thinking that I might do [a loan] … I felt like I had no money and no food and couldn’t pay rent,” she said.
There is no suggestion that Cigno is engaged in criminal activity, nor that its obscurity alone indicates any kind of misconduct or conspiracy.
A spokesman for ASIC said it was aware of claims about Cigno but declined to comment on future steps it might take.
But consumer advocates hope the regulator will make use of newly legislated product intervention powers to rein in Cigno and associated entities.
In a submission to a recent Senate inquiry into payday lenders, ASIC said it had received “multiple reports of misconduct” alleging Cigno had charged excessive fees and did not adequately disclose them.
“Certainly it’s on ASIC’s radar. Definitely, they’re well aware of the problem,” said Karen Cox, chief executive of the Financial Rights Legal Centre, which operates the NSW arm of the National Debt Helpline.
“We certainly have high hopes that there might be some potential for ASIC to do something about Cigno using those [product intervention] powers.”
Ms Cox said there had been significant and “recurring” calls to the National Debt Helpline and the national Indigenous Mob Strong Debt Helpline about problems with the company.
“We talk to a lot of people who owe money to Cigno,” she said.
“People borrow relatively small amounts of money and end up owing many multiples of that amount.”
‘They know people are vulnerable’
The inability of Aboriginal customers to understand the debts they have taken on is crucial to the business model of payday lenders like Cigno, according to Lynda Edwards from Financial Counselling Australia.
“These type of companies go into communities where they know people are vulnerable,” she said.
“They are preying on people who have very limited capacity to understand how these financial products work.”
It is not known how many people across the Ngaanyatjarra Lands, which is home to a dozen communities and about 1,600 people, are customers of Cigno.
But multiple community office workers on the Lands said Cigno loans had caused widespread financial problems through a cycle of low income and mounting indebtedness.
Cigno did not respond to the ABC’s attempts to contact it by phone, nor answer questions sent in an email on Tuesday.
“Plenty of them, a lot of people here in Warburton [are on Cigno loans],” Ms West said.
Her friend Angelica agreed: “It’s sad from my perspective seeing [friends and family] going into debt and not understanding what it is.”
In Wanarn, a community near the Northern Territory border, Mr McLean said 40 per cent of people had been signed up to Cigno loans.
Sometimes multiple members of the same family can be indebted at any one time, he added.
Limited understanding of financial products
Community staff and consumer advocates who have taken on individual cases have managed to have fees dropped after raising questions directly with the company.
“Normally [people in remote communities] don’t look at their bank statement,” Ms Edwards said.
“But they would go into the store and try to use their card and think there’s not as much money as before — they might just think, ‘Oh, I didn’t get paid enough this week’. They don’t really worry about it.”
Ms Edwards said there was a great need for the Government to strengthen consumer credit laws to better regulate payday lenders.
A bill is currently before Federal Parliament to improve oversight of the industry, but until it became law Ms Edwards said exploitative behaviour was likely to continue.
In February, a Senate committee report recommended the law’s amendment be passed, as well as greater funding for ASIC to better police the industry.
It also recommended the Government increase funding available to financial counselling organisations to employ more staff in areas of need, including regional Australia.