$60 loan climbs to $800 for teen ‘exploited’ by payday lender

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Rachelle* was 17 and a bit short on cash when she borrowed $60 early last year from online payday lender Cigno.

Since then, her quick cash fix has turned into a current debt of $800 that she admits is struggling to repay.

“In just two clicks, it was in my bank,” said Rachelle, who uses a pseudonym to protect her identity.

“But that doesn’t tell you how much it’s going to cost you. It doesn’t tell you how much the late fee is. It doesn’t tell you anything.

“Reimbursements just keep going up and up.”

The 18-year-old, from Palm Island in North Queensland, is among hundreds of borrowers caught off guard by the controversial payday loans same day"}” data-sheets-userformat=”{"2":513,"3":{"1":0},"12":0}”>payday loans same day scheme which consumer advocates describe as “one of the of the most harmful individual credit on the market”.

“They only received a small amount but are now paying 10 times more.”

A message from Cigno offering relief loans during COVID-19.(Provided)

“Rapid and harmful debt spirals”

Cigno is a Gold Coast company that processes same day cash loans and whose director and CEO is former super rugby player Mark Swanepoel.

Rachelle said Cigno uses Facebook ads to target customers like her.

His story is all too common for consumer advocates, who are calling on the Australian Securities and Investments Commission (ASIC) to ban Cigno-processed lending models.

In 2020, ASIC filed a lawsuit against Cigno and its supplier BHF Solutions, alleging they violated the nation’s Consumer Credit Protection Act.

Hands hold Australian banknotes and brown wallet.
Cigno is not subject to rules capping the amount of interest that can be charged to customers.(PA: Alan Porritt)

The Federal Court dismissed ASIC’s claim in June 2021, and the full Federal Court has since reserved its decision on ASIC’s appeal.

Separately, ASIC has sought public input to help it decide whether to exercise product intervention powers that would prohibit Cigno’s short-term credit model.

In a joint submission to ASIC, the Consumer Action Law Centre, Financial Rights Legal Centre, Indigenous Consumer Assistance Network (ICAN), Victorian Aboriginal Legal Service and WEjustice said the loans are pushing people into spirals of rapid and more detrimental indebtedness.

“Virtually every consumer we saw who took out such a loan suffered significant harm as a result,” their brief states.

“The fact that an unregulated fringe lending program appears more often in the records than any other major bank or payday lender is a telling indicator of the harm these loans cause in the community.”

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