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The Australian Securities and Investments Commission (ASIC) has issued an interim stop order against small and medium-sized credit provider City Finance Lending, as part of its ongoing oversight of the small credit industry.
ASIC flagged shortcomings in City Finance Lending’s target market determination (TMD) for small amount credit contracts (SACCs), in a release on Tuesday (11 November).
Under design and distribution obligations (DDO), financial product issuers must clearly define target markets for each product, with enough detail to reflect the product’s risks and features.
Product issuers also need to outline how the product will be distributed and put in place measures to ensure it reaches only the intended target market.
City Finance Lending’s SACC product allows customers to borrow up to $2,000 for personal purposes, such as covering an unexpected expense or making a discretionary purchase, provided they meet the lender’s eligibility criteria.
But ASIC has suggested this product’s TMD is “deficient in several key areas”.
In particular, the watchdog is concerned the product does not adequately:
- Define what an ‘acceptable’ source of income is.
- Specify which potential customers require credit for an unacceptable purpose.
- Specify which potential customers are excluded from the target market for the SACC product on the basis that they do not have financial capacity to repay the principal, repayment, and fees.
ASIC also suggested the TMD in its current form “may be inconsistent with the likely objectives, financial situation and needs of a retail client, as statements made in the TMD as to minimum amounts borrowed are inconsistent with statements made on City Finance Lending’s website”.
Finally, the watchdog flagged concerns about the distribution conditions that ensure the product is directed to the appropriate target market.
ASIC contends the distribution conditions may not:
- Contain details as to how SACCs can only be issued to customers within the target market.
- Specify what information will be obtained from potential customers or third parties to establish whether they are in the target market.
- Specify how such information will be obtained from potential customers or other parties.
- Specify how such information will be used by City Finance Lending to decide whether or not the customer is within the target market.
- Explain what controls are in place within City Finance Lending’s origination and approval system to ensure that the product is likely to reach customers within the target market.
The interim stop order is valid for 21 days unless revoked earlier.
Small credit scrutiny
ASIC has been applying increasing scrutiny in the small amount credit space and said it is “concerned” and “disappointed” to see some non-bank lenders pushing vulnerable consumers into contracts inappropriately.
In its Report 805 Falling short: Compliance with the small amount credit contract obligations, ASIC said it was “concerned” that some SACC providers may be falling short of their obligations by entering into unsuitable contracts with consumers or failing to identify an appropriate target market and distribute their products accordingly.
ASIC has already acted against lenders, including securing $16 million in penalties against Ferratum Australia Pty Ltd (in liquidation) for multiple National Credit Act breaches, and taking Federal Court action against Sunshine Loans Pty Ltd for charging fees prohibited under the National Credit Code.
Speaking in March 2025, when Report 805 was released, ASIC commissioner Alan Kirkland said: “Consumers who access these products are often financially vulnerable. That’s why people who use small amount credit contracts are subject to additional protections.
“ASIC has a strong record of taking enforcement action in response to lending practices that cause harm to vulnerable consumers. Lenders are on notice that if we detect serious breaches of the law, we will consider taking further action.”
[Related: ASIC warns auto finance lenders to raise standards]