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Two companies that lease whitegoods and electronics to low-income people have been taken to court by the corporate watchdog for allegedly charging more than they lawfully should, citing concerns their business models are designed to avoid consumer protections for financially vulnerable consumers.
The Australian Securities and Investments Commission (ASIC) is suing Melbourne-headquartered franchise Rent4Keeps and New Zealand-based Layaway Depot in separate proceedings for alleged breaches of various consumer protections under the Credit Act.
This includes alleged breaches of the National Credit Code which prohibits lenders entering a credit contract where the annual cost rate exceeds 48 per cent.
Under that same code leases with a right or obligation to purchase are regarded as sales by instalments, and therefore credit contracts.
ASIC notes one example of a consumer using Centrelink payments to pay almost $2,500 for a fridge that retailed at $365, while another paid $1,200 for a mobile phone with a retail price of just $249.
"ASIC has been reviewing the conduct of companies offering financial products to vulnerable consumers to ensure consumer protections are in place," says ASIC deputy chair Sarah Court.
"In both these cases, consumers have paid well above the market price for consumer goods that are part of everyday life, such as mobile phones and whitegoods."
The regulator alleges the arrangements considered in both cases were credit contracts, and that both Layaway Depot and Rent4Keeps franchisee Darranda failed to comply with consumer protection obligations.
ASIC is seeking pecuniary penalties, declarations, injunctions and other orders against Rent4Keeps, Darranda and Layaway Depot.
"These appear to be arrangements deliberately structured to get around the law by avoiding consumer protections, such as the 48 per cent cap, to charge consumers significant amounts," Court added.
Darranda faces allegations it entered into 553 agreements it called ‘leases' over a three-month period, structured as credit contracts to avoid consumer protections including a rate cap.
By avoiding the rate cap, ASIC alleges Darranda customers were charged more than three times the amount that could lawfully be charged, and some customers were charged more than six times the retail value of the goods.
Rent4Keeps, which has the motto "making a positive difference to people's lives", and its franchisee Darranda, face further allegations these attempts allowed them to avoid the obligation to disclose the cash price of the goods, how interest would be calculated, how frequently interest was to be paid and the total interest payable.
ASIC alleges Layaway Depot, over a 14-month period, entered into 70 deferred payment agreements which were structured to avoid the consumer protections that apply to credit contracts, also including the 48 per cent annual cost rate cap.
For example, the watchdog said some customers paid $780 for a Bluetooth speaker which retailed for $200 or $1,200 for a mobile phone which retailed for just $249.
The regulator also alleges Layaway Depot was engaged in unlicensed credit activity in contravention of the Credit Act.
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