Court finds Rent4Keeps ‘leases’ on consumer goods breached the law and hit the vulnerable

The civil action brought by the Australian Securities and Investments Commission (ASIC) involved Rent4Keeps, which now trades as R4K, and its largest franchise Darranda Pty Ltd.

ASIC’s case centred on 516 “lease” arrangements entered into by Darranda between 1 April and 30 June 2019, with those leases most likely to have been taken out by customers from low socioeconomic backgrounds, who the regulator says paid significantly more for items than they lawfully should have.

The Federal Court found that Rent4Keeps and Darranda attempted to style their lending arrangements as “leases” which the customer was not entitled to keep, when in fact customers ultimately did keep the goods.

The court found that rather than leases, the transactions amounted to credit contracts which triggered the ruling that Darranda had contravened the 48 per cent annual rate cap for these contracts under the Credit Act.

In one instance, an unemployed consumer was charged $4,095 over 18 months for a vacuum cleaner that could have been bought for $999.

“Today’s outcome is important,” says ASIC’s deputy chair Sarah Court.

“ASIC took this case because we were concerned that Rent4Keeps had a business model which was denying consumers important protections under the Credit Act.

“Many Rent4Keeps’ customers are vulnerable people with a poor credit rating, the majority of whom paid using Centrepay and were unable to access credit elsewhere in the market.

“Rent4Keeps characterised its business model as helping people who could not otherwise afford the goods.”

Court says that the contraventions led to hundreds of customers of the Rent4Keeps franchise being charged at an interest rate “well above the amount that could lawfully be charged, and more than four times the retail cost of the goods” while also not receiving other vital consumer protections.

“This case should send a strong deterrent message about business models in the credit industry which exploit the circumstances of financially vulnerable consumers,” she says.

The Federal Court found that “numerous deficiencies” in Darranda’s business resulted in a failure to act “efficiently, honestly and fairly” in its credit activities, and that it fell short of conducting its business in a way that was “ethically sound”. 

The court also found that Rent4Keeps was knowingly involved in the contraventions by Darranda, which is the Victorian “state master” of about 12 Rent4Keeps franchisees.

Federal Court Justice Hespe accepted ASIC’s submission that “the failure to comply was a result of a breach of the standard of competence required to engage in licensed credit activities ‘efficiently, honestly and fairly’.”

Rent4Keeps is the head franchisor of consumer lease franchises across Australia which provide essential goods such as fridges, washing machines and mobile phones to people on low incomes or who receive Centrelink benefits to be paid via instalments.

At the time of the contraventions, the National Credit Code prohibited lenders charging more than 48 per cent annual interest, but this cap did not apply to consumer leases. The law has since changed so that the rate cap also applies to lease arrangements.

ASIC is seeking financial penalties against Rent4Keeps and Darranda.