Last Friday, ASIC announced it has commenced prosecution proceedings against Lightspeed Finance Pty Ltd ("Lightspeed") and its director for failing to comply with an AFCA determination.
In April 2019, the Government introduced the Treasury Laws Amendment (AFCA Cooperation) Regulations 2019. This requires all AFSL and ACL holders to co-operate with AFCA before, on or after 6 April 2019.
For lenders and brokers, it did so by inserting into the National Consumer Credit Protection Regulations a new Regulation 11A. There's a similar requirement covering AFSL holders. Many licencees probably missed this new Regulation as it appears to have received little publicity at the time.
What does Regulation 11A require you to do?
Regulation 11A states that licensees must take reasonable steps to cooperate with AFCA in resolving complaints, including by giving reasonable assistance, identifying and providing documents and information that AFCA requires, and giving effect to any determination made by AFCA in relation to the complaint.
Licence holders should note the provision requiring compliance with determinations in particular.
What does ASIC allege Lightspeed has done or not done?
According to ASIC's Media Release 21-075MR, in December 2018, following a Lightspeed client complaint, AFCA made its first determination.
Lightspeed is a broker that arranged a home renovations loan for a client and his partner that were unemployed. They subsequently defaulted on their loan.
AFCA found Lightspeed accepted a business purpose declaration from the client when it knew this wasn't true. It advised the client that "they could obtain refinance at the end of the loan term."
ASIC notes the lender was not a member of AFCA at the time of making the loan, so at this stage, there appears to be no action being considered against the lender.
On 12 July 2019, AFCA made a second determination in favour of the client and reduced the client's liability further.
AFCA's determination required Lightspeed to repay the loan debt (including interest) owed by the client to a lender. The client would then repay Lightspeed the initial loan amount. Both determinations were binding on Lightspeed under AFCA's rules.
ASIC now alleges "Lightspeed failed to give effect to both AFCA determinations and that Mr Fitzpatrick was knowingly involved in these breaches".
Beware the penalties involved
Aside from the repayment of the debt, this may prove to be an expensive exercise for Lightspeed and its director. Even if it manages to retain its broker ACL, it will likely come at a cost, involving expensive audit reports and additional supervisory costs.
This is in addition to civil offence penalties of $10,500,000 for a company and $1,050,000 for an individual.
First prosecution for this type of failure to comply?
This appears to be the first prosecution of a licencee failing to act as AFCA directed. That ASIC intends prosecuting signals to industry that it will not tolerate any failure to comply with an AFCA determination.
It might also show that AFCA itself will not take action against a licencee's failure to comply with its determinations, raising intriguing questions about the disconnect between ASIC's prosecution and AFCA enforcing its own Rules.
ASIC starting to target directors and senior managers?
ASIC is also seeking to prosecute the director of Lightspeed in this instance.
Other instances are currently being considered by ASIC for what appears to be prosecution, where ASIC may attempt to prosecute directors and other senior managers involved besides the company.
With ASIC's recent announcement regarding prosecution of Westpac for Consumer Credit insurance failures, it will be interesting to see whether ASIC similarly goes after senior bank staff and the bank's directors. It's not as though the banks haven't known about ASIC's concerns with this product, as ASIC published a report on it as far back as 2011.