What to know about ASIC’s latest enforcement trends

During a public address in June this year, ASIC shared details of its current regulatory focus, citing general and targeted non-compliance of both the Credit Regime and Design and Distribution Obligation as its primary interest areas.

These interests were spurred by allegations from several high-profile legal cases, including those in the motor finance and payday lending space.

What exactly did the allegations reveal, what is ASIC’s enforcement approach, and what legal complexities might stand in its way?

Ahead of the Credit Law Conference, we spoke with James Moore, a Partner at HWL Ebsworth to find out.

Unsuitable loans

Recent ASIC proceedings against Swoosh Finance and Money3 allege the companies wrote unsuitable loans, in breach of responsible lending obligations.

There were also allegations of general non-compliance, including the mishandling of vulnerable consumers; and the distribution of loans to consumers for whom the products were not suitable, in breach of design and distribution obligations.

Meanwhile, a judgement involving Green County and Max Funding found that un-licensed loans had been provided to two consumers. The case included important findings about the operation of “business purpose declarations”, which all lenders should consider.

In one case, a business purpose declaration did not create the presumption of a business purpose, because the loan applicant did not give plausible information when asked questions about their business purpose. The other consumer also admitted a gambling problem at the time of the application.

James highlights that the other customer’s declaration could be relied upon because, when questioned, they gave plausible information, consistent with the claimed business purpose. However, a subsequent loan to this consumer was found to be an un-licensed consumer loan, because new business purpose declarations were not obtained.

“You can rely on a business purpose declaration if you know – or should have known based on reasonable enquiries – that the loan was actually for a business purpose”, James said. As the lender did not obtain a further business purpose declaration before providing a new loan, the normal rebuttable presumption of code applicability prevailed in the second loan.”

However, the cases weren’t straightforward, with strong arguments that the lenders may have done enough to avoid significant penalties being applied.

“ASIC put forward a great deal of expert evidence around the types of compliance systems that it said a non-credit licensee should have in place to ensure it never writes a regulated loan and therefore will not breach the National Consumer Credit Protection Act. If these had been accepted by the Court, we might have seen an uplift in procedures, and an increase in costs, for the unregulated sector. However, the court didn’t accept that evidence, finding the suggested systems were not realistic.

“Essentially, the courts questioned whether a $2.00 company should be using the resources of a $2 billion company in managing this risk. And although ASIC was able to show that two borrowers had fallen through the cracks, the judge highlighted that, in most cases this did not happen. In fact, consumers who were seeking commercial finance were usually found, and loans not made to them. The lender intended to run a commercial lending business and the great majority of loans were appropriate ones.”

Based on current court interpretations of the Corporations Act, the lenders may well get relief from civil penalties because of section 183 of the NCCP Act.

As ASIC did not show that the systems in place fell far short of appropriate standards, the lenders may have the benefit of a due diligence defence.
“Recent Corporations Act cases regarding cryptocurrency have found an unexpectedly low standard for the equivalent due diligence defence, although ASIC is seeking to appeal to the High Court.”

Inappropriate capital models

In a matter involving Oak Capital, ASIC alleged lenders had implemented an asset-based lending model, under which consumers who couldn’t obtain conventional credit were encouraged to establish a company and obtain a commercial loan, in turn financing themselves on the security of a house they already own.

James says this is a serious issue, where there is doubt on whether the individual can repay the loan.

“There’s a line of Australian authority that says a loan can be unwound, due to statutory unconscionability under the ASIC Act, if the lender should know that the company borrower doesn’t have the financial means to make repayments (including through a reasonable plan to be put in funds by the individual). Where that is not the case, these loans are unconscionable from the get-go, because they often go into default very quickly. In contrast, if there are good reasons to believe the individual can service the loan, it won’t breach consumer legislation,” he said.

James said responsible commercial lenders sometimes contemplate this structure, where the principal applicant has existing commercial facilities, and the structure is genuinely the customer’s idea.

On the other hand, ASIC seems to be alleging a course of conduct where establishing a new company is suggested by the lender, sometimes very soon before the proposed settlement.

“You often see high net worth individuals and business owners who can’t demonstrate regular income, to the extent necessary for a finance application, and obtain a loan through an ABN. If they have the means to pay back those funds, there shouldn’t be anything wrong with that.

“In recent cases, however, ASIC put forward evidence that lenders had industrialised an asset stripping model, in which the former scenario was tolerated with no reasonable basis to expect repayment. That would be a clear breach of consumer law, and I wouldn’t be surprised if this was to become an enforcement trend.”

Further insight

James Moore will present at the upcoming Credit Law Conference where he will share more on ASIC’s enforcement trends and what this means for the sector.

James’s talk will cover:

• Responsible Lending Obligations Under Scrutiny: Examining ASIC’s proceedings against Swoosh Finance and Money3 Loans for alleged breaches of responsible lending obligations, including providing credit to financially vulnerable consumers.
• Unlicensed Credit Activity Enforcement: Analysing the Federal Court’s findings against Green County Pty Ltd and Max Funding Pty Ltd for engaging in unlicensed credit activity, alongside ASIC’s action against south-west Sydney car dealerships for similar violations, highlighting the regulator’s focus on licensing compliance.
• Structural Avoidance and Unconscionable Conduct: Exploring ASIC’s proceedings against Oak Capital for alleged unconscionable conduct in structuring loans to circumvent consumer credit laws, and the implications of the Federal Court’s recent elaboration on business purpose declarations under the Credit Code (April 2025).

Learn more and register your tickets here.