ASIC obtains Judgement against SunshineLoans for charging fees not permitted by the National Credit Code

The Australian Securities and Investments Commission (ASIC) brought proceedings against SunshineLoans Pty Ltd (SunshineLoans) alleging contraventions of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) in its lending business, which involved small amount credit contracts (SACCs). ASIC alleged that SunshineLoans charged customers certain fees which were prohibited. ASIC sought injunctions and declarations of contravention, as well as the imposition of civil penalties.

SunshineLoans denied the alleged contraventions of the NCCPA and claimed ASIC did not have standing to bring the proceedings and, consequently, the Court did not have jurisdiction to hear the proceedings.

Judgement was handed down by his Honour Justice Derrington in the Federal Court of Australia on Friday, 12 April 2024 in Australian Securities and Investments Commission v SunshineLoans Pty Ltd (No 2) [2024] FCA 345.

In short, the Court found that none of the matters raised by SunshineLoans gave rise to a finding that the Court lacked jurisdiction to deal with, or that ASIC lacked power to seek relief in relation to the contraventions alleged. As to liability, the Court found that ASIC established an extensive number of contraventions by SunshineLoans of s 24(1A) of the Credit Code, being a civil penalty provision, as well as contravention of s 47(1)(d) of the Credit Act, by requiring the payment of a prohibited monetary liability, being a $35.00 Amendment Fee.

Gadens partner Scott Couper acted for ASIC, supported by a team including Tegan Harris (Director), Craig Melrose (Senior Associate) and Jakob Hansen (Solicitor).

Background

SunshineLoans was a provider of small amount credit contracts regulated by the Credit Code. From 1 July 2016 to 2 November 2020 the small amount credit contracts used by SunshineLoans provided for the payment of various fees, including, an “Amendment fee” or a “Rescheduled payment fee” (Amendment Fee), which ASIC asserted were not permitted under the NCCPA.

ASIC alleged that SunshineLoans’ charging of the Amendment Fee contravened ss 23A(1), 24(1A) and 31A(1) of the Credit Code and s 47(1)(d) of the Credit Act.

The judgement deals with both the alleged contraventions of the Credit Code and Credit Act as well as the issue of ASIC’s standing to seek that relief, and the Court’s jurisdiction. In short, the Court’s view was that the jurisdictional challenge misconstrued the definition of a “civil penalty provision” in the NCCPA. The Court stated that SunshineLoans’ “propounded construction would have the effect of rendering a number of sections in the Credit Code which impose civil penalties unenforceable as such. Conversely, a construction of the definition based on an ordinary and natural meaning of the words used avoids that capricious result.”

Judgement

Jurisdiction

The substance of SunshineLoans’ claim that ASIC lacked standing was based on s166 of the Credit Act.  This provision is the source of ASIC’s power to make an application for the imposition of a civil penalty and for the Court to make consequent declarations of contraventions. It is contained in Div 2 of Pt 4-1 of the Credit Act. SunshineLoans submitted that the reference to “a civil penalty provision” in s 166(1) is a reference to a provision that both meets the definition of that term in s 5(1) of the Credit Act and is contained in the Credit Act. It submitted that it does not extend to provisions which satisfy the definitional requirements, but which are located in the Credit Code. Accordingly, ASIC’s attempt to enforce the Credit Code provisions under s 166 is wrong and it had no standing to bring the proceedings, and the Court had no jurisdiction to hear the proceedings.

In essence, SunshineLoans submitted that the Credit Act and the Credit Code operate separately and distinct from each other. ASIC submitted that the Credit Code, which is a schedule to the Credit Act and part of it, should operate in a harmonious and complementary manner.

The Court approached the constructions of s5(1) and s166 of the Credit Act by considering the natural meaning of the words used. The Court stated that on a natural reading of the words contained in the definition of “civil penalty provision” in s5(1), the definition would pick up or include s24(1A) of the Credit Code so that it was enforceable under s 166 of the Credit Act. In the Court’s view, if the expression “this Act”, used in the definition, refers to the Credit Act as well as the Credit Code (which is its schedule), the definition was to the following effect:

a. The words in the chapeau to the definition, “[i]n this Act (other than the National Credit Code)”, have the effect that the definition of “civil penalty provision” only applies in respect of its use in the Credit Act;

b. Where the definition refers to “a subsection of this Act (or a section of this Act that is not divided into subsections)”, it includes the provisions of both the Credit Act and the Credit Code, because the words, “this Act”, would normally have that scope;

c. Section 24(1A) of the Credit Code is a “civil penalty provision” because it meets the requirements of the first limb of the definition — the words “civil penalty” and one or more amounts in penalty units are set out at the foot of the subsection (or section); and

d. Section 166 is a provision of the Credit Act, such that the definition is to be used in relation to it, with the consequence that a contravention of s 24(1A) of the Credit Code can be enforced by that section.

The Court further held that such a construction gives the words in parentheses in the chapeau of s 5(1), “(other than the National Credit Code)”, appropriate work as it confines the operation of the defined term to only those provisions of the Credit Act and not further. Nevertheless, the definition of “civil penalty provision” is not confined to only those provisions of the type described in the Credit Act as opposed to the Credit Code.

The Court drew support for such a construction from Greenwood J’s decision in Australian Securities and Investments Commission v Rent 2 Own Cars Australia Pty Ltd (2020) 147 ACSR 598. The Court took further support for the above conclusion from reading the words of the definition in the context of the Act as a whole.

In conclusion, the Court was of the view that the definition of “civil penalty provision” in s 5(1) operates such that any provision meeting the description in subparagraphs (a) or (b), contained in either the Credit Act or the Credit Code, was within its scope. Accordingly, a contravention of such a provision is enforceable by ASIC under ss 166 and 167 of the Credit Act, and ASIC was entitled to seek the remedies sought against SunshineLoans.

This result is also consistent with the Court’s approach in the recent decision of Australian Securities and Investments Commission v Ferratum Australia Pty Limited (in liq) [2023] FCA 1043.

SunshineLoans also raised other jurisdictional challenges which were rejected by the Court, including that the Court did not have jurisdiction for pre-13 March 2019 contraventions.

Liability

Having dealt with jurisdiction, the Court then turned to consider the question of SunshineLoans’ liability for the various alleged contraventions of the Credit Act and the Credit Code in connection with the SACCs entered into with its customers.

Each of the versions of the SACCS used by SunshineLoans during the relevant period contained reference to a “Rescheduled payment fee” or an “Amendment fee”.

In the Statement of Agreed Facts, the parties agreed that during the Relevant Period, SunshineLoans entered into 670,609 SACCs on terms which included provision for the charging of the Amendment Fee. ASIC alleged the inclusion of the Amendment Fee in the 670,609 SACCs which SunshineLoans entered into in the Relevant Period, that SunshineLoans charged that fee on 12,693 occasions, that borrowers paid the fee on 8,376 occasions, and that SunshineLoans received $293,160.00 in respect of the fee. ASIC contended that the Amendment Fee was not within the scope of fees and charges permitted under s 31A(1) of the Credit Code.

The central question was whether the Amendment Fee fell within s 31A(1)(c), which permits the imposition of “a fee or charge that is payable in the event of a default in payment under the contract”. ASIC contended that on the basis the Amendment Fee fell within s 31A(1), SunshineLoans contravened s 24(1A)(a) of the Credit Code by entering into the SACCs on terms imposing the Amendment Fee. Further, that SunshineLoans contravened s 24(1A)(b) by requiring payment of the fee and, thereafter, receiving payment. ASIC further contended that these contraventions amounted to a breach of s 47(1)(d) of the Credit Act, which requires a credit provider to comply with the credit legislation.

A separate dispute arose regarding the standard of proof to apply in the proceedings. In short, SunshineLoans contended that the standard of proof to be met to satisfy a contravention of s 24(1A) of the Credit Code is the criminal standard of beyond reasonable doubt. SunshineLoans claimed that the proceedings should be understood as being “proceedings for an offence” and therefore criminal in nature. The Court concluded that the proceedings were civil proceedings brought for the contravention of civil penalty provisions. Contrary to SunshineLoans’ submissions, s 202 of the Credit Act was applicable to the proceedings, such that the standard of proof necessary for a contravention of s 24(1A) was the balance of probabilities.

In the Court’s view, whether or not the SACCs imposed a prohibited monetary liability by reason of the Amendment Fee and met the description in s 23A(1)(b) was a matter of contractual interpretation. That is, whether, on the basis of the terms of the SACCs, the borrower became liable to pay the Amendment Fee otherwise than in the event of default.

The Court found that regardless of whether the fee was described as an “Amendment fee” or a “Rescheduled payment fee”, on its face, the fee was payable on the parties agreeing to amend the terms between them. Further, the Court found that the contractual obligation to pay the fee did not arise consequent upon the borrower having made a default in payment. The obligation to pay the fee arose because the terms of the agreement had been amended such that payment in accordance with the varied or amended agreement would avoid a default occurring. The Court held that the Amendment Fee was not a fee or charge which was payable “in the event of a default of a payment” under the SACC. It was, therefore, a fee or charge prohibited by s 31A of the Credit Code.

The Court further held that being a fee prohibited by s 31A(1), the Amendment Fee met the description of a “monetary liability prohibited by s 23A(1)”. Accordingly, on each occasion on which SunshineLoans entered into a SACC containing an Amendment Fee, it contravened s 24(1A)(a). The Court found that SunshineLoans had contravened s 24(1A)(a) of the Credit Code on 670,609 occasions during the Relevant Period, being each occasion on which it entered into a SACC which made provision for the Amendment Fee.

The Court noted that SunshineLoans’ claimed that there was no evidence that any amendments had been made to the SACCs entered into. It claimed that there was no evidence that the agreements were changed or altered (orally or in writing) by identified words, or at all. SunshineLoans framed its interactions with borrowers who requested a deferral of a payment as the borrower merely indicating that they would not be able to make a forthcoming payment and thereafter, they failed to make that payment. According to SunshineLoans, the borrower was in default and the Amendment Fee was payable consequent upon that default.

In the Court’s view, contrary to SunshineLoans’ submissions, the evidence established beyond any doubt that, in each case, the parties reached an agreement that there would be an alteration to the borrower’s payment obligations under their SACC. The Court held that an objective assessment of the evidence indicated that an agreement was reached that the original obligation to make a payment at a particular time was varied and that a new agreement was reached to make payments in a different manner. The Court considered this conclusion obvious.

The Court was also unimpressed with the evidence of the witnesses for SunshineLoans. The Court was of the view that the SunshineLoans witnesses “had been well schooled in what to say under cross-examination. Even though there was no doubt from most of the customer transaction logs that the discussions between the customer and the officer of SunshineLoans was about the deferral of a scheduled payment, each of the witnesses stubbornly clung to the notion that the request was merely for a “stop” to be placed on the next direct debit.”

The Court found that the evidence established that SunshineLoans contravened s 24(1A)(b) by requiring the payment of a prohibited monetary liability on each occasion that it charged the $35.00 Amendment Fee. Further, that SunshineLoans contravened s 24(1A)(b) of the Credit Code on each occasion that it accepted payment from a customer in relation to the Amendment Fee.

ASIC further contended that the evidence it put before the Court of 66 loan files was representative of the manner in which the Amendment Fee was charged and paid by all customers during the Relevant Period (1 July 2016 to 2 November 2020). ASIC submitted that during the Relevant Period, SunshineLoans required payment of the Amendment Fee on 12,693 occasions and received payment of the Amendment Fee on 8,376 occasions.

SunshineLoans submitted that an “illustrative” case was not open to ASIC on the evidence. SunshineLoans contended that whether the Amendment Fee charged on each occasion was prohibited must be assessed on each occasion it was debited to the customer’s loan statement. In the Court’s view, however, a precise analysis of the factual circumstances in each case was not needed to determine whether there has been a contravention, particularly so in circumstances where admissions as to the charging and receipt of the fee had been made by SunshineLoans. The Court’s view was that once the nature of SunshineLoans’ obligations under the NCCPA were ascertained and the terms of the SACCs understood, the admissions made rendered the contraventions almost self-evident.

Lastly, the Court considered whether SunshineLoans’ contraventions of s 24(1A) of the Credit Code also amounted to contravention of s 47(1)(d) of the Credit Act. The Court held that by its contraventions of ss 24(1A)(a) and (b) of the Credit Code, SunshineLoans failed to comply with the credit legislation and thereby also contravened s 47(1)(d) of the Credit Act.

Directions will shortly be made for the listing of the penalty hearing. Continue to watch this space.

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Authored by:
Scott Couper, Partner