Lush Estates vs Struggle Street: Behind a Controversial Lender

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ASIC is having for the first time a new power of intervention on products. The watchdog is proposing to issue an order temporarily closing a loophole allowing lenders and associates to charge fees equivalent to effective interest rates of up to 990% of the loan amount. The ban could become permanent.

“We have already seen too many examples of significant harm affecting particularly vulnerable members of our community,” said ASIC Commissioner Sean Hughes.

“We have already seen too many examples of significant harm affecting particularly vulnerable members of our community,” ASIC Commissioner Sean Hughes. Josh Robenstone

The loans in question can be as low as $50. They must be repaid within a maximum period of 62 days, sometimes earlier.

Who borrows?

Payday lenders attract people who don’t have access to traditional financing,” says Patrick Sloyan, policy manager at the Consumer Action Law Center.

“We even see people who don’t have the money…to buy dinner that night, or who have an overdue electricity bill – they face disconnection.”

The payday lender is a quick cash lifeline. “But in exchange for that, they charge quite high fees and quite high interest,” he says.

Cigno and Gold-Silver are the best examples. It works like this: Gold-Silver lends, say, $1,000 and charges an “interest-free” fee of 5% of the amount.

According to the ASIC working paper, this meets the technical requirements for an exemption in the National Credit Code. Small loan agreements are legally capped in terms of fees, such as a 20% set-up fee, or a defaulting borrower cannot be required to pay more than double the original loan.

The catch is that Gold-Silver’s loan won’t arrive for two weeks. But a borrower can approach the “helping” company Cigno to have this Gold-Silver loan “accelerated”, with money possibly in a bank account the same day. Of course, there are associated fees.

One example cited by ASIC was of a woman on a Centrelink Newstart allowance borrowing $120. The following charges apply:

  • $90 Financial Provision Fee (Cigno)
  • $5.95 weekly account maintenance fee (Cigno)
  • $6 Credit Charge (Gold Silver)

The target amount for reimbursement was therefore $263.60, paid over four fortnights. But when the borrower defaulted, dishonor and weekly charges drove the bill up to $1,189.

How Cigno pitches to borrowers. Company Website

ASIC dryly pointed out that a similar amount borrowed under a contract regulated by the National Credit Act would mean its initial targeted repayment would be $153.60.

The Cigno Gold-Silver arrangement is unique in the industry, ASIC says, but they want to prevent it from spreading. The watchdog received 165 reports of misconduct relating to Cigno and Gold-Silver.

Cigno has a different characterization of its lending processes. “We believe in fair play! goes the ad copy. “We always encourage our clients to borrow only when they need to, and to always borrow what they need and can afford to repay.”

Tower 2 for ASIC

ASIC has actually unsuccessfully attempted to cancel this pattern before. This was in a 2014 Federal Court case against Teleloans and Finance & Direct Loans (FLD).

While acknowledging the financial ties between the two companies, Judge John Logan ruled in 2014 against ASIC’s attempt to make loan and fee transactions subject to the National Credit Code. A key issue was that the wording of the code was not applicable given the way the contracts were designed – one for the credit of the lender and the other for the services of the “helping” company.

Neither Teleloans nor FLD now work. But some key people from those earlier companies are linked to the current ASIC-targeted operation. Some even went through difficult times themselves.

One is Jan “John” Swanepoel. He is a 57-year-old who moved with his wife and children from South Africa in the 1990s and eventually settled on the Gold Coast.

He was filed for bankruptcy in 2003, according to insolvency records, and discharged three years later. But company records also show that in 2006 his then-wife’s Pro-Site Construction Services company, which cleaned up construction sites, appointed directors of SV Partners.

Still, John Swanepoel was helping his son Ryan’s new loan company FLD in 2007. John was, on Ryan’s behalf, approaching “various people for investment funds to grow the FLD business,” said an agreed statement of facts in the 2014 case. Documentation used by Teleloans and FLD, such as call scripts, was “developed in consultation” with John.

At first, business was slow, with FLD writing less than 10 loans per week. It grew as knowledge poured in money. One man’s retirement fund invested $252,000, reaping returns of 18% per year.

John is now the sole director and shareholder of the new lender Gold-Silver.

“Don’t harass me”, he said FRG weekend. “If you want to do a proper story, maybe we can talk. However, you’re just looking for some emotional shit to put in your little magazine.

“Do you think that because you are the Financial analysis you can talk shit to me. I won’t talk to you.

You think because you’re the Financial Review, you can talk shit to me. I won’t talk to you.

— Jan “John” Swanepoel

It lists its address in a gated community in the Gold Coast hinterland. A property search indicates this is a spectacular $1.77 million five-bedroom home with pool, owned by a family-connected business.

From rugby to loan

In fact, the current lending operation is a family business. John’s son, Mark, 28, is the sole director of the new “financial aid” company Cigno. Mark, a graduate of the elite Southport School, played Super Rugby with the ACT Brumbies and Western Force as a half-back between 2009 and 2013.

Mark Swanepoel during his rugby days. Colleen Petch

He lives in a glorious outback house, spread out on a hillside near an equestrian park. The place cost $1.45 million and is owned by a company whose shareholders are Mark, Ryan and their sister.

He’s still a great guy. “I’m not ready to make a statement now,” he said politely. He underlines FRG weekend off the property. “Well done,” he said.

Cigno’s shares are actually owned by another company, whose directors are Mark and Ryan – a director of former lender FLD.

The family members and the businesses they are associated with own at least $9.9million in Gold Coast properties, according to FRG weekend research.

Mark and Ryan – who are 30 and did not answer questions – are also branching out into other ventures. Queensland liquor license records show they are the directors of the business as Swannie’s Lounge Bar and Restaurant, where grilled eye fillets are $34 or caramelised prawn gyoza $15.

Left to right Ryan, Karen, John and Mark Swanepoel at the opening of Swannie’s 2016. Karen was not a director of short-term lending businesses. Facebook

The opening of the restaurant in 2016 was a big celebration; Gold Coast Mayor Tom Tate has arrived. The venue is just below the Cigno lender’s office and bar staff take food orders upstairs.

Paul Rice’s loan to Cigno has become problematic.

But in the street of Cigno’s office, no one answers the buzzer. Cigno’s head office is with H&S Accountants. They are based in the same building – its manager Brenton Harrison was also a manager of Teleloans.

But a member of staff, through the intercom, said: “The administrators are not here, and there is no comment from H& S.”

One person ready to chat is Paul Rice, 68, a former schoolteacher living in rural Baddaginnie, about 200 kilometers north of Melbourne.

He borrowed money through Cigno last year; he thinks it was up to $500 because of car trouble. “I need the car for food, for doctors, for medicine and for social activities,” says Rice, who lives on her pension.

The loan with Cigno has become problematic. He’s not sure what final amount he should have owed – possibly more than $1,500 – but says he’s never had a loan problem before.

“They gave up pretty quickly when I said it was in the hands of [the Consumer Action Law Centre],” he says.

The center’s Patrick Sloyan says they hope ASIC could direct its broad product intervention powers into other areas such as “junk” insurance or even buy-it-now-pay-later programs.

“The people who access these loans are often very desperate”: Patrick Sloyan, policy manager of the Consumer Action Law Center. Rob Gunstone

But this situation shines a light on borrowers and their responsibility to take out loans. “People who access these loans are often very desperate,” Sloyan counters. “We don’t think it’s good enough for companies to shirk responsibility when their products cause people to fail.”

Yet the reality is that people use these payday lenders. Sloyan says that raises a question for the government.

“If this is the only way for low-income and vulnerable people to access funds and be exploited in the process,” he says, “that’s a huge problem.”

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