ASIC has announced that it has commenced legal actions against Rent4Keeps (Aust) Pty Ltd, the master franchisor of Rent4Keeps, and a Rent4Keeps franchisee, and Layaway Depot Pty Ltd for alleged breaches of the National Credit Act as a result of describing their credit contracts as other types of arrangements.
Section 169 of the National Credit Code states that “a consumer lease is a contract for the hire of goods by a natural person or strata corporation under which that person or corporation does not have a right or obligation to purchase the goods.”
In the first action ASIC alleges that contracts styled “Rental Agreements” which purported to be “consumer leases” were in fact credit contracts regulated by the Credit Act and that both Rent4Keeps and Darranda (a franchisee of Rent4Keeps) failed to comply with the consumer protection obligations which apply to credit contracts in the Credit Act. Darranda held a credit licence.
ASIC claims that the Rent4Keeps Hire Contracts did, in fact, provide the consumer with a right or obligation to purchase the goods.
In the second action ASIC alleges that Layaway Depot’s deferred payment contracts were non-compliant credit contracts.
ASIC claims that the Layaway contract provided the consumer with the option to purchase the goods. This
option was deemed to have been exercised by the consumer once all of the instalment payments under the contract had been received by Layaway. Upon payment of all of the instalment payments, ownership of the goods passed from Layaway to the consumer.
ASIC says the amounts charged by both Darranda and Layaway Depot exceeded the 48 per cent annual cost rate cap that applies to credit contracts under the Credit Act.
By avoiding the rate cap, ASIC says that Darranda customers were charged more than three times the amount that could lawfully be charged, and some customers were charged more than six times the retail value of the goods.
ASIC further alleges that the attempt to avoid the provisions of the Credit Act also enabled Darranda and Rent4Keeps to avoid the obligation to disclose the cash price of the goods, how interest would be calculated, how frequently interest was to be paid and the total interest payable.
Rent4Keeps Pty Ltd and its franchisees, including Darranda Pty Ltd, market essential goods such as fridges, washing machines and mobile phones to people on low incomes or who receive Centrelink benefits.
ASIC alleges Layaway Depot, over a 14-month period, entered into 70 deferred payment agreements which were structured to avoid the consumer protections that apply to credit contracts, including the 48 per cent annual cost rate cap.
Layaway Depot markets consumer electronics such as mobile phones and tablets to financially vulnerable consumers who may not have access to mainstream credit.
Layaway does not have a credit licence.
In the matter of Make It Mine Finance Pty Ltd (No 2)  FCA 1255 Make It Mine Finance Pty Ltd was ordered by the Federal Court to pay pecuniary penalties totalling $1,250,000 for Credit Act and Credit Code breaches as a result of incorrectly calling its credit contracts consumer leases.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.