ASIC has, for the first time, used its Design and Distribution Obligation powers to make a final stop order, preventing Coral Coast Distributors from signing up customers to Centrepay credit arrangements.
Coral Coast operates 10 Urban Rampage stores in regional and remote locations in Queensland, Northern Territory and Western Australia, selling general household items. It offers credit through deferred deduction arrangements via Centrepay.
ASIC found that this arrangement was not suitable for consumers in Urban Rampage’s target market because it was unlikely to be consistent with their financial situation and placed them at risk of financial hardship.
The regulator made an interim stop order in February and a final stop order on April 24.
ASIC commissioner Alan Kirkland said in a statement: “Coral Coast targeted First Nations consumers who received Centrelink payments. After entering into Centrepay credit arrangements at Urban Rampage stores, many of these consumers found themselves without money to pay for essentials.
“It is unacceptable for businesses to use credit-like facilities in a way that puts vulnerable customers into hardship. Addressing harm impacting First Nations Australians is a key priority for ASIC.”
In a furious response, Urban Rampage and Coral Coast said it was “poised to launch a landmark legal challenge against ASIC for a racist and paternalistic decision.”
It plans to do so in the Administrative Appeals Tribunal. The company is also looking into the merits of bringing an action under the Racial Discrimination Act.
ASIC, Coral Coast said, “conceded it had not received a single complaint.”
It said the Urban Rampage store credit product had “passed all Services Australia audits since the business started using Centrepay in 2016.”
The Design and Distribution Obligation gives ASIC power to stop the sale of a product if it sees evidence of mis-selling. Financial services companies are required to identify the target market for any product that requires a disclosure document and must design the product for that market.
Companies are required to consider the likelihood of a product being appropriate for the retail clients in the target market: that is, whether it is likely to be consistent with the likely objectives, financial situation and needs of retail clients.
Relevant factors in this consideration include a product’s complexity, risk profile and fees, as well as consumers’ likely understanding of product features, and their capacity to meet their obligations or bear losses.
Companies have to select appropriate distribution channels and periodically review those arrangements to ensure they continue to be appropriate.
In a review of the operation of the DDO, law firm King & Wood Mallesons said the range of reasons given by the regulator for issuing stop orders include: the target market was too broad; the target market determination did not specify any distribution conditions or the distribution conditions were inadequate; and the target market determination did not include required information, such as review periods.