Cigno is exactly the sort of business the Australian Securities and Investments Commission had in mind when it asked for stronger powers to ban the sale of harmful financial products.
Cigno offers short-term loans (commonly called payday loans) of as little as $50 to people with what it calls "bad credit". Its customers reportedly include disability pensioners, teenagers and people affected by mental illness or addiction.
It describes itself as an "emergency cash specialist", offering help to people who can't get loans from any other source. Consumer advocates call it a predatory lender, targeting desperate and vulnerable consumers.
Critics say Cigno traps its customers in a "debt spiral", forcing them to take out new and higher loans to pay off their old ones.
Payments straight out of bank accounts
In most cases, Cigno takes payments straight out of customers' bank accounts, along with any late fees or dishonour fees. Many customers find themselves without enough money left over for food or rent.
In a 2019 consultation paper, ASIC found Cigno's fees were much higher than those of other payday business models.
The paper included case studies of customers who ended up owing Cigno almost 10 times what they originally borrowed, due to fees and charges.
In one case, a disability pensioner who borrowed $350 ended up owing $2,630, including late fees and ongoing weekly "account-keeping" fees. In another, an unemployed woman who borrowed $120 ended up with a debt of $1,189.
Operating outside the credit law
Cigno can charge these extraordinary fees because it operates outside the scope of the consumer credit laws that apply to ordinary payday loans, making use of gaps in the National Credit Act.
In 2020 the corporate regulator took legal action against Cigno in the Federal Court, alleging its loans broke the law.
It lost the case, but then won on appeal to the full bench of the court. Now Cigno wants to challenge this outcome in the High Court.
The regulator asked the federal government for a new, wide-ranging product intervention power to avert such costly and drawn-out legal battles.
In 2019 it was given the power to make a product intervention order, banning or limiting the sale of a financial product that causes "significant detriment" to consumers.
Such orders can remain in force for up to 18 months. Breaches can result in civil and criminal penalties. So far ASIC has made three product intervention orders aimed at Cigno's lending practices.
The first order, in 2019, banned a Cigno lending model that took advantage of the National Credit Code's "short term credit" exemption.
Under this exemption, the National Credit Act does not apply if a loan is offered for 62 days or less, the associated fees are no more than 5% of the amount lent, and the effective annual interest rate is no higher than 24%.
Before making the order, the corporate regulator was required by law to undertake a lengthy consultation process.
New model for Cigno
During this time Cigno launched a new lending model that took advantage of a separate, "continuing credit" exemption under the Credit Code. This exemption applies to certain loans for which the only charge is a periodic or other fixed charge of up to $200.
The short term credit order came into effect on September 14 2019. Within two days, according to ASIC, Cigno was issuing loans using the new model.
Consumer advocates say the transition was so smooth some Cigno customers were unaware of the change, and Cigno's business "hardly skipped a beat".
New order against Cigno
In July 2020 the corporate regulator began consulting on a second order aimed at Cigno's new lending model, which took advantage of the exemption for "continuing credit" contracts under the National Credit Code.
However, it didn't issue this order until July 2022. This was partly because Cigno mounted a challenge to the first order in the Federal Court. It lost this challenge in April 2020, and again on appeal in June 2021.
In the meantime, in March 2021, the regulator's "short term credit" order lapsed.
Another lending model
ASIC says it understands that companies related to Cigno may have begun to issue new loans, using the original lending model.
The regulator issued the continuing credit order in July 2022. At the same time, it issued a third order, closely based on the original short term credit order.
Yet Cigno continues to offer loans via its website.
This has raised suspicions that it has moved to yet another lending model, again dodging the regulator.
It seems likely that the regulator's product intervention orders will have limited success against persistent, well-resourced lenders like Cigno.
To address the harmful impacts of high-cost lending we need stronger consumer credit laws - including broad anti-avoidance clauses to prevent lenders from using gaps in the law to target vulnerable consumers.
The Conversation contacted Cigno for a response but received no reply by publication deadline.
Authors: Lucinda O'Brien - Research Fellow, The University of Melbourne | Ian Ramsay - Emeritus Professor, Melbourne Law School, The University of Melbourne | Paul Ali - Associate professor, The University of Melbourne