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As private lending continues to gain traction, the Australian Securities and Investment Commission (ASIC) has called for greater supervision of the industry to reinforce its expectations around governance, reporting and managing conflicts of interest. In light of this crackdown, ASIC has commenced proceedings against Oak Capital Mortgage Fund and Oak Capital Wholesale Fund (Oak Parties) alleging that the private lender engaged in unconscionable conduct aimed at avoiding consumer protection laws set out in the National Credit Code (the Code).

Oak Parties lending for Code purposes without credit licence

The Oak Parties are non-bank lenders specialising in short term lending who market themselves as being able to provide funding in as little as 72 hours.

They do not hold, and have never held, Australian credit licences under the National Consumer Credit Protection Act 2009 (Cth) (the Act). Consequently, they are unable to provide loans to individuals for personal, household or domestic use (among other purposes) as set out in section 5(1)(b) of the Code (Schedule 1 of the Act).

Should the Loans be subject to the National Credit Code?

From around 2019 to October 2024, the Oak Parties provided up to 47 loans totalling approximately $37,005,732 secured by residential properties (the Loans). ASIC has alleged that the Loans either should, or likely should, have been made subject to the application of the Code.

The Loans made by the Oak Parties were structured so a company was named ‘borrower’, and one or more individuals were named guarantor. This was a requirement of the loans, whether or not the company had any interest in the transaction, was trading, had only just been established or had no assets.

The following qualities were present in each of the Loans:

• short-term (typically 12, but no longer than 24 months);
• secured by real property;
• subject to high interest rates (averaging a lower rate of 11.60% and 23.22% at a higher rate);
• subject to high fees ranging from 2.2% to 50.1% of the amount advanced;
• advancing an average quantum of approximately $790,000;
• interest-only, with the total amount due at the expiration of the term; and
• referred and arranged by brokers.

It was also standard procedure for the Oak Parties to require the borrowers to declare, acknowledge and/or agree that the loan was made for wholly or predominately business investment purposes.

The allegation by ASIC

ASIC has alleged that the Oak Parties engaged in a system of conduct that was unconscionable in contravention of section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), by:

• Making loans with features as described above.
• Making asset based loans where the Oak Parties did not need to consider whether the borrower’s actual income or assets could repay the loan.
• Requiring that a company be named borrower rather than individuals, despite the fact that:
  • The Oak Parties knew, or ought to have known, that the loan was for a domestic, household or personal purchase (and would otherwise be captured by the Code) failing to reflect the commerciality of the loan.
  • The company did not benefit from, or have genuine interest in, the loan and where there was no reason for the Oak Parties to believe the company would repay the loan.
  • The individuals applying for the loan were required to provide their homes as security.

ASIC claims that Oaks Parties deprived clients of consumer protections

By treating the Loans in such a way, ASIC claims that the Oak Parties deprived their clients of consumer protections, including:

• the entitlement to make hardship applications;
• protection from being charged excessive fees and interest; and
• responsible lending obligations.

Importantly, private lending is often utilised by individuals suffering from financial hardship and who are unable to obtain a bank loan. The Oak Parties are alleged to have denied such individuals from the benefit of consumer protection mechanisms which they would have otherwise been entitled to which, given the circumstances, increases the seriousness of ASIC’s allegations.

There are circumstances where the Oak Parties lending practices involved:

• a company borrower being set up solely for the purpose of obtaining the loan whilst having few to no assets; and/or
• individuals who were more likely to be at risk of financial hardship and suffering financial distress.

Several of these loans entered in default, leading the Oak Parties to repossess individuals’ homes put forward as security.

The consequences for Oaks Parties and private lenders avoiding consumer protections

Given the significance of the allegations, ASIC is seeking extensive relief from the courts including requesting declarations, injunctions, orders that contractual provisions are void, pecuniary penalties, publicity orders and ancillary orders against the Oak Parties.

ASIC has indicated that they will continue to take action against businesses where they consider business practices are, or could be, designed to avoid the consumer credit protections.

What’s next for private lenders?

If something ‘looks and feels’ like a loan for personal, domestic or household purposes, private lenders should not seek to adopt creative structures to treat that loan as a commercial loan outside the protections of the National Credit Code.

ASIC’s heightened scrutiny on private lending may lead to an increased standard of governance frameworks, requiring improved compliance and operational burdens. Consequently, it is vital that non-bank lenders bolster their policies and procedures to avoid coming under ASIC’s spotlight.

Whilst specific regulatory changes remain to be seen, there are many areas where ASIC’s focus could lead to further obligations for non-bank lenders. Such requirements could include:

1. Stricter governance standards to ensure integrity and accountability.
2. Enhanced reporting obligations requiring lenders to provide more detailed reports on their activity, performance and risks.
3. An increase in the information required to be disclosed including information about lending practices and loan performance.

To stay informed about emerging regulatory developments and to obtain valuable input on proposed changes, contact our commercial team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.