Following ASIC’s enforcement efforts, Australia now has new settlement letter requirements for small personal loans. The revisions aim to increase consumer protections and ensure lenders deliver clear, open information to borrowers.
ASIC’s Report 805, released in March 2025, showed extensive compliance lapses and methods meant to overcome protections, based on an investigation of five large lenders from December 2022 to August 2024. These steps come at a time when living expenses are on the rise, underscoring the significance of safe and easily accessible emergency finance for homes in need.
Regulatory Investigation Reveals Market Transformation
ASIC’s surveillance identified a dramatic shift in the lending landscape. Data shows small amount credit contracts declined 64% from 124,138 loans in December 2022 to just 45,268 by mid-2024. Medium amount credit contracts increased 70% during the same period, rising from 22,114 to 37,529. The sector recorded total lending of $1.3 billion in the 2023-24 financial year.
This restructuring pattern emerged following reforms introduced under the Financial Sector Reform Act 2022. The legislation imposed stricter requirements on small amount credit contracts covering loans up to $2,000. Industry observers note that lenders responded by shifting borrowers into medium amount credit contracts with less stringent oversight.
ASIC Deputy Chair Sarah Court indicated the regulator remains focused on business models designed to avoid consumer credit protections as a key enforcement priority for 2025. The Commission’s investigations increased 25% in 2024, signalling heightened regulatory scrutiny across the consumer credit sector.
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Repayment Performance Raises Red Flags
The investigation revealed concerning trends in repayment capacity. Missed repayments for medium amount credit contracts surged from 29,075 in December 2022 to 72,634 by February 2024. This represents a 150% increase. While the figure subsequently declined to 50,355 by August 2024, it remains substantially elevated compared to pre-reform levels.
This data suggests consumers transitioned to medium amount credit contracts may face greater difficulty meeting obligations. The average medium amount contract analysed involved $2,499.19 borrowed over 30.46 weeks. By comparison, small amount contracts averaged $767.52 over 20.94 weeks.
Financial counselling organisations report increased demand for hardship assistance related to these loan products. The National Debt Helpline documented a corresponding rise in enquiries about unsuitable lending during the review period.
Enhanced Consumer Protections Under New Framework
The Financial Sector Reform Act 2022 introduced several protective measures for small personal loans. The most substantive change involves the protected earnings amount, now capped at 10% of net income across all small amount credit contracts. This represents a reduction from the previous 20% of gross income threshold.
Key Requirements Include:
- Mandatory equal repayment structures across loan terms
- Prohibitions on unsolicited communications to previous borrowers
- Strict referral restrictions preventing lenders from directing declined applicants to unlicensed providers
These measures aim to address historical concerns about debt spirals and predatory practices identified in the 2015 independent review. Licensed providers including CashPal have adapted assessment processes to ensure compliance with the strengthened framework.
Enforcement Actions Demonstrate Regulatory Resolve
ASIC’s enforcement record demonstrates a hardening stance. In June 2024, the Federal Court ordered Ferratum Australia Pty Ltd to pay $16 million in penalties for contraventions of the National Credit Act. Violations included charging prohibited fees and failing to meet responsible lending obligations.
Concurrent civil penalty proceedings against Ausfinancial Pty Ltd allege breaches of responsible lending obligations and design requirements. Separately, Sunshine Loans Pty Ltd faces Federal Court action over $320,000 in allegedly prohibited fees collected from customers.
These enforcement outcomes establish clear consequences for non-compliance. Legal experts note the penalty amounts represent a substantial increase from historical norms. This signals ASIC’s intent to deter misconduct through financial deterrence.
Industry Response: Market Consolidation Accelerates
Major providers have responded to the regulatory environment through business model adjustments. Cash Converters International Limited announced cessation of small amount credit contracts by September 2025. The company cited projected volume reductions of 44% in its personal finance division under the new framework.
Market analysis indicates several smaller providers have exited the sector entirely. Others have pivoted toward medium amount credit contracts or alternative products. This consolidation raises questions about credit access for consumers who rely on small personal loans for emergency expenses but may not qualify under tightened criteria.
Consumer advocates maintain these protections are necessary given historical evidence of harm in this market segment.
Potential Avoidance Conduct Under ScrutinyConcerning Practices Include:
- Offering alternative credit products to consumers declined for small amount contracts due to protected earnings limitations
- Providing medium amount contracts for amounts marginally above $2,000 with compressed repayment periods
- Consolidating existing small debts into larger loan arrangements
The Commission indicated it will assess whether such arrangements constitute avoidance conduct under section 323A of the National Credit Act. This provision prohibits schemes designed to circumvent protections. Factors considered include product complexity and targeting of vulnerable consumer cohorts.
Legal experts note the breadth of the avoidance prohibition creates uncertainty for providers developing alternative products. Industry submissions to ASIC have requested clearer guidance on permissible structures that serve consumer needs without triggering avoidance concerns.
Understanding Your Rights as a Borrower
The regulatory framework establishes specific rights for borrowers. Responsible lending obligations require lenders to make reasonable inquiries about financial circumstances. They must verify information provided and assess loan suitability before approval. Recent Federal Court decisions confirm these represent distinct obligations requiring substantive compliance.
Consumers experiencing financial difficulty may request hardship variations. Options potentially include reduced repayments or extended terms. Lenders must maintain accessible hardship processes and respond to applications within specified timeframes.
The Australian Financial Complaints Authority handles disputes regarding unsuitable lending and prohibited fees. AFCA’s jurisdiction covers small personal loans and related products. Monetary limits extend up to $6.3 million for small business credit facilities.
Regulatory Outlook: Ongoing Surveillance Continues
ASIC has confirmed ongoing surveillance of the lending sector. The regulator’s 2025 enforcement priorities explicitly target unsuitable lending to vulnerable consumers. Particular focus centers on cost of living pressures affecting lower-income Australians.
The Commission will monitor compliance with design and distribution obligations. Providers must maintain target market determinations reflecting actual consumer cohorts and product suitability. Enhanced data collection capabilities enable more sophisticated analysis of lending patterns and consumer outcomes.
Industry participants anticipate further regulatory guidance on acceptable product structures. Submissions to Treasury’s post-implementation review of the Financial Sector Reform Act 2022 highlight ongoing uncertainty about regulatory boundaries.
Moving Forward: Balancing Access and Protection
The lending sector faces a fundamental recalibration of the balance between credit access and consumer protection. ASIC’s March 2025 report documents systematic compliance shortfalls that have prompted enforcement action and market restructuring.
For consumers seeking emergency credit, the regulatory changes create both enhanced protections and potential access constraints. Licensed providers including CashPal operate within a framework designed to prevent unsuitable lending while maintaining legitimate credit options for qualifying borrowers.
Looking Ahead
Ongoing regulatory surveillance will determine whether current reforms achieve their intended consumer protection outcomes. The sector’s evolution continues to reflect broader policy tensions between financial inclusion and protection of vulnerable consumers. The regulatory landscape demands adaptation from providers while ensuring legitimate credit access remains available for those who need it most.
