Rainy days for Nimble, which must repay more than $1.5 million in dodgy loans.

Nimble must refund more than $1.5 million to more than 7000 customers after the Australian Securities and Investments Commission found it had failed to meet its responsible lending obligations.

The watchdog said it found “significant deficiencies” in Nimble’s compliance when providing short-term loans.

Nimble has previously attracted controversy for its TV advertising encouraging young people to take out payday loans for day-to-day living expenses such as paying utility bills, instead of making use of their utility provider’s hardship program.

ASIC found that Nimble has not properly assessed the financial circumstances of many consumers, instead relying on algorithms which did not properly take consumers’ financial information into account.

It also “failed to consistently recognise” when consumers were obtaining repeat loans from payday lenders within a short period of time, and even when repeat loans were identified, Nimble “did not take sufficient or appropriate steps as required by law before providing a loan to the consumer”.

The company also failed to “make proper inquiries of consumers’ requirements and objectives”. Inquiries that were made were “of a general nature and resulted in not enough information for Nimble to fully understand the consumer’s needs”.

“This is a significant outcome for financially vulnerable consumers,” ASIC Deputy Chair Peter Kell said in a statement.

“This outcome is a further example of ASIC’s strong focus on the payday lending sector. This remains a high priority area for ASIC, and we expect the industry to continue to lift its game.”

As part of its undertaking to ASIC, Nimble must pay more than 7000 customers in excess of $1.5 million through a remediation program overseen by Deloitte.

It will also make a $50,000 donation to Financial Counselling Australia, and must engage an external compliance consultant to review its current business operations and compliance with the consumer credit regime.

Consumer Action Law Centre CEO Gerard Brody.Source:Supplied

The refund process must be completed within six months so affected customers will be contacted shortly. ASIC says consumers who believe that they entered into an unsuitable loan with Nimble should contact Nimble first.

If they are not satisfied by Nimble’s response, consumers can lodge a complaint with the Credit and Investments Ombudsman.

In a statement, Nimble chief executive Sami Malia said the company “regrets any inconvenience” to affected customers and had worked with ASIC to fix the issues through system enhancements.

“Nimble has identified and promptly resolved these issues. They affected around 1.2 per cent of loans written during the period from 1 July 2013 to 22 July 2015,” Mr Malia said. “These application assessment issues were entirely unintended and were resolved in collaboration with ASIC. There has been no adverse findings against Nimble.”

Mr Malia said Nimble prides itself on the service it provides to customers.

“Nimble is always striving to have the best credit assessment systems and has made a significant investment in its application assessment processes that allow Nimble to continue making responsible lending decisions,” he said.

Gerard Brody, chief executive of the Consumer Action Law Centre, welcomed the decision but said it highlighted the need for stronger laws in the sector.

“To be honest I found it unsurprising,” he said.

“The consumer sector has known for years there is a systemic problem in the payday lending industry and ASIC’s probe has confirmed our concerns that these lenders aren’t doing the required due diligence and ensuring people are able to repay loans.”

Mr Brody said the decision should be a “wake-up call” to payday lenders. “It really underscores why we need stronger laws to protect consumers,” he said.

“While ASIC can take action and get people $1.5 million in refunds, that’s after the harm has occurred.”

Consumer Action has called for an interest rate cap of 48 per cent on all consumer credit, whereas currently small-amount loans under $2000 can often have annual effective interest rates of up to 400 per cent.

It also wants a stronger limit on how much of a borrower’s income a payday lender can deduct to repay a loan. Consumer Action says that figure should be capped at 5 per cent.

“In our experience with clients, people have a really ambivalent relationship with payday lenders,” he said.

“They’re often in a financially desperate situation and see this as the answer that’s going to give them some relief, but they quickly become aware that the relief is short-term and when the repayments roll around realise they’re being ripped off.”

Mr Brody said Consumer Action had helped people who have been hooked on payday loans get off them through legal help and financial counselling.

Phil Johns, chief executive of the National Credit Providers Association peak body representing payday lenders, described Mr Brody’s comments as “misleading”.

“Nimble does not lend to anyone receiving benefits, so to draw the conclusion that everyone using ‘payday loans’ is ‘financially desperate,’ is misleading in this case and does not represent the vast majority, who use this product successfully,” he said.

And he said payday loan interest rates should not be calculated on an effective annual basis.

“The key word is ‘annual’ and does not become meaningful until a loan runs for one year, so for any loan that runs for less than a year it is misleading,” he said.

“In any case, if a consumer agreed to pay a small amount credit contract, over a 12 month period, they would be charged based on capped government fees and regulations, not interest rates.”

Commenting on the ASIC probe, Mr Johns said any lender who is focused on sales and not compliance will “not be in business in five years’ time”.

“It is clear under principles based legislation, lenders must take the most conservative view of the law, not necessarily the rule of law,” he said. “A constant theme from ASIC is there must be individual assessment of a consumer’s situation.”

frank.chung@news.com.au