Diamonds are for-never: Small business targeted by ASIC for “bizarre” diamond trading scheme

A Queensland-based credit company has come under fire from the corporate watchdog for allegedly constructing an “elaborate diamond trading scheme” to avoid consumer credit laws.

Multiple legal experts told SmartCompany the case is “bizarre” and unheard of.

The Australian Securities and Investments Commission has filed proceedings in the Brisbane Federal Court against Fast Access Finance for allegedly pretending to swap diamonds for credit.

The watchdog is claiming the company required its customers, who were seeking small loans of between $500 and $3000, to sign documents which purported to be for the purchase and sale of diamonds in order to obtain a loan.

In reality, ASIC alleges there were no diamonds involved in the transaction, nor did the customers have any intention of buying or selling diamonds.

“The diamond purchase and sale contracts were designed to camouflage what, in reality, were loan transactions to which the National Credit Act applied,” ASIC said in a statement.

ASIC alleges the diamond contracts were created to allow the business to escape the requirement to hold a licence for lending activities and the 48% per annum interest rate cap which applied at the time.

Fast Access Finance customers who signed the diamond trading contracts to borrow $500 were charged an additional $1 for every $1 borrowed.

“ASIC is committed to maintaining the integrity of the credit industry and licensing system by ensuring businesses conduct themselves within the confines of the laws, which are intended to protect consumers,” ASIC deputy chairman Peter Kell said in a statement.

“Payday and small amount lenders can expect ASIC to take action where they engage in this type of avoidance behaviour.”

TressCox Lawyers partner Michael Bracken told SmartCompany he’s not aware of any other similar schemes which have been created to avoid credit laws.

“The name of the company, Fast Access Finance, in itself suggests there is a financial arrangement underpinning it.”

“If it’s the case there weren’t any diamonds involved, then clearly it was an attempt to avoid both the licensing and the disclosure laws,” he says.

Bracken says prior to changes regarding credit laws around 12 months ago, there was a rush of businesses in this space.

“There is some movement in this area, but obviously those providers need to comply with the regulations. ASIC has caught the tail of what seems to be an increase in particularly overseas entrants coming into this market of small loans.

“It’s unlikely there will be more of these cases though because it’s a rigorous regime. While it’s not going to stop some people, it’s a real disincentive,” he says.

On July 1, 2013, the National Credit Act was altered to address concerns about small amount loans, particularly the risk of consumers falling into a debt spiral.

Now, credit companies can charge a monthly fee of 4% of the amount lent, an established fee of 20% of the amount lent, government fees or charges, enforcement expense and default fees.

The case is listed to be heard on September 20, 2013 in the Brisbane Federal Court.