Unscrupulous lenders in indigenous communities are being targeted by the corporate watchdog after a report found some hold debit cards and PINs as security and use them to drain customers' accounts.
An Australian Securities and Investments Commission report released on Tuesday said book up, an informal type of credit that allows customers to pay later for goods or services, can hurt users even though many find the service useful or even necessary.
One form of abuse is the confiscation of cards, which stops people from being able to use them elsewhere and allows the lender unfettered access to their funds, while others include failing to agree to terms, not keeping accurate records or letting relatives add credit to a book up account without a customer's consent.
"Where a book up provider chooses to engage in conduct that appears to be unconscionable, ASIC will take enforcement or other appropriate regulatory action," ASIC deputy chair Peter Kell said.
Given the variety of ways in which it is offered, regulation of book up can fall under several acts. ASIC said the minimum requirement is that lenders must act "in a manner that is not unconscionable, nor misleading or deceptive" under consumer law.
Book up is most often offered through general stores to purchase inexpensive items such as groceries, but can be associated with fuel, taxis, clothing and even more expensive items including cars.
ASIC said there should be limits on how much book up can be offered, that accounts are kept and statements regularly provided, that account access is limited and that the debt should always be unsecured.
The watchdog added that it was crucial to improve financial literacy and that it will work with industry and others to reduce the need for book up and payday lending by encouraging improved mainstream services.
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