Proceedings and Orders Sought

In November 2024, ASIC initiated proceedings against Oak Capital Mortgage Fund Ltd and Oak Capital Wholesale Fund Pty Ltd (“Oak Capital”), seeking orders pursuant to the ASIC Act.

ASIC alleges that Oak Capital engaged in unconscionable conduct in relation to 47 loans valued at $37 million between 2019 to October 2024 (“Oak Loans”).

In its concise statement filed in the Federal Court, ASIC alleges that Oak Capital, who do not hold a credit licence, devised a business model which deliberately deprived applicants of important consumer protections, avoided accountability and gained situational power particularly when loans fell into in default.

Oak Capital has strongly refuted the allegations including those of predatory lending practices, stating its loans comply with the law and industry standards.

Key Allegations

ASIC’s submissions can be distilled into two key allegations:

• Oak Capital deliberately avoided consumer protections including:
  1. Responsible lending obligations;
  2. Hardship provisions; and
  3. Protection from excessive fees and charges,

in circumstances where Oak Capital knew or ought to have known that the Oak Loans were for domestic, personal or household purposes and should have fallen under the Credit Act and National Consumer Credit Code (“NCCP”).

• Oak Capital engaged in a Contrived Avoidance System of Conduct (“Avoidance Model”) offering ‘low doc’ and ‘urgent’ finance where the loans:
  1. Allowed company borrowers only;
  2. Had short terms, high interest, and exorbitant fees;
  3. Were secured by real property, often the guarantor’s personal residence; and
  4. Encouraged interest only repayment structures.

The Process and Model

ASIC alleges that the Oak Loans followed a common process:

• A broker submits a loan scenario to Oak Capital;
• Oak Capital assesses the scenario and requests a completed application;
• Applicants sign the application, which the broker submits to Oak Capital;
• Oak Capital assesses the application and issues an offer to the applicants;
• Oak Capital carries out valuations of the security and credit checks;
• Applicants sign the offer and submit it to the broker;
• Funds are arranged by Oak Capital and their solicitors draw loan documents; and
• Once the loan documents are signed; settlement is arranged.

ASIC claims the Avoidance Model was largely revealed at the second and third steps, where borrowers were often noted as ‘TBA Pty Ltd’ or simply their name on various forms.

Further, ASIC alleges that Oak Capital made applicants declare at various stages of the process that the loan was wholly or predominantly for business or investment purposes, even when Oak Capital was aware this was not the case or circumstances clearly indicated otherwise.

It’s alleged, in what ASIC calls ‘asset-based lending’, that applicants were not required to show that the Oak Loans could be discharged by the corporate borrower’s income. Instead, the terms of the loan were largely determined by the value of the security offered by the guarantor, which was often their personal residence.

Little contact is alleged to have occurred between applicants and Oak Capital themselves, with the loans being largely facilitated by finance brokers offering Oak Capital products.

Unconscionable Conduct

ASIC asserts that the ‘exit strategy’ for the Oak Loans almost always involved the guarantor’s assets or income discharging the loan without any regard for the borrower company. Often, companies were allegedly conceived and registered for the sole purpose of the loan application when they received no ultimate benefit from the loan.

ASIC concludes that the requirement for a company borrower was a device to avoid regulation. Similarly, ‘business-purpose declarations’ that were included as standard and required no supporting documentation are argued to have not been genuine, especially when Oak Capital knew that they were false.

ASIC states that Oak Capital ought to have considered that its applicants may be financially strained and in need of urgent finance, and that they ought to have analysed each applicant and their incentive to create companies and/or make false declarations more critically. Additionally, it’s submitted that no investigations were ever undertaken to determine if the high-risk loans were the best products for the applicants, as would be required for coded loans under responsible lending practices.

The result of the Avoidance Model, ASIC contends, is that the Oak Loans were ultimately treated as unregulated loans to increase the profit of Oak Capital and circumvent consumer protection legislation, accountability systems and complaint mechanisms.

This and similar actions launched in recent months by ASIC make it clear that regulatory bodies are casting their eye over credit facilities that ought to be regulated and, importantly, may be avoiding regulation by design. Consequently, non-bank lenders may need to refine the internal processes that determine who they extend funds to and, importantly, for what purpose.

This is a watershed moment for action against non-bank lenders by the corporate regulator and a space to be watched.

This information is of general nature only and Omega Law invites you to contact us for specific advice tailored to your needs and circumstances.