Court Ruling Sends Compliance Warning with $7.4 Million Penalty for Credit Act Breaches

Key Takeaways

• $7.4M Penalty: The Federal Court fined Rent4Keeps $4M AUD ($2.6M USD) and franchisee Darranda $3.4M AUD ($2.2M USD) for overcharging vulnerable consumers and breaching credit license obligations.
• Breach of Credit Act: Darranda misrepresented 516 credit contracts as “leases” to avoid the 48% annual cost rate cap, failing to disclose key terms like interest rates and cash prices.
• Knowingly Involved: Rent4Keeps was found complicit in Darranda’s breaches of the National Credit Code.
• Extreme Overcharging: Customers paid up to four times retail prices  e.g., a $795 AUD ($517 USD) washing machine cost $4,316 AUD ($2,805 USD).
• Regulatory Change: Loophole allowing leases to bypass the cost cap has since been closed, underscoring the need for compliance in high-risk, highly regulated sectors.

Deep Dive

For years, Rent4Keeps and one of its biggest franchisees, Darranda, made their money by selling essential household goods to people who could least afford them and charging them eye-watering sums along the way.

Now, the Federal Court has ordered them to pay a combined $7.4 million AUD (about $4.8 million USD) in penalties. Rent4Keeps will pay $4 million AUD (about $2.6 million USD), while Darranda has been fined $3.4 million AUD (around $2.2 million USD).

Deputy Chair Sarah Court said the punishment reflected the seriousness of the misconduct, noting that many customers had poor credit ratings and were simply trying to buy necessities like fridges, washing machines, and mobile phones, “These customers were denied the protections afforded by the Credit Act and typically, they paid almost four times the retail cost price of these essential items.”

The case stems from a nine-day trial in September 2024, where Justice Hespe found that Darranda had entered into 516 deals it described as “leases.” In reality, they were credit contracts, which meant the company should have followed the National Credit Code’s 48% annual cost rate cap.

By disguising the contracts, Darranda not only exceeded that cap but also failed to tell customers the interest rate or the goods’ cash price. Rent4Keeps, the court found, knew about these breaches and was complicit.

Justice Hespe was blunt in her assessment, “The standards set by the legislation were breached. It is not appropriate for a commercial operator servicing a vulnerable class of consumers to breach statutory safeguards without consequence.”

Some of the examples laid out in court were staggering:

• A washing machine with a cash price of $795 AUD (about $517 USD) ended up costing $4,316 AUD (about $2,805 USD) over two years.
• A fridge retailing for $798 AUD (about $519 USD) ballooned to $4,784 AUD (about $3,107 USD).
• A mobile phone priced at $1,229 AUD (about $798 USD) ended up costing $5,980 AUD (about $3,886 USD).
• A 65-inch TV worth $884 AUD (about $574 USD) was sold for $4,836 AUD (about $3,139 USD).

In each case, customers were overcharged by thousands of dollars, paying two, three, or even four times the original price.

Darranda was more than just a local operator, it was the Victorian “State Master,” overseeing about a dozen Rent4Keeps franchisees and also operating in South Australia. While Rent4Keeps has since stopped offering goods to consumers, a related company called “R4K” (owned by the same family) has been selling similar goods on instalment plans since mid-2023.

The loophole that allowed this conduct, excluding consumer leases from the 48% cost cap, has since been closed. But the court’s ruling sends a message that if you’re in a heavily regulated industry dealing with financially vulnerable customers, cutting corners can come at a very high price.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.