Shares in consumer finance group, Thorn Group (TGA) fell 8.7% to $1.365 yesterday on news of a class action being launched against the company by customers who were part of its Radio Rentals “Rent, Try $1 Buy” scheme.
The class action claims that some customers in this scheme paid up to seven times the true retail cost of the home appliances they rented.
The class action news comes a week after the company warned shareholders it may have to pay compensation to customers who did not meet minimum income thresholds for their contracts, following a probe by the Australian Securities and Investments Commission.
The company has so far provided more than $7 million in its accounts for compensation, but any payment in a successful class action could be on top of these provisions.
Law firm, Maurice Blackburn launched the class-action lawsuit in the Federal Court in Sydney on Wednesday accusing the Thorn Group-owned rental giant of “unfair and unconscionable practices”.
It alleges Radio Rentals “imposes on its disadvantaged customers onerous and unfair terms that avoid credit laws that prohibit overcharging”. The open class action has been filed on behalf of “all who have been subjected to unfair terms”, with up to 200,000 customers potentially affected to the tune of $50 million.
“The class action alleges that one of the more insidious aspects of the business is that Radio Rentals continued to draw money on an ongoing basis from its clients’ Centrepay [Centrelink payment] accounts, well beyond the retail value of the goods,” Maurice Blackburn principal Ben Slade said in a statement yesterday.
“Here we have a national company that deals with vulnerable people promising them one thing but signing them up to another, at a much higher price than is reasonable.
“Rent, Try $1 Buy is misleading when you delve into what’s involved. What we have found is that people are paying up to seven times the true retail costs for goods in the belief that the goods will always be theirs, yet the contracts do not give them that right.” On March 21, Thorn Group told the ASX that it was making “a further provision with a $4 million profit after tax impact in its financial statements for the year ending 31 March 2017” after talks with ASIC over the regulator’s investigation into the responsible lending obligations of the Company’s consumer leasing division, Radio Rentals.
“Discussions with ASIC have now reached a point where Thorn Group anticipates that ASIC will seek a civil penalty and require further compensation and remediation,“ the company said in the statement.
“To date, Thorn Group has made provision in its accounts with respect to compensation that may be payable to customers who did not meet minimum income thresholds for their contracts,“ the company said
In its September 30 half year financial report, the company said “Thorn is also preparing to contact certain customers between January 2012 and May 2015 who may not have met minimum income thresholds for their contracts.
"Thorn had not updated its financial assessment models adequately during that period which may have affected some customers. Thorn has set aside $3.1m as a provision to compensate these customers,” Thorn said last year.
Thorn says it will be releasing its 2016-17 financial results around May 26.
