ASIC is launching court action against two payday lenders for avoiding consumer protection laws.

It has found cases where customers were charged more than their entire loan amount in annual fees and interest.

ASIC will start proceedings in the Federal Court of Australia against Gold Coast-based Teleloans Pty Ltd and Finance & Loans Direct Pty Ltd.

The companies claim they do not have to comply with consumer protection laws under the National Consumer Credit Protection Act 2009 (National Credit Act), because their loans are exempt under a short-term credit exemption.

But the finance watchdog says the companies, based on their business models, do not operate under the exemption.

In order for credit providers to meet the short term credit exemption, a customer cannot be charged more than 5% of the loan amount in fees and 24% in interest per year.

ASIC will present to the court five loans where the combined fees and charges of Teleloans and Finance & Loans Direct were as high as 160% of the loan amount.

It will argue that they must comply with all of the obligations under the National Credit Act, including specific responsible lending obligations and caps on fees and charges that relate to the so-called ‘payday loans’.

It is hoped that the case will sound a warning to others trying to so heavily slug the already financially disadvantaged.

“These proceedings will ensure that payday lenders do not deliberately structure their businesses to circumvent laws that protect consumers,” said ASIC Deputy Chairman Peter Kell.

“This is particularly important as the consumers who access these small amount loans can be financially vulnerable.”