The Australian Securities and Investments Commission (ASIC) has launched Federal Court proceedings against a payday lender that also sold consumer credit insurance.

It claims The Cash Store breached consumer credit laws including responsible lending obligations, and engaged in unconscionable conduct.

It says the Canadian-owned company acted unfairly by selling insurance to customers on low incomes or Centrelink benefits.

ASIC argues it is unlikely customers could ever claim on the insurance.

The regulator began investigating The Cash Store’s Australian operations in May last year, according to the company’s third-quarter accounts.

It wanted to know how many consumer credit insurance policies were sold and the cost of providing the service.

The accounts give no indication of insurance revenue in the nine months to March 31.

Total revenue for the period was $2.1 million, but the Australian operation recorded a $1.8 million loss.

It had negative working capital of $22.2 million at March 31, up from a negative $10.5 million the previous year. 

The Canadian parent has also faced scrutiny from regulators, with the Alberta Securities Commission issuing a cease trade order last December.

In May the commission requested further information from the company, which has yet to respond, according to the accounts.

The Federal Court case is scheduled for a hearing in Melbourne on September 27.

ASIC is seeking financial penalties.