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From Good to Great – the Australian Consumer Law Review and beyond – Consumer Congress 2016 Speech
Add-On Insurance, Insurance, Media Release
Gerard Brody, National Consumer Congress, 16 March 2016
The Australian Consumer Law has served the community well since it was enacted back in 2010, and it has produced a number of significant outcomes – with particular thanks to the ACCC and the other consumer regulators.
I'll just name three which I think have been most significant.
First, the efforts around enforcing the unsolicited agreement provisions, which were new national regulations, and particularly the work to enshrine the role of the self-help tool, the Do Not Knock sticker. Robust enforcement by the ACCC has contributed to most energy retailers deciding to cease door-to-door sales, acknowledging not only the consumer dislike for such sales techniques but the significant consumer harm that results where retailers can't appropriately control their sales force.
Second, the enforcement work in misleading advertising – particularly in the telecommunications and energy sectors, but also in relation to credence claims, such as free range, in food. In telecommunications, the ACCC has obtained multi-million penalties, upheld by the High Court of Australia. In energy, the ACCC has also facilitated refunds to many consumers who were told that their discounts remained despite the base rates that they were charged being increased not long after signing up.
Third, perhaps the sleeper provisions in the Australian Consumer Law have been those prohibiting unfair contract terms. These provisions have been impactful, mostly without the need for legal action. The provisions are largely self-enforcing, encouraging traders to review contracts to ensure terms are fair. Where traders have been obstinate, however, the ACCC has taken action. One important recent Federal Court decision was the finding that Chrisco's so-called "headstart" clause was an unfair term. This term allowed Chrisco to continue processing direct debits even though a layby agreement had been completely paid.
Despite these successes, business models that exploit consumer vulnerabilities persist. The experiences of consumer advocates' casework demonstrate this, and I'll touch on some examples from Consumer Action:
First, the story of Benjamin Mutch, a young unemployed man from Warrnambool, who was struggling to find a job. In September last year, after applying for over 300 jobs, Benjamin received a call from Acquire Learning. He thought it was going to be a job offer, but the so-called careers adviser told him he was eligible for a government-funded diploma of logistics. Ben had been hoping for a warehouse job, and a forklift qualification was probably sufficient for his needs. This would have cost a few thousand dollars. Instead, he was signed up to a VET FEE-HELP loan worth $21,500. Acquire obtained Ben's contact details from his application to a related business's jobs website – this appears to be its business practice, to cold call job seekers following their failed job applications.
Second, are our clients of payday lenders and pawnbrokers such as Cash Converters. Our clients who are caught up in these business models are often quite ashamed and don't want to pursue complaints. To protect their identities, I'll use pseudonyms. First, there is Patricia, who has survived on a disability support pension for 10 years. She was introduced to Cash Converters by a friend back in 2007. Between July 2009 and June 2014, she entered into 56 cash advances and 7 personal loans with Cash Converters – like many others, she had found herself in the payday loan trap, repayments taking a first stake in her income such that she was tempted back for another loan. What was shocking about the conduct was that Cash Converters turned a blind eye to Patricia's gambling addiction. Since 2013, and even before that under general responsible lending laws, payday lenders had obligations to review customer bank statements and confirm loans were suitable. Despite her bank statements showing numerous cash withdrawals from gambling venues, Cash Converters did not inquire about Patricia's purpose for the loans.
More recently, we have assisted Simone who receives a Centrelink income and has experienced domestic violence. Since 2011, Simone has taken out 184 pawn loans with Cash Converters. She has borrowed over $15,000, has been charged over $5,500 in fees, and lost 24 pawned items when she'd been unable to repay the loan. Each loan had a monthly interest rate of 35% or an equivalent annual interest rate of 420%. Simone has recently turned to payday loans, at the suggestion of a Cash Converters staff member, because she had run out of items to pawn. The opposite is true here too: we've seen letters from Cash Converters denying payday loan applications suggesting customers pawn items.
Third, the case of Mildura couple Susan Enwright and Laurie Mangan who fell victim to a type of firm we're now calling 'debt vultures'. Laurie, who wasn't working, called a credit repair company after seeing it advertise on TV. He thought it'd help them access credit, as he had some defaults from debts associated with his now closed trucking business. After two phone calls, he had a bill for over $1,000. This firm was essentially offering relief that it couldn't deliver – it was unlikely that the firm could even remove his default listings. Susan contacted us after trying to cancel the deal to no avail.
Then there are business models that target Aboriginal and Torres Strait Islander communities. Our centre – like other casework agencies – continues to deal with complaints about the Aboriginal Community Benefit Fund, despite efforts of regulators over many years. Our client commonly sign up to this product under the misapprehension that it is an Aboriginal organisation, something that they could be forgiven for thinking given the name, colours and imagery used by the company. Our clients also commonly believe it is a savings plan, rather than the reality that if they stop paying, they could lose all their contributions. The targeting by ACBF in its marketing was last year labelled unconscionable by the then Minister for Human Services – this was after the ABC reported that of all the Aboriginal policy holders, 50% were under 20 and a third were under 15. Children under 10 who are signed up will pay up to $100,000 to receive a benefit for funeral expenses of around $8,000 when they pass away.
Finally, I'll mention Jennifer and Glenn's story, a case involving junk insurance. Jennifer and Glenn needed a new car, and budgeted for a car loan of $10,000. They contacted a small finance provider that they saw advertised on TV; its marketing said it provided finance to people who had problems with their credit report. After speaking on the phone, they visited the finance provider's office and then visited a number of car yards. They selected a couple of cars that they thought they might like. About 5 days later, they had an appointment with another representative from the finance company. This was scheduled to happen at a McDonald's restaurant, because they could only attend after hours. Jennifer and Glenn had their two year old toddler with them, and the representative gave them over 60 pages of documentation to agree to and sign. Needless to say, they didn't have an opportunity to read or understand the documentation. What they didn't realise right away was that what they actually signed was a loan for over $42,000, being $34,500 for the car, and over $6,700 for 3 different add-on insurance policies: a consumer credit contract, a gap policy, and a motor vehicle warranty. Glen and Jennifer had no idea these were included.
These stories are not about one-off 'rogues' or 'bad apples' inside otherwise ethical businesses. The business models are calculated, and they are designed to profit from very vulnerable Australians. This vulnerability is often caused by desperation, stress, anxiety, as well as cunning sales processes. In a number of the case studies, there are breaches of the law; however, each one demonstrates a systemic unfair business model that continues to flourish.
Our general consumer laws prohibit unconscionable conduct, and misleading conduct. While these laws are powerful, they perhaps haven't set the norms of business conduct that effectively regulate exploitative business models.
Unconscionable conduct is actually an ancient doctrine based on the moral conduct of the wrongdoer. It is a doctrine that is steeped in judicial tradition, has been inconsistently applied by the courts, and has had only a limited impact in remedying systemic misconduct. The prohibition against misleading conduct, while impactful, has not required traders to provide clear, intelligible, unambiguous and timely information that helps consumers make choices.
Our consumer law would be much more effective if, instead of focusing on the wrongdoer, there was a prohibition to deal with unfairness that promoted effective competition and genuinely informed decision-making by consumers.
This is why we think a new prohibition on unfair trading is needed – one which focuses on conduct that distorts the economic behaviour of consumers, or impairs a consumer's freedom of choice or conduct. Such a prohibition could also enhance our law as it relates to misleading omissions, requiring traders to bring much more clarity to their marketing and business practices.
This prohibition would be pro-competitive and recognise that we now live in a 21st century technology and services based economy. For our economy to grow, we need competition to be effective, and for markets to work.
Following the Harper review into competition policy, it is clear that governments want markets to deliver more, including in areas which have been traditionally delivered through public agencies. While this is a policy choice, recent history tells us there are substantial risks in proceeding down this line without thinking about effective consumer protection.
The story of applying market principles to vocational training has not been a happy one. The National Disability Insurance Scheme, still in its infancy, adopts very similar policy principles. I also note that Federal legislation has recently passed laws to bring "choice" to in-home aged care support. An unfair trading prohibition, if enacted, can operate as a protective measure to reduce the likelihood of shonks entering these sectors, sectors which deliver important services to those that need them.
In conclusion, I'd like to say something about innovation, which is a bit of a buzz word with the current Turnbull Government. What consumer advocates know is that those profiteering from the most vulnerable are nothing if not innovative. There will always be new business models targeting the poor and the vulnerable.
That's why the Australian consumer law needs to contain provisions promoting strengthened business norms based in fairness. Here, it's worth remembering the worthy objective of the Competition and Consumer Act: to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.
A strengthened unfair trading prohibition in the Australian Consumer Law will make markets work for consumers. It will also ensure that the benefits of competitive and productive markets are distributed more fairly across the community. Thank you.