August « 2006 « Australian Regulatory Compliance Review from Langes+ Lawyers

August 31, 2006

GE Money refunds card establishment fee

GE Money will refund a $25 establishment fee paid by
approximately 2,500 MasterCard customers following discussions with the
Australian Securities and Investments Commission (ASIC).

GE’s announcement follows concerns raised by ASIC
regarding the following statement on its website: ‘There is no annual
fee for your GO MasterCard. That means it costs you nothing to have it
- pay nothing and make it your card of choice year after year.’

An investigation by ASIC found that while existing
customers did not incur charges, new customers were charged a $25
establishment fee.

GE will refund the establishment fee to all
consumers who applied for the MasterCard online. It has also removed
the statement from the GO MasterCard website.

The GO MasterCard was widely advertised through
other means. The statement considered by ASIC to be misleading did not
appear as part of the broader advertising campaign, which included
television and radio advertising, brochures, and in-store materials.

Posted 31st August 2006 by David Jacobson in Financial Services, Marketing

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Privacy case notes released

The Privacy Commissioner, Karen Curtis, has released four case
notes relating to personal information handled by a law firm, banking
institution, health service provider and a credit provider:

T v Law Firm [2006] PrivCmrA 19,
involved a law firm that was handling two separate insurance-related
cases relating to the one person (the complainant). The complainant
alleged that the law firm had disclosed information about the
complainant that it had obtained from the client for the first case to
the client for the second case, to support the latter’s unrelated case
against the complainant.

The law firm admitted
that it had used the information in this way.The Commissioner took the view that the use of the
information in this instance was not a necessary part of an
investigation of the complainant’s suspected unlawful activity and, as
such, the law firm had breached NPP 2 by using and disclosing the
complainant’s personal information. The complainant received an apology
from the law firm together with an amount of compensation.
In U v Banking Institution [2006] PrivCmrA 20,
the complainant and their spouse had entered into a loan with a banking
institution. After moving addresses, the couple contacted the
institution to update their details. However, the banking institution
sent the next statement addressed to one of them (the complainant) at
their old address. The complainant and their spouse telephoned the
banking institution on several occasions, alerting them to their
updated contact details. Despite this, some months later the banking
institution sent loan default notices to the old address, with the word
‘default’ visible through the plastic window of the envelope.

The complainant complained to the banking institution about the
incorrect address and the embarrassment they claimed had resulted from
the word ‘default’ being visible to third parties, and received both a
verbal and written apology. Dissatisfied with the handling of their
complaint, the complainant wrote to the Privacy Commissioner. The
Commissioner found that a failure by the banking institution to update
the contact details was a breach of NPP 3.

Regarding the word ‘default’, the Commissioner accepted the banking
institution’s assertion that its external mailing house had incorrectly
folded the letter and that this would not recur.
In V v Health Service Provider [2006] PrivCmrA 21,
a parent complained to a health service provider on behalf of their
teenage child at the provider’s loss of the child’s medical records.

The Commissioner investigated to establish whether the provider had
breached NPP 4.1, which requires an organisation to take reasonable
steps to protect personal information it holds from loss. The
Commissioner concluded that the provider’s file management policy was
reasonable and that the loss of the file was the result of human error,
not of a systematic procedural problem. The Commissioner also noted
that the provider had made a significant effort to locate the record
and then to reconstruct the record. As a result, the Commissioner
formed the view that the provider had adequately dealt with the
complaint.
In W v Credit Provider [2006] PrivCmrA 22,
a credit provider had listed a ’serious credit infringement’ on the
complainant’s consumer credit information file in relation to a loan.
In accordance with its then record retention policy for a serious
credit infringement, the credit reporting agency removed the listing
after five years. However, the complainant subsequently discovered that
the credit provider had re-listed the infringement on the file.

The complainant was dissatisfied with the response they had received
from the credit provider after complaining about the matter and lodged
a complaint with the Privacy Commissioner. The credit provider asserted
that, at the time of the second listing, the previous listing did not
appear on the complainant’s file. However, evidence disproved this. The
respondent also suggested that the second listing was for a different
reason: the first had been for a failure by the complainant to comply
with their credit obligations; the second was due to possible fraud.

The Commissioner took the view that any subsequent refusal to fulfil
credit obligations after the first listing formed part of the same
infringement and that no evidence had been provided supporting the
claim that the second listing was made due to the complainant having
committed fraud. For these reasons, the Commissioner found that the
credit provider had breached section 18E(1)(b)(x) of the Privacy Act,
which allows credit providers to only make one serious credit
infringement listing in relation to the same infringement.

The credit provider advised the Commissioner that it had changed its
procedures for listing infringements. The Commissioner was satisfied
with these actions and, as the complainant did not substantiate their
claim for compensation, the Commissioner closed the complaint.

More case notes

Posted 31st August 2006 by David Jacobson in Privacy

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Are competition and market regulation incompatible?

I regularly speak to businesses who cannot reconcile the idea of competition with the ability of the ACCC to regulate the market.

In a recent speech ACCC Chair Graeme Samuel sought to explain his role in the context of infrastructure:

"those who take a longer-term view recognise that it is regulation of important national infrastructure like our railways, ports and telecommunications systems that has allowed many of those businesses to succeed, and for Australia’s economy to grow.

Without regulation and the competitive environment it creates, Australia’s industry would be inefficient, riddled with shady deals and smaller players would have little chance of being able to compete. The losers would of course be consumers."

Posted 31st August 2006 by David Jacobson in Trade Practices

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August 30, 2006

Directors’ Responsibilities

ASIC Chair Jeff Lucy has given a speech summarising recent developments in directors’ duties.

Interestingly, although he insisted that ASIC’s role is to enforce directors’ legal obligations, he noted that community expectations require strong punishment for breaches.

Posted 30th August 2006 by David Jacobson in Corporate Governance

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August 28, 2006

When is a director “fit and proper”?

VBN and Ors and Australian Prudential Regulation Authority and Ors contains a detailed analysis of APRA’s powers to decide that a director is not "fit and proper". In the decision the AAT reviewed decisions by the Australian Prudential Regulation Authority (APRA), to disqualify seven of nine former directors of a Trustee of a superannuation fund (Trustee) as a director of the Trustee.

APRA had made its decisions on the basis that the Trustee had contravened the Superannuation Industry (Supervision) Act 1993 (SIS Act) and that the nature or seriousness of the Trustee’s contraventions provided grounds for the disqualification of each of them.

In relation to two of them, APRA also decided that two of them were not fit and proper persons to be responsible officers of a body corporate that is a trustee and disqualified them under s 120A(3).

The AAT set aside the decisions after finding that the Trustee had not contravened the SIS Act and that it was not satisfied that two of them were not fit and proper persons to be responsible officers of a body corporate that is a trustee. The effect of the setting aside all of APRA’s decisions is that none of the applicants is a disqualified person within the meaning of the SIS Act.

In respect of the 2 directors deemed not fit and proper the AAT said there were 2 issues:

what is meant by the expression “fit and proper”?
did the 2 directors, or either of them, have a conflict of the duties they owed to the Employer and those they owed as Directors of the Trustee?

The decision analyses the investigatory powers of APRA and the construction of the section which deals with disqualification of a person who is not fit and proper:

Section 120A(3) of the SIS Act encompasses two steps. The first is to decide whether or not either VBN or VBW is a fit and proper person
to be a trustee, investment manager or custodian or a responsible officer of a
body corporate that performs one of those functions. If we decide that they are not, we must take
the second step to decide whether or not they, or either of them, should be
disqualified. We must take that second
step because there is, inherent in the use of the word “may” in s 120A(3) a discretion. [para 519]

a person who was a
responsible officer of a trustee at the time that it contravened the SIS Act,
and the nature, seriousness or number of the contraventions provided grounds
for disqualification of that person under s 120A(2), would not be a fit and
proper person. A similar analysis would
mean that a person who had contravened the SIS Act in circumstances justifying
disqualification under s 120A(1) would not be a fit and proper person.[para 528]

That there is a
potential for conflict between the interests of the directors and their role is
an integral part of the scheme established by the SIS Act. … The potential
for conflict by virtue of their appointment alone does not mean that there is a
conflict of the sort that means that an individual director is in breach of a
fiduciary duty. There must be something
more that shows that there is in fact a conflict of duty between the interests
of the directors of a trustee of a fund. This must be determined by reference to the circumstances and not by
reference to a formula or recitation of principle. Do the circumstances show that a director was
in a position in which that director’s interests or those of another for whom
he or she had responsibility or to whom he or she owed a duty conflicted with
the interests of the trustee?…

Having regard to all
of these matters, we are satisfied that VBW disclosed his interest and the
nature of his interest as a result of his position with the Employer. Taken in the context of their appointments
and their decisions to give him and others the task of dealing with the
Employer, he did so in sufficient detail to reveal his position and to ensure
that the Directors were fully informed of all the information that they needed
to make a proper decision. We are
satisfied that he was not in a position of conflict of interest…

the Trustee’s
Board had all of the information that they needed in order to make a decision
about what it should do about the Employer’s Offer. VBN was not in possession of any information
that it did not have but that it should have known or that could have assisted
it with its deliberations. There is no
evidence that satisfies us that he influenced, or attempted to influence, the
course of the Board’s deliberations.

Posted 28th August 2006 by David Jacobson in Compliance, Corporate Governance, Current Affairs, Financial Services, Insurance

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August 25, 2006

Privacy Commissioner responds to Access Card Taskforce Paper

The Privacy Commissioner, Karen Curtis, has recommended a range of privacy safeguards be developed for the proposed health and social services
access card. These recommendations have been made in her submission to
the first Discussion Paper released by the Access Card Consumer and
Privacy Taskforce.

In her submission to the Taskforce, Ms Curtis proposes that a number of key areas be addressed in the access card planning process including in the areas of card system design, technology choices, legislation and oversight measures.

The submission also calls for the enactment of legislation with privacy protection measures which apply over all elements of the access card system, including sanctions and remedies. Specifically, it recommends that legislation: limit the uses of the physical card; prevent unauthorised access to, collection or misuse of information on the card or chip; and prevent unauthorised or unintended
uses and disclosures, including routine data-matching. In addition, the submission suggests that individuals should have transparent rights to access and, where necessary, correct information on the system.

The submission suggests that further detailed privacy impact assessments be undertaken during the design and implementation of the access card system.

Posted 25th August 2006 by David Jacobson in Access Card, Privacy

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New General Insurance Code of Practice

The new General Insurance Code of Practice commenced on 18 July 2006. It applies to all general insurance policies taken out and any new claims received after 18 July 2005.

The Code covers all general insurance products except workers compensation, marine insurance,medical indemnity insurance, and compulsory third party insurance including where there is linked driver protection cover. It does not cover reinsurance.

The Code does not apply to life and health insurance products issued by life insurers or registered health insurers.

The objectives of this Code are:
a) to promote better, more informed relations between insurers and their customers;
b) to improve consumer confidence in the general insurance industry;
c) to provide better mechanisms for the resolution of complaints and disputes between insurers and their customers;
and
d) to commit insurers and the professionals they rely upon to higher standards of customer service.

Posted 25th August 2006 by David Jacobson in Financial Services, Insurance

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When is an interest rate change really a product terms change?: Aussie credit card responds to ASIC

Aussie Credit Cards (Aussie) has agreed to
suspend the introduction of a higher interest rate for cash advances
for a number of Aussie MasterCard customers following concern by ASIC
that it may have engaged in bait advertising.

The Aussie MasterCard (provided by ANZ) was widely advertised as
having a ‘low ongoing rate’ of 9.99% p.a. Television advertisements for
this flat rate aired until early May 2006, and online advertising
continued until 20 June 2006.

In early June, Aussie introduced a higher rate of
13.99% p.a. on cash advances, to take effect on 10 August 2006.
Existing customers received written notification of the impending
change through mid to late June.

Aussie altered its advertising to reflect this
change, limiting references to the 9.99% p.a. rate to purchases and
referring to the higher rate applying to cash advances.

ASIC’s Executive Director of Consumer Protection, Mr
Greg Tanzer, said ASIC was concerned this change was not simply a
variation to a variable interest rate, but rather a structural change
that considerably altered the product being offered to consumers.

‘Credit providers need to take into account existing
claims in their advertisements before making major changes’, Mr Tanzer
said.

‘The law is clear – where financial services are
advertised at a specified price they must be offered at that price for
a sufficiently reasonable period. Here, consumers responding to
advertising as late as mid-June would find themselves with a very
different card come 10 August – in our view, and having regard to the
Aussie advertisements, this is well short of the reasonable period
required by law.’

Following discussions with ASIC, Aussie has agreed to:

Allow cardholders who became customers before 21
June 2006 to remain on the single low interest rate for at least six
months for purchases and cash advances, and
Write to all affected customers advising them of the outcome.

Section 12DG of the Australian Securities and Investments Commission Act 2001 prohibits bait advertising.

Section 12DG(2) provides that where a person has
advertised financial services ‘at a specified price’, it must offer
those services at that price for a period that ‘is reasonable having
regard to the nature of the market… and the nature of the
advertisement.’

Posted 25th August 2006 by David Jacobson in Financial Services

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August 24, 2006

Privacy Commissioner comments on draft AML Bill

The Privacy Commissioner, Karen Curtis, has made a submission to the
Attorney-General’s Department on the second exposure draft of the Anti-Money Laundering and Counter-Terrorism Financing Bill 2006.

The Office has made a number of recommendations, including that:

a separate process be undertaken to consider the issue of whether Australian government agencies, other than the traditional law enforcement agencies, should be able to have direct access to AUSTRAC information to use for purposes unrelated to anti-money laundering and
counter-terrorism financing;
the Bill needs to ensure that information collected by AUSTRAC that is passed on to state and
territory government agencies will be subject to adequate privacy protection. Not all states and territories have enacted privacy legislation, which means there is a lack of uniformity in the protections and the remedies available; and
there should be limits on how long the information collected under this legislation
should be kept by reporting entities and government agencies.

The Office has also recommended that a Privacy Impact Assessment (PIA) be
conducted on the operation of this legislation, ideally by an
independent expert specialising in privacy issues and the conduct of
PIAs.

Posted 24th August 2006 by David Jacobson in Anti-money laundering, Financial Services, Privacy

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APRA reviewed: AXA successful

The Australian Prudential Regulation Authority (APRA) has acknowledged the decision (VBN and Ors and Australian Prudential Regulation Authority and Ors) by the Administrative Appeals Tribunal (AAT) to set aside APRA’s disqualifications of seven directors of the former trustee of the AXA Australia Staff Superannuation Plan (the Fund).

The disqualifications resulted from an investigation into the Fund that resulted in the trustee agreeing to return nearly $10 million in benefits to fund members. On 25 May 2005, APRA and the Australian Securities and Investments Commission (ASIC) announced they had each accepted an Enforceable Undertaking from the trustee of the Fund to restore benefits.

The restoration meant that the superannuation benefits of more than 2,000 then current and
former members of the Fund were adjusted upwards, with an estimated $9.2 million of the total returned to 288 ‘deferred benefits members’. The rectification also included an offer to certain former members to
re-enter the Fund on actuarially determined terms.

The Enforceable Undertakings related to decisions by the trustee to change the method of calculating the interest rate on members’ benefits with retrospective and detrimental effect, and its transmission of an offer by the employer to buy out future pension entitlements, without adequately informing members.

The AAT found that the actions related to the Enforceable Undertaking from the trustee did not warrant disqualifications for the individuals concerned. The Tribunal concluded that the trustee’s conduct was in the interests of the fund members as a whole.

APRA has decided that it will not appeal the decision.

One of the Fund Trustees was Andy Penn, the next CEO of Axa.

Posted 24th August 2006 by David Jacobson in Financial Services

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