Consumer Law « Australian Regulatory Compliance Review from Langes+ Lawyers

May 22, 2013

Review of the Franchising Code of Conduct

The Commonwealth Government has released a report on the review of the Franchising Code of Conduct.

The Franchising Code aims to strike a balance in relation to disclosure by franchisors and the rights of franchisees.

The report contains a total of 18 recommendations to Government.

The recommendations in relation to disclosure include a requirement for a franchisor to disclose the rights of the franchisor and franchisee to conduct and benefit from online sales, including any ability of the franchisor to conduct online sales.

There are recommendations relating to an obligation to act in good faith being inserted into the Code, and the introduction of civil pecuniary penalties for breaches of the Code.

There are also a number of recommendations aimed at addressing specific problematic areas, for example, the issue of franchisor failure.

No recommendation has been made that franchisees receive an exit payment or goodwill payment at the end of the term of their franchise agreement. However, a recommendation has been made that any restraint of trade clauses in the franchise agreement which prevent the franchisee from carrying on a similar business in competition with the franchisor, are not enforceable by the franchisor against the franchisee in certain circumstances.

The Government has not yet indicated its response to the recommendations.

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Posted 22nd May 2013 by David Jacobson in Business Planning, Consumer Law

May 13, 2013

Unfair terms in general insurance contracts

Treasury has released for comment exposure draft legislation and explanatory material to give consumers protection against unfair contract terms in general insurance contracts.

The key elements of the draft legislation are:

the new unfair contract terms regime will apply to general insurance contracts on an equivalent basis to the regime applying to other financial products or services in the Australian Securities and Investments Commission Act 2001. The new regime is modified appropriately for contracts of general insurance;
consumers and the Australian Securities and Investments Commission (ASIC) will be able to take action for unfair terms in a standard form consumer contract of general insurance, such as seeking a court declaration that a term is unfair. A court will have access to a range of remedies in such circumstances;
an insurer found by a court to have an unfair term will be in breach of the duty of utmost good faith and will not be able to rely on the term;
ASIC will be given powers to enforce unfair contract terms for general insurance contracts by reference to the enforcement and investigation powers it has in the Australian Securities and Investments Commission Act 2001;
the amendments will apply to standard form consumer contracts of general insurance entered into, or renewed, on or after the commencement day, and to terms varied on or after the commencement day. The commencement day will be 12 months after the day the Act receives Royal Assent, giving general insurers a transition period to review their standard form consumer contracts for unfair terms.

The draft legislation will apply to:

standard form consumer contracts of general insurance which are entered into, or renewed on, or after, commencement; and
a term in a standard form consumer contract of general insurance that is varied on or after commencement.

Insurers will be given a 12 month transition period to review their standard form consumer contracts for unfair terms before the commencement of the changes.

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Posted 13th May 2013 by admin in Consumer Law, Financial Services, Insurance

May 2, 2013

OAIC’s Guide to Information Security

The Office of the Australian Information Commissioner (OAIC) has published a final version of its Guide to Information Security: ‘Reasonable steps’ to protect personal information.

The Australian Privacy Commissioner, Timothy Pilgrim, said that 100% of the high profile investigations he completed in 2011–12 involved data security issues.

Information security obligations for businesses are contained in the National Privacy Principles, the credit reporting provisions in the Privacy Act and the Tax File Number Guidelines.

The guide provides guidance on information security, specifically the reasonable steps entities are required to take under the Privacy Act to protect the personal information they hold.

It provides examples of steps and strategies which may be reasonable for an entity to take.

This could include taking steps and implementing strategies to manage the following:
• governance
• ICT security
• data breaches
• physical security
• personnel security and training
• workplace policies
• the information life cycle
• standards
• regular monitoring and review.

The guide recommends businesses build privacy and information security measures into their processes, systems, products and initiatives at the design stage.

In the amendments that commence on 12 March 2014, the security of personal information is dealt with in APP 11. The obligations in APP 11 are similar to those in NPP/IPP 4. However, APP 11 will require an entity to take reasonable steps to protect personal information from ‘interference’ (eg hacking), as well as from misuse, loss, unauthorised access, modification or disclosure.

Langes can assist you to review your privacy policy to address information security issues.

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Posted 2nd May 2013 by David Jacobson in Consumer Law, National Credit Code, Privacy, Tax

ASIC review of capital guaranteed products

ASIC has released Report 340 ‘Capital protected’ and ‘capital guaranteed’ retail structured products (REP 340) which contains a health check of the Australian market for unlisted retail structured products promoted as having capital protection or a capital guarantee.

The report found retail investors often have a poor understanding of these complex investments because of the way that some of these products are labelled, with confusing or potentially misleading messages about the level of risk investors are exposed to.

The use of terms such as ‘qualified’, ‘limited’, ‘conditional’ or ‘contingent’ in conjunction with the phrase ‘capital protected’ or ‘capital guaranteed’ may not be sufficient to avoid the phrase as a whole being likely to mislead or deceive consumers about the risk to their capital, particularly where, if certain conditions are met, the whole of the capital will be at risk.

Despite being labelled or described with terms such as ‘capital protected’ and ‘conditional capital protected’, some products have knock-in clauses and performance hurdles that may lead to investor losses. The report highlights concerns around:

the accuracy and balance of advertising for these products
the labelling and description of reverse convertible products as offering ‘conditional capital protection’ or ‘conditional protection’. The value of these investments is usually linked to the worst performing reference share, meaning investors could lose some or all of their money, and
certain ‘internally geared’ structured products that are described as entailing a compulsory capital protected loan, where all of the investor’s outlay is at risk of loss if reference assets don’t perform. Where the investment exposure is ‘notional’, there may also be risks for investors who claim tax deductions on their payments.

If significant issues in the market persist, ASIC will consider appropriate regulatory options, particularly in relation to the description of medium-risk and high-risk financial products using terms such as ‘capital protected’.

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Posted 2nd May 2013 by David Jacobson in Consumer Law, Corporations Act, Financial Services

April 26, 2013

Case note: unconscionable conduct by mobile phone provider

In Australian Competition and Consumer Commission v Excite Mobile Pty Ltd [2013] FCA 350 the Federal Court decided that Excite Mobile Pty Ltd engaged in false and misleading and unconscionable conduct in its provision of mobile phone services to customers across Australia. The Court also found Excite Mobile acted unconscionably and used undue coercion when attempting to obtain payment for mobile phone services.

A large number of consumers across all parts of Australia were affected by Excite Mobile’s conduct, including consumers living in indigenous communities on the Cape York Peninsula, remote areas in Queensland and Western Australia, and throughout the Northern Territory.

Excite Mobile promoted its services through telephone marketing (telemarketing) calls by representatives of Lime India and other call centres in India, Pakistan and the Philippines. Lime India also attended to the customer service issues of Excite Mobile’s customers, attempted to collect unpaid accounts purportedly owed to Excite Mobile by customers, and entered information in relation to dealings with Excite Mobile’s customers into an electronic database, for and on behalf of Excite Mobile.

Excite Mobile provided Lime India with the scripts to be used in the telemarketing calls and directed the telemarketers to follow the scripts.

Potential customers were contacted by telemarketers who offered the customer an enticement to contract, namely the “gift” of a phone and holiday vouchers. The contracts offered were on a 24 month plan. The plans consisted of a minimum monthly fee, for which customers would receive a set daily allowance for calls and text messages, depending upon the size of their contract. The most commonly selected contract was the $33 per month plan, for which customers received a daily allowance for calls and text messages capped at $2.20. Any costs incurred outside of the cap would be added to the monthly bill.

The scripted explanation of the cap set out above was not included in any of the 10 recorded examples heard by the court. Instead the telemarketers simply said words to the effect of “[f]or only $33 you get $66 worth of calls.”

The terms that Justice Mansfield found to be unconscionable, in addition to the “day cap” clause included a $75 cool off fee that customers were required to pay, as well as a $195 charge imposed for returning a damaged phone, even if it was only the box that was damaged. (more…)

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Posted 26th April 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices

April 16, 2013

Assessing the consumer protection regulators

The Consumer Action Law Centre has published a report, Regulator Watch: The Enforcement Performance of Australia’s Consumer Protection Regulators.

The Report uses enforcement activity as a measure of the effectiveness of a regulator.

The Report compares whether, and if so, how much, enforcement work is being done by Australia’s two national (the ACCC and ASIC) and eight State and Territory consumer protection regulators.

It concludes that more enforcement activity and better reporting of such activity is needed to better protect consumers.

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Posted 16th April 2013 by David Jacobson in Consumer Law

March 19, 2013

Unfair contract terms report

The ACCC has published a report on the outcome of its industry review of unfair contract terms.

The ACCC reviewed standard form consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by prominent travel agents were also examined.

The review identified:

Contract terms that allow the business to change the contract without consent from the consumer.
Terms that cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability.
Terms that unfairly restrict the consumer’s right to terminate the contract.
Terms that suspend or terminate the services being provided to the consumer under the contract.
Terms that make the consumer liable for things that would ordinarily be outside of their control.
Terms that prevent the consumer from relying on representations made by the business or its agents.
Terms seeking to limit consumer guarantee rights.
Terms that remove a consumer’s credit card chargeback rights when buying the service through an agent.

The reports states “ACCC found that in the majority of industries reviewed, most businesses took advantage of the opportunity to align their standard form contracts with the new national unfair contract terms provisions of the ACL. Problematic terms were identified and either amended or deleted in each of the eight categories listed above. Particularly significant changes were achieved in relation to standard form contracts of major airlines, with 79% of problematic terms identified by the ACCC amended or deleted as a result of the review.

Some businesses have not fully cooperated with the ACCC during the review or have chosen not to change their standard form contracts to address problematic terms that were identified by the ACCC. The ACCC is now moving from a compliance to an enforcement response to resolve outstanding issues.”

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Posted 19th March 2013 by David Jacobson in Consumer Law, Trade Practices

Insurance contracts amendments

The Government has introduced the Insurance Contracts Amendment Bill 2013 into the House of Representatives.

UPDATE 21 March 2013: the Bill has been passed by the House and sent to the Senate.

It is proposed that the regulations under the Electronic Transactions Act 1999 (Cth) will be amended so that the ETA will apply to permit electronic communication of notices or documents required to be given in writing under the Insurance Contracts Act.

Failure to comply with the duty of utmost good faith will be a breach of the Insurance Contracts Act.

There will be changes reinforcing the duty of disclosure by insureds however on renewal, insurers may choose to seek updates to answers previously provided by insureds, rather than asking specific questions again.

There will also be changes to third party rights: third party beneficiaries will have access to particular rights and obligations currently held by insureds.

Also third parties with damages claims against an insured or third party beneficiary who has died or cannot be found will be able to recover directly against the insurer.

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Posted 19th March 2013 by David Jacobson in Consumer Law, Financial Services, Insurance

February 28, 2013

Who can report overdue payments and get credit reports?

To can gain access to credit reports and list overdue payments and serious credit infringements the Privacy Act requires a business to be a “credit provider”.

The definition of “credit provider” for credit reporting purposes is wider than the National Consumer Credit Protection Act definition which requires consumer credit providers to be licensed.

In the past there has been concern that service providers such as Telstra can list debts with credit reporting agencies.

Will this change under the amendments which commence on 12 March 2014? No.

To list credit defaults and obtain credit reports the amendments define a “credit provider” under new sections 6G-6K.

A credit provider includes:

a bank,
an entity where a substantial part of its business is the provision of credit,
a retailer that issues a credit card in connection with sale of goods or supply of services,
a supplier which provides credit in relation to sale of goods or supply of services where repayment of credit is deferred for at least 7 days,
a lessor who provides credit in connection with hiring, leasing or renting of goods and credit is in force for at least 7 days.

A securitisation entity is also a credit provider in relation to credit it deals with.

An acquirer of credit becomes a credit provider in relation to that credit.

However only ASIC licensed consumer credit providers and mortgage insurers will be able to pass on and obtain “repayment history information”.

The following organisations or small business operators are not credit providers for credit reporting purposes:
(a) a real estate agent; or
(b) a general insurer (within the meaning of the Insurance Act 1973); or
(c) an employer of an individual.

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Posted 28th February 2013 by David Jacobson in Consumer Law, Financial Services, Privacy

February 5, 2013

Revised Code of Banking Practice issued

The Australian Bankers’ Association (ABA) has released a revised Code of Banking Practice. The Code is contractually binding on subscribing banks and sets out the minimum standards banks have agreed to follow when dealing with personal and small business customers.

The revised Code responds to the Independent Reviewer’ Final Report on the 2004 Code which was released on 16 December 2008.

The Code gives individual and small business customers commitments in respect of matters such as:

disclosure of fees and charges and other terms and conditions;
notice of changes to terms and conditions and fees and charges;
privacy and confidentiality;
statements of account;
the right to copies of documents;
direct debits;
chargebacks on credit and debit cards;
debt collection;
complaints handling;
rights of guarantors.

Changes to the 2004 Code include:

New financial hardship provisions to assist people who may be in financial difficulty in meeting their repayments;
A commitment not to combine accounts or assign debt when a bank is actively considering whether a customer is in financial difficulty with a Credit Code regulated loan;
A commitment to provide information about no or low fee accounts to customers if the bank becomes aware the customer has a Commonwealth concession card, such as a Seniors Health Card, Health Care Card or Pensioner Concession Card;
Clarification that chargeback rights exist for disputed transactions on relevant debit cards, including debits under recurrent payment arrangements;
New provisions for customers in remote Indigenous communities, including making relevant information accessible, providing assistance to customers to meet identification requirements and appropriately training relevant staff to be culturally aware;
A commitment that banks will only sell debts to third parties that agree to comply with the ‘Debt Collection Guideline: for Collectors and Creditors’;
A commitment to send customers with a mortgage, on a primary place of residence or residential investment property, an annual reminder about their insurance obligations; and
recognising the needs of older persons and customers with a disability.

The new Code covers an individual or small business that is an actual or prospective customer involved in retail banking transactions and their guarantors. Any small business that has less than 20 (full time or equivalent) people is covered, as well as a goods manufacturing business that has less than 100 (full time or equivalent) people unless the banking service is provided in connection with a larger business.

Banks have committed to a new notice requirement for small businesses to give at least 10 days notice before making any materially adverse changes to a small business customer’s terms and conditions (other than variations of fees and interest calculations).

The Code will not apply to a “wholesale client” within the meaning of Chapter 7 of the Corporations Act 2001.

The revised Code will apply to a bank when the bank adopts the Code. All current subscribers to the 2004 version of the Code will need to adopt the 2013 Code by 1 February 2014.

An independent compliance monitoring body, Code Compliance Monitoring Committee (CCMC) has been set up to investigate possible breaches of the Code.

However, the CCMC cannot determine claims for financial loss. Such claims will be referred to the Financial Ombudsman Service.

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Posted 5th February 2013 by David Jacobson in Consumer Law, Financial Services