ASIC has released the results of its review of the Australian term deposit market.

ASIC’s review looked at the period 1 January 2008 to 27 February 2009 and covered eight authorised deposit-taking institutions (ADIs) holding over 80 per cent of Australia’s total term deposits.

ASIC’s review found that seven out of the eight ADIs reviewed promoted their term deposits by advertising only the highest term deposit rates, while maintaining lower rates for all other deposit periods. The periods on which the advertised higher rates were offered varied over time.

In ASIC’s opinion, this ‘dual pricing’ coupled with the potential for term deposits to rollover by default if the investor does not take action, creates a risk that a retail investor could inadvertently end up in a much lower interest term deposit.

ASIC’s report contains recommendations  for improvements to advertising, disclosure of interest rates and grace periods designed to maximise the disclosure to investors about what happens when their term deposit matures.

The recommendations are:

• ADIs should review their term deposit advertising to ensure that, where dual pricing practices operate, investors are not given the impression that good or competitive returns are available across all deposit terms when this may not be the case.
• ADIs that have high and low term deposit interest rates should review their disclosure documents to ensure that there is clear and effective disclosure that:
  A. dual pricing exists; and
  B. because term deposits have the ability to roll over automatically without the investor taking active steps, there is a significant risk of rollover from a high to a low interest rate.
• This disclosure should occur in:
  (a) term deposit application forms;
  (b) Product Disclosure Statements (PDSs) or terms and conditions booklets; and
  (c) pre-maturity and post-maturity letters.
• Investors should be made aware of the interest rate that will apply on their new term deposit before it rolls over, so that they have the
  longest possible period (the pre-maturity period and the grace period) to intervene if they wish. Investors who would roll over to a low interest rate should be made aware that better interest rates are available from the same ADI for comparable periods.
• These disclosures should be made clearly and in the prematurity communication with investors. Although enclosing interest rate
  schedules with pre-maturity letters could potentially achieve this, ASIC considers that investors are more likely to read the actual letter rather than a potentially lengthy and detailed interest rate schedule.
• ADIs should update their term deposit renewal communication so that they clearly disclose the actual or indicative interest rate that will
  apply to the new term deposit. Where the interest rate indicated is subject to last minute changes by the ADI, this fact should also be clearly disclosed.
• It is important for investors to have, and be aware of, the grace period that applies when their term deposit rolls over by default. ASIC also considers that the grace period should be of sufficient length to allow the investor to act if they so choose.

It is industry best practice to:
A. tell investors about grace periods at every disclosure point, including PDSs/terms and conditions, pre-maturity and post-maturity letters.
B.provide investors with a grace period no shorter than five business days, with industry best practice at 14 days.

ASIC will conduct a follow up review 12 months after the implementation of its recommendations by ADIs.

In Yousif v Commonwealth Bank of Australia [2010] FCAFC 8 the Federal Court Full Court rejected an appeal by a CBA mobile lender against the Federal Court’s decision not to grant her relief against the termination of her employment.

Although the Bank won, the case canvasses a range of issues including the way in which CBA dealt initially with an unhappy employee and her subsequent application for an internal transfer and an internal investigation.

The case also considers a breach of privacy by the Bank relating to the employee’s CommSec records and whether the Bank’s internal policy relating to appointments was part of the employment contract.

The case is worth reading as an example of the way things can go wrong.

Here’s the Agenda for our next meeting on 24 February:

1.    Are you prepared for the new National Consumer Credit regime?

a)    Reviewing Langes NCC Compliance Checklist

b)   ASIC Credit Guidance Registration and Licensing requirements

c)    New form of default notices

2.   Other items for discussion

a)    Personal Property Securities update

b)   Guarantee Scheme for Large Deposits and Wholesale Funding to end.

c)    Financial Claims Scheme– requirement for disclosure in PDS.

d)   Reminder: AUSTRAC 2009 AML/CTF compliance reporting dates –independent reviews?

Members can download slides now from the LCAP website.

The Fair Work Act  now governs employment, with the new Banking, Finance and Insurance Award  replacing the Credit Union and other financial services awards as of 1 January .

With the new National Employment Standards also applying from 1 January there are some important changes now in place .

We recommend a review to identify inconsistencies between the new award and the National Employment Standards in:

1. your letters or offers of employment.

2. employment contracts ( new and existing )

3. existing policies.

There may also be a need to develop new policies and procedures eg letters responding to flexible work requests.

You should also review your existing policies relating to probation, parental leave, work-life balance and performance and misconduct.

Do your employment contracts include the new mandatory terms?

Have you drafted complying termination and redundancy pro forma letters?

Have you reviewed your leave forms, time sheets and pay slips to ensure they comply with new requirements in terms of content and retention periods.

If you need assistance, call Richard Farago.

It is becoming common for financial institutions to assign parcels of loans to each other.

But is the assignment effective?

It will depend on the terms of the loan agreements being assigned, the terms of the transfer and the assignment process.

And any enforcement rights exercised by the transferee will be restricted by the terms of the loan agreements.

In Goodridge v Macquarie Bank Limited [2010] FCA 67 Judge Rares of the Federal Court decided that one borrower’s loan which was part of a complex transfer of about 18,500 margin loans for nearly $1.5 billion from Macquarie Bank to (ultimately) Leveraged Equities Limited (part of the Bendigo and Adelaide Bank) was not validly assigned.

The borrower had sued for return of his investments which were forcibly sold as the result of a margin call.

After examining the specific circumstances Judge Rares decided that:

• the borrower had not in fact been in default,
• the demands were not made in accordance with the loan agreement,
• there was no power to sell the borrower’s investments,
• the sales were in breach of the loan agreement, and
• the investments should be returned to the borrower and he should be compensated for any loss after payment of his liabilities.

As well as deciding there was no valid assignment, the Judge decided that no proper notice of the assignment had been given and that Leveraged Equities had acted unconscionably.

The new threshold is $374,330 (up from $354,530) . The next change will be on 10 March 2010.

Further information is available at Hardship Threshold.

From 1 July 2010 (when the National Credit Law starts) the threshold will be fixed at $500,000.