Key points
- The proposed Unfair Trading Practices prohibition is necessary to address the increasing gap between the fair outcomes that consumers expect and what the law can deliver.
- However, the unfair practices of firms engaged in providing financial services will not be covered in the initial stage of these proposed reforms.
- ASIC believes including financial services in these reforms is an opportunity to strengthen Australian consumer law at a time when consumers need its protections the most.
I begin by acknowledging the Traditional Owners of the land on which we meet today, the Wurundjeri Woi-wurrung and Bunurong/ Boon Wurrung peoples of the Kulin nation and paying my respects to Elders past and present.
Introduction
As you heard yesterday from the ACCC, this year marks half a century since Australia introduced the Trade Practices Act.
Half a century of national consumer law.
Half a century of rejecting the principle of caveat emptor – or ‘let the buyer beware’.
In bringing this bill before the parliament in 1974, the Minister for Manufacturing Industry, Kep Enderby, observed[1]:
‘The untrained consumer is no match for the businessman who attempts to persuade the consumer to buy goods or services on terms and conditions suitable to the vendor. The consumer needs protection by the law and this bill will provide such protection.’
Since then, consumer law has continued to evolve to meet the challenges of its day – including importantly through the enactment of the Australian Consumer Law (ACL) in 2011.
The Government’s proposed Unfair Trading Practices prohibition is its next iteration.
This is a reform that ASIC – like the ACCC – supports.
This reform is necessary to crack down on practices that result in significant harm to consumers.
To address the increasing gap between the fair outcomes that consumers expect and what the law can deliver.
There is, however, one important gap in the reforms proposed in the recently released consultation paper.
The unfair practices of firms engaged in providing financial services will not be covered in the initial stage of these proposed reforms.
The consultation paper notes that changes in relation to financial services regulated by the ASIC Act will be considered after amendments to the ACL have been agreed in consultation with the states and territories.
Today I’m going to make the case for extending the unfair trading prohibition to the ASIC Act at the same time as reforms to the ACL.
For treating financial services the same as other products and services.
For taking an economy-wide approach to this new area of consumer protection.
The problem
Before I do though, let me reflect on what’s different about financial services.
I think there are three key points to make.
First, financial products – and the decisions we make about them – are inherently complex.
They’re intangible. They involve risk and uncertainty. And they’re often made infrequently.
Financial firms know this. Some exploit this by making products and processes even more complicated.
Think about the length and complexity of the product disclosure statement (PDS) and target market determination (TMD) you’ll receive with any financial product.
In contrast, many of the goods sold under the ACL come with no written terms and conditions.
Secondly, this complexity – and the information asymmetry it creates – exacerbates the inherent power imbalance between consumers and businesses.
Commissioner Kenneth Hayne highlighted this dynamic in his final report from the banking royal commission[2].
This power imbalance creates an environment in which consumers are more susceptible to unfair practices.
Thirdly, the harm that can be created by unfair trading practices in financial services is commonly far greater than in other areas of the economy.
The misconduct reported to ASIC sometimes involves people losing their entire retirement savings.
In other cases, it involves firms that prey upon people who are deeply indebted, exacerbating their disadvantage by charging exorbitant fees.
The economic and psychological impact of these practices on the consumers who fall victim to them is likely far greater than the impact of the examples canvassed in the consultation paper – such as drip pricing or subscription traps.
Put simply, the stakes are often a lot higher when consumers engage with the financial services system.
While noting these differences in relation to financial services, it’s also worth noting that the changes in the broader economy that have prompted consideration of an unfair trading practices prohibition also apply in financial services.
The emergence of dark patterns is a key reason that is commonly advanced for introducing an unfair trading practices prohibition, as recognised in the consultation paper.
With the digitisation of financial services, dark patterns are becoming increasingly common.
These patterns distort, subvert, and undermine consumer choice. They make it deliberately difficult for consumers to access certain services, and all too easy to access others.
There’s a reason why it takes just a few minutes online to sign-up for buy-now-pay-later, but you can’t easily find the button to cancel your account.
This mirrors the earlier practices of credit card providers. In fact, in 2017, the then government introduced specific reforms to require credit card providers to provide online options for cancelling credit cards because some were failing to do so. But those reforms were limited to credit cards, and did not extend to other types of financial products.
The proposed unfair trading practices prohibition recognises the inherent unfairness of these types of practices. It will help level the playing field.
But the current proposal would apply to businesses trapping consumers into an unwanted subscription – but not to businesses making it hard for customers to switch to a better financial product.
Similarly, it would apply to dynamic pricing practices for airfares or concert tickets – but not for insurance.
Placed side by side, the gaps become clear.
That’s why we need to avoid creating a two-tiered system for the same types of manipulative conduct.
The law as it stands
In ASIC’s view, we need a simple, consistent mechanism to combat this conduct, wherever it emerges.
As our Chair, Joe Longo, recently observed: ‘simplicity equals enforceability’[3].
Simplicity helps consumers understand their rights. It helps us get justice on their behalf.
In the absence of an unfair trading practices prohibition, ASIC must fall back on a complex range of provisions to address conduct that is manifestly unfair to consumers.
I’d like to take a moment to reflect on the limitations of those provisions as tools against unfairness.
Unconscionable conduct
As other commentators on this issue have observed, the ‘unconscionable conduct’ prohibition in the ASIC Act and Australian consumer law has proven to be an unreliable tool for regulators to use in response to unfair business practices.
While all unconscionable conduct is likely to be unfair, not all unfair conduct will be unconscionable.
Former Victorian court of appeal president, Justice Chris Maxwell described unconscionable conduct as ‘unfamiliar and unintelligible to those it is intended to regulate’[4].
The Redfern Legal Centre says it’s the ‘most difficult’ provision to prosecute or enforce5, despite involving the most ‘egregious’ conduct[5].
ASIC’s experience in seeking to rely on the unconscionable conduct provisions reinforces these points.
You might remember our case several years ago against Mr Kobelt – the operator of a general store in remote South Australia.
He provided a system of book-up credit to his customers, most of whom were Aboriginal residents of the APY Lands. This allowed them to purchase goods and secondhand motor vehicles on credit.
His customers were required to provide him with their debit cards, PINs and details of their income.
He then withdrew all, or nearly all, of the customers’ money from their bank accounts on or around the day they were paid.
At his discretion Mr Kobelt would – for a fee – provide cash advances to enable his customers to shop at other stores.
Otherwise, the customers became ‘tied’ to the store with the only option to purchase goods from the store that held their cards.
These practices would contravene a reasonable person’s concept of fairness. But they were not found to be unconscionable under the existing law[6].
This is not an isolated case.
A few years ago, the Consumer Action Law Centre took on debt management firm J Daniels & Associates (JDA)[7].
A vulnerable client had paid them substantial fees to ‘save’ her home which was later foreclosed for a debt of less than $10,000.
This high-cost service was aggressively marketed to this client.
But the court found that JDA did not breach consumer laws in relation to its debt management, as it only promised to hold-off ‘immediate’ repossession and provide ‘some’ assistance in relation to mortgage distress.
The community expects ASIC to take action against exploitative business practices that cause harm.
But it is clear from these cases that the unconscionable conduct provisions, as interpreted by the courts, can’t be relied on to help us meet these expectations.
Other provisions
Other legislative provisions available to ASIC also have significant limitations.
The design and distribution obligations (DDO) focus on particular aspects of design and distribution – and while they may in some cases lead to fairer practices, this is more a byproduct than a reliable effect.
The product intervention power must be tied to a product.
Protection from unfair contract terms is limited to terms of standard form contracts.
Finally, the requirements for credit and Australian financial services licensees to ensure that services are delivered efficiently, honestly, and fairly only apply to licensees, so can’t be used to address unlicensed misconduct.
This is a very significant point, because the definition of financial services in the ASIC Act is effectively broader than the definitions in the Corporations Act and National Consumer Credit Protection Act. As a result, there are some business practices that are financial services under the ASIC Act but don’t require a licence, because they don’t fall within the narrower definitions in the Corporations Act or credit law.
These areas of unlicensed activity won’t be covered by the proposed reforms, because products and services that fall within the broader definition of financial services in the ASIC Act are excluded from the scope of the ACL.
The sorts of business models that can exist in this lightly regulated zone include lending to small businesses and some forms of debt collection – both of which are commonly raised by consumer advocates with ASIC as areas of unfair practices that cause harm.
Blended business models
Another key reason for alignment is that business practices don’t always neatly fall neatly into ‘financial’ or ‘non-financial’ categories, as highlighted by a number of current areas of concern.
Recent media reporting has highlighted issues with high fees and commissions paid on strata insurance – and ultimately borne by owners of units in strata schemes.
These arrangements involve strata managers – who don’t generally provide financial services – and insurance brokers – who do.
Consumer advocates have recently raised concerns about door-to-door sales of solar panels, with the purchase price financed by buy-now-pay-later (BNPL) schemes.
In these situations, the solar panel retailer would not generally be providing a financial service but once the BNPL reforms take effect, the BNPL business will be a credit provider.
And ASIC’s work on cold calling practices in relation to superannuation has identified businesses that lure people through social media advertising or telemarketing into a ‘superannuation review’, which often involves convincing them to move from relatively well performing funds into high-risk investment schemes. While some of the businesses involved in this chain of conduct are likely to be providing financial advice, some argue that they are not.
A prohibition on unfair trading practices needs to be economy-wide, including financial services, in order to capture the full range of conduct in these examples.
And as a final note on emerging sources of potential harm, we need a wide-ranging prohibition to futureproof against new and emerging forms of misconduct – for example, biased credit scoring using opaque AI systems and black box algorithms that could cause consumer harm if left unchecked.
Conclusion
The fact that the discussion about an unfair trading practices prohibition has moved to this next stage makes this an exciting time for people who are committed to consumer protection.
This is our opportunity to strengthen Australian consumer law at a time when consumers need it most.
We rejected the notion of ‘buyer beware’ half a century ago, yet our current regulation has created a system that consumers are expected to navigate at a marked disadvantage.
With new challenges, regulators need the right tools for the job. And it’s clear to us that those tools include an economy-wide prohibition on unfair trading practices.
Thank you to Deakin and the Australasian Consumer Law Roundtable for having me here today.
I look forward to answering your questions.
[1] House of Representatives, Debates, 16 July 1974: Historic Hansard
[2] Financial Services Royal Commission Final Report – Volume 1
[3] ASIC Annual Forum 2024: Bridging generations – regulating for all Australians
[4] Victoria Law Foundation Oration given by Justice Chris Maxwell, President, Victorian Court of Appeal
[5] Felstead, Nicholas --- "Beyond Unconscionability: Exploring the Case for a New Prohibition on Unfair Conduct" [2022] UNSWLawJl 10; (2022) 45(1) UNSW Law Journal 285
[6] Australian Securities and Investments Commission v. Kobelt
[7] Federal Court finds multiple breaches of Australian Consumer Law in relation to credit repair, but not debt management - Consumer Action Law Centre
