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ASIC roundup: A$1.2m penalty for misrepresentation, and overcharging customer

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GRIP Montage: ASIC/Getty Images

Martina Lindberg

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The Australian Securities & Investments Commission’s latest actions and news, September 5 – 8, 2023.

AustralianSuper sued over multiple accounts – September 8, 2023

Civil penalty proceedings have been brought against AustralianSuper, the trustee of Australia’s largest superannuation fund, over alleged failures to address multiple member accounts.

Allegedly, for almost 10 years, AustralianSuper failed to have proper policies and procedures to identify members who held multiple AustralianSuper accounts and to merge those for the best of the members. Which is a breach of section 108A of the Superannuation Industry Act. Instead, AustralianSuper continued to charge several fees and insurance premiums for the multiple accounts. Over the years, about 90,000 members were affected, with total cost to members of approximately A$69m ($44.1m). ASIC also allege that AustralianSuper became aware of if the issues in 2018, yet, it did not started investigating and resolved the it until late 2021/early 2022.

With the charges, ASIC seeks declarations, pecuniary penalties and other orders.

Former CEO permanently banned – September 8, 2023

The former CEO Mark Peter Thomas has been banned from performing any function within a financial services business or credit provider, or controlling such an entity.

The ban follows a conviction for dishonestly using his position as director of New Zealand-based van Eyk Research subsidiary Blueprint Investment Management Limited, and engaging in dishonest conduct. 

Thomas was convicted of breaching s184 of the Corporations Act 2001, and sentenced to one year and three months’ imprisonment for using his director’s position dishonestly with the intention of directly or indirectly obtaining an advantage for himself. He was also ordered to complete 250 hours of community service.

Ferratum Australia found charging prohibited fees – September 7, 2023

Ferratum Australia Pty Ltd, now in liquidation, has been found charging prohibited fees and overcharging customers on small amount credit contracts.

The Federal court also found that Ferratum had an inadequate system for calculating, recording and monitoring early payout amounts.

Between March 2019 and August 2021, Ferratum was found breaching consumer credit protection laws in relation to small amount credit contracts with customers by:

  • charging prohibited fees like direct debit fees when using certain credit cards, and fees to alter direct debit arrangements;
  • going into contracts with borrowers which imposed prohibited fees;
  • wrongly calculating the payout amount for early repayment in two-thirds of the identified contracts; and
  • failing to act efficiently, honestly and fairly by not having an accurate and reliable system to calculate, record and monitor early payout amounts.

“In one case, a customer borrowed A$1,900 and was overcharged by A$658, or 34% of the loan amount, when they paid out their contract three months early. The customer was also charged A$40 in prohibited fees.”

ASIC Deputy Chair Sarah Court

PayPal sued for alleged unfair contract term – September 7, 2023

PayPal Australia Pty Limited has been sued for alleged unfair contract term with small business customers.

Today, business account holders have 60 days to notify PayPal of any errors or discrepancies in fees that PayPal has charged them – which ASIC alleges is unfair because “the effect of the term is to permit PayPal to retain fees it has overcharged or wrongly charged if the small business does not notify PayPal of the error”.

Furthermore, ASIC alleges that the contract term is unfair within s12BG of the ASIC Act as the term:

  • causes significant imbalance in the parties’ rights and obligations under the contract;
  • is not reasonably necessary in order to protect PayPal’s legitimate interests; and
  • would cause detriment to PayPal business account holders if the term were relied on.

With the charges, ASIC seeks declarations that the term is void, plus injunctions and corrective orders.

This year, two other companies have been charged on similar grounds, where both Auto & General Insurance Company Limited, and HCF Life Insurance Company Pty Limited were charged over alleged unfair contract terms.

“We allege this term is unfair because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors.”

ASIC Deputy Chair Sarah Court

ACBF Funeral Plans penalized A$1.2m – September 6, 2023

ACBF Funeral Plans Pty Ltd (ACBF), which now is in liquidation, has been fined A$1.2m ($765,848) by the Federal Court for misrepresenting the sale and promotion of funeral expense insurance to Aboriginal people.

ACBF was found promoting to ACF plan holders that “they would receive a lump sum payment of their chosen benefit amount” – but were only reimbursed for funeral related expenses up to the benefit amount which they could provide receipts for.

ACBF, who was facing more claims, was cleared from three points of false representation by the court. The parent company Youpla Group was also cleared from charges of being involved in the contravention by ACBF.

Last week, ASIC also commenced civil penalty proceedings against five former directors and officers of ACBF Funeral Plans and Youpla Group for breaching their duties.

Westpac sued for failing to respond to hardship notices – September 5, 2023

Westpac Banking Corporation is facing civil penalty proceedings for failing to respond to customers’ hardship notices within the required time.

Allegedly, between 2015 and 2022, a deficiency with the bank’s online hardship notice process resulted in 229 customers not receiving a response to their hardship notice within the required timeframe of 21 days.

All customers told Westpac that they were experiencing financial troubles, and some even endured debt collection activities by Westpac while they were waiting for the bank to respond to their hardship notices.

ASIC alleges that Westpac breached the National Credit Code, and failed to act efficiently, honestly and fairly when it came to responding to its customers’ hardship notices. ASIC further claims that Westpac did not do enough to investigate and rectify the systems issues.

ASIC is seeking declarations, pecuniary penalties and adverse publicity orders.

This is ASIC’s second action against a credit provider over failing to comply with s 72(4) of the National Credit Code. The first action against ClearLoans resulted in a A$6m ($3.8m) penalty for financial hardship misconduct.

ASIC news week 36

This week, ASIC is looking at the broad distribution of over-the-counter (OTC) derivatives and other high-risk retail products – after recent findings that there is “significant room for improvement in how they meet their design and distribution obligations (DDO)”. 

 “ASIC is disappointed that some high-risk retail product issuers have changed little in response to their design and distribution obligations,” ASIC Deputy Chair Karen Chester said.

The introduction of DDO, which now is into its second year, requires financial products to be designed and distributed with clear and contemporary consideration of the objectives, and financial situation and needs of the consumers and retail investors that are being targeted. 

Today, over 60 Australian financial services licensees offer complex, high-risk OTC derivatives to retail customers in Australia, like contracts for difference, crypto derivatives and other novel derivative arrangements – where ASIC, after reviewing, found that most retail clients lose money when trading CFDs. 

Since March this year, regulatory action has been taken against five issuers of retail OTC derivative products for breaches of DDO, which has resulted in 10 interim stop orders. And ASIC says that more is underway.

“We will not hesitate to take further action, from stop orders through to court proceedings, especially where we see egregious failures.”

Withdrawn charges

Charges of one count of failing to discharge his duties in good faith in the best interests of a corporation against Peter Challis, the former Chief Executive Officer of WAW Credit Union Co-Operative Limited, have been withdrawn by the Commonwealth Director of Public Prosecutions.

In pre-trial ruling of the case, Challis was found not to have a relevant duty at law in the circumstances of this case, and a nolle prosequi was filed.

New legislative instruments

Four new legislative instruments have been released this week, including an updated guidance regarding the financial resource requirements that apply to some categories of Australian financial services licensees and platforms.

Two of the new legislative instruments relates to financial requirements:

The two other new legislative instruments were made in relation to IDPSs and IDPS-like schemes:

The new legislative instruments are set to expire on October 1, 2028.

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