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Car finance warning
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The Australian Securities and Investments Commission (ASIC) has accepted an enforceable undertaking from Automotive Financial Services Pty Limited (AFS) in relation to one of its products known as the 'Credit Protection Waiver Program'.

AFS is a credit provider offering finance to consumers for the purchase of motor vehicles. From July 1997 to October 2001, AFS also offered consumers the Credit Protection Waiver Program (the Program), which allowed consumers who purchased the Program to apply to have their loan repayments waived if they became disabled or unemployed, or died.

ASIC came to the view that the Program was an insurance policy, and that purchasers were therefore entitled to greater consumer protection in relation to it. AFS did not accept that the Program was an insurance policy.

'The undertaking ensures that consumers who purchased the Program will be protected by having the same rights as consumers who deal with insurance companies, such as access to independent dispute resolution. It will also ensure consumers have the protections of the Insurance Contracts Act', ASIC's Executive Director of Consumer Protection, Mr Peter Kell said.

The Insurance Contracts Act prevent insurers from denying claims where this would be unfair, such as in cases where there are unusual terms in the insurance policy that have not been disclosed or where a particular term operates unfairly.

As a result of this undertaking, AFS has agreed to review all claims for waiver of repayments that were initially rejected. The claims will be reviewed by an independent consultant, who will assess them in accordance with the provisions of the Insurance Contracts Act.

Where AFS incorrectly rejected a claim for waiver of repayments, the independent consultant can direct AFS to pay the claim and, if appropriate, also pay compensation to the borrower (for example, if the car was repossessed). Where borrowers made repayments while AFS was assessing their claim, AFS has agreed to refund these payments to the borrower, together with interest, where it originally failed to do so.

In addition, AFS has agreed to pay claims where the borrower was not in permanent employment when they took out the Program. Under the Program, borrowers in this position were not entitled to claim and should not have been sold the Program in the first place. This part of the undertaking addresses this mis-selling.

'The offer of financial and insurance products to consumers purchasing cars on credit can be complicated, and has been a problem area in consumer sales. These products typically offer to cover repayments for a limited period if the borrower becomes unemployed, disabled or dies', Mr Kell said.

'ASIC is currently scrutinising the sale of financial products through car dealers, and where appropriate, will take action to ensure the interests of consumers are protected', he said.

ASIC acknowledges the cooperation of AFS throughout this investigation.

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ASIC acts on mortgage broker advertising
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The Australian Securities and Investments Commission (ASIC) has accepted an enforceable undertaking from Fintrack Pty Ltd, Fintrack Financial Services (Aust) Pty Ltd (Fintrack) and its directors, Mr Richard Houston, Ms Alexandra Mollinex and Mr Graham Mollinex in relation to various statements made in Fintrack's advertising and promotional material.

ASIC was concerned that between 11 March 2002 and 2 June 2003, Fintrack, a Melbourne-based mortgage originator, made potentially misleading statements in television and radio advertisements, in promotional material on its website and in brochures.

The advertisements
Claims made in advertisements included that Fintrack was 'paid virtually the same commission guaranteeing impartiality and independence', and that Fintrack 'people were salaried, not commission-based'. Fintrack also stated that they 'compared home loans from all banks and lenders' and 'over 40 lenders'.

'In fact, Fintrack received different rates of commission and benefits depending on the lender with which it placed a borrower, with some lenders paying significantly greater rates of commission', ASIC's Mr Kell said.

'Further, we found that some of the commission was passed on to some individual brokers as part of their remuneration, so we consider that it was inaccurate to claim the brokers were "salaried and not commission-based"', Mr Kell said.

'We believed that as a result, Fintrack could not claim that they were impartial. While we have not received evidence that Fintrack customers were provided with inappropriate loans, it is well recognised that differential commission payments may create conflicts of interest', he said.

'Finally, we found that instead of the 40-plus lenders Fintrack claimed to compare, during the time the statements were made the company only compared the loans of up to 30 lenders', Mr Kell said.

The enforceable undertaking
As part of the enforceable undertaking, which is provided under the consumer protection provisions of the ASIC Act, Fintrack and its three directors have undertaken to not use the statements or any similar statements in future promotions. ASIC acknowledges Fintrack's cooperation during the investigation of this matter.

In addition to agreeing to cease making the misleading statements in its advertising and promotional material, Fintrack has agreed to: implement a compensation system for consumers who suffered loss or damage as a result of the statements.

Consumers who arranged finance with Fintrack between 11 March 2002 and 2 June 2003 will be given written notice of the compensation system;
implement a trade practices compliance program and an internal complaints system; and
contribute $15,000 towards an ASIC consumer education or similar program in relation to mortgage and finance broking.

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Regulation of mortgage/finance brokers and property investment advisers.
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The Ministerial Council on Consumer Affairs (MCCA), recently met in Sydney
and unanimously agreed Queensland should chair a national working party to develop a single regulatory model for property investment advisors by March 2004.

A working party is already preparing a proposal which addresses
legislation needs for the growing mortgage/finance broker industry.

"A 2003 Australian Prudential Regulation Authority (APRA) report
reveals brokers account for more than $86 billion of current credit
transactions," Fair Trading says.

"Finance brokers arrange about 30 per cent of all mortgage loans and
this is expected to increase to about 50 per cent in the next three to
five years."

The Australian Competition and Consumer Commission is targeting misleading and deceptive conduct by property 'scammers'.

"The ACCC investigation is on four fronts: two-tier marketing; advice given by financial consultants, solicitors and valuers; unconscionable conduct by financial institutions; and real estate investment seminars", according to ACCC Chairman, Mr Graeme Samuel.

"The ACCC is particularly concerned that in a very hot property market, 'Mum and Dad' investors and superannuants are being pressured into joining property investment programs that promise massive wealth through property investment.

"But the 'investors' seem often to end up only with large debts and advice which they have little hope of utilising.

"The ACCC has directed extra resources to this area. Schemes are being currently investigated with a view to possible court action, principally for misleading and deceptive conduct.

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Fringe Credit Providers
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Australian consumer protection agencies are considering proposals for changing the laws for fringe credit providers (such as payday lenders and micro-lenders).

A discussion paper is available for comment.

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Queensland OSR Mortgage Duty and Credit Business Duty Audit Program
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The Queensland Office of State Revenue (OSR) is currently conducting an audit program in relation to the self assessment and payment of mortgage duty and credit business duty. The audit program will review transactions under both the Stamp Act 1894 and the Duties Act 2001.

Audits will be conducted on a range of clients, including registered self assessors, credit unions, building societies, banks, finance companies, first mortgage companies, margin lending institutions and premium finance companies. Notice of all visits will be provided in writing to clients eligible for an audit.

Scoping audits already conducted have indicated problems in the following
areas:
nexus provisions for mortgage duty and credit business duty
particularly in relation to premium funding companies;
liability for mortgage duty and credit business duty on margin
lending products;
calculation of credit business duty on short term loans;
remittance of credit business duty by first mortgage companies;
liability for credit business duty by interstate financial
institutions.

Penalty reductions are available in cases of voluntary disclosure and clients are encouraged to undertake a self-review in relation to their liabilities.

If you have any queries regarding this audit program please contact our office.

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APRA Capital Transition Guidelines
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The Australian Prudential Regulation Authority (APRA) has released its preliminary requirements for local banks, building societies and credit unions under the Basel Committee on Banking Supervision’s new Basel Capital Accord, also known as Basel II, scheduled for implementation in 2007.

The announcement provides guidance on the options available to institutions for calculating regulatory capital under the new Accord.

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Market Research Code
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The Privacy Commissioner has approved the Market and Social Research Privacy Code under section18BB of the Privacy Act 1988.

The Code was submitted by the Market Research Society of Australia (MRSA) and the Association of Market Research Organisations (AMRO). It took effect on 1 September 2003, and is intended to cover the market and social research industry.

The Market and Social Research Privacy Code encourages small market research companies to opt-in to the Privacy Act.

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Privacy Update
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The Federal Privacy Commissioner, Malcolm Crompton, has released five privacy complaint case notes that deal mainly with consumer credit reporting issues.

In G v Credit Provider [2003] PrivCmrA 5, the complainant disputed a default that was listed on their credit file. As a result of investigations by the Commissioner's Office, the credit provider reimbursed the complainant $1,096 and removed the default listing from their consumer credit information file.

In H v Credit Provider [2003] PrivCmrA 6, the complainant disputed a default that was listed on their credit file. Following an investigation by the Office, the Commissioner was satisfied that the credit provider had not breached the Privacy Act or the Credit Reporting Code of Conduct.

In I v Major wholesaler [2003] PrivCmrA 7, the complainant complained that there had been unauthorised access to their credit report held by a credit reporting agency. As a result of investigations by the Commissioner the wholesaler reviewed their credit reporting procedures, changed their business practices, consolidated their national credit reporting function into one office in one state and paid the complainant $7,500 compensation for the breach.

In J v Two Individuals [2003] PrivCmrA 8, the complainant alleged that there had been an inappropriate disclosure of quashed conviction information. Following an investigation by the Commissioner's Office, the respondent apologised to the complainant for the breach.

In K v Financial Institution [2003] PrivCmrA 9, The complainants, a married couple, held a joint account with the respondent who erroneously linked the account's number to an account held by a different family member who had the same name as one of the complainants. The respondent acknowledged its error in linking the accounts and that this resulted in the disclosure of the complainants' information and agreed to the claim for $1,000 in compensation.

More details

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