Consumer Protection

ASIC Seeks Improvement in CCI Sales Practices
Asia Pacific

The Australian Securities and Investments Commission (ASIC) has released Report 256 – Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (October 2011), which provides recommendations for banks, credit unions and building societies to improve their practices in the selling of consumer credit insurance (CCI), following a review of 15 Authorised deposit-taking institutions. ASIC identified the following issues in its review:

  • “consumers not being made aware that they have purchased CCI or that CCI is optional”;
  • “consumers not being asked whether or not they wish to purchase CCI”;
  • “consumers not being eligible to claim on all components of the CCI policy they have purchased”;
  • “the potential for consumers to be pressured or harassed by sales staff”; and
  • “consumers not understanding the cost or the duration of the CCI policy”.

ASIC’s 10 recommendations cover sales practices, disclosure, training programs and monitoring systems, with all 15 reviewed ADIs agreeing to implement the recommendations. ASIC commissioner Peter Boxall recommended that before agreeing to purchase CCI, consumers should consider “whether or not they already have insurance that would cover them in the same circumstances”.
ASIC’s media release (19 October 2011)

The Consumer Action Law Centre has responded to ASIC’s report, saying that it confirms two of CALC’s long held suspicions: “that many lenders selling CCI are using underhand or pressure tactics to sell the product, and that the industry has failed to take proactive steps to address practices identified in a number of reports and investigations over the past 20 years”.
CALC’s media release (19 October 2011)
(Source: ASIC; CALC)

Payday Lenders in Legal Spotlight
Asia Pacific

The Herald Sun reports that disability support pensioner Ronald Hayes is suing Australia’s biggest short-term lender, Cash Converters, for breaching the National Consumer Credit Protection Act 2009 (Cth) in issuing Mr Hayes more than 64 short-term loans over a three year period, causing him to become trapped in a “debt nightmare”.  According to the Consumer Action Law Centre (CALC), Mr Hayes’ case alleges that Cash Converters:

  • “failed to make an appropriate assessment about the suitability of the loans”; and
  • “ought to have been aware that the loans would cause Mr Hayes substantial hardship, which could lead him to borrow more money to pay off his loans”.

CALC co-chief executive officer Catriona Lowe said that according to the recent Caught Short Interim Report (August 2011), “78[%] [of payday loan clients] were receiving Centrelink payments and over half had taken out at least 10 loans” suggesting that the “[short-tern loans] industry relies upon vulnerable Australians”. Ms Lowe said that payday loan schemes typically have an annualised interest rate of up to 400%, making it “no surprise that someone in Mr Hayes’ position would struggle to repay their loan and find themselves stuck in a cycle of repeat borrowing”.

According to the Herald Sun, the court case comes as the payday lending industry is resisting the Government’s proposal to cap interest rates and fees that can be charged on short-term loans.
The Herald Sun: Pensioner sues Cash Converters over payday loans (19 October 2011)
CALC’s media release (17 October 2011)
(Source: The Herald Sun; CALC; University of Queensland; Lawlex Legislative Alert & Premium Research)

Purported Acne-Curing Phone App Banned

The US Federal Trade Commission (FTC) has finalised settlement orders which bar the marketers of AcneApp and Acne Pwner from falsely claiming that their smart phone applications (apps) treat acne.
FTC’s media release (25 October 2011)
(Source: FTC)

FINRA Fines UBS US$12 Million for Short Sale Supervision Failure

The US Financial Industry Regulation Authority has has fined UBS Securities LLC (UBS) US$12 million for violating Regulation SHO under the Securities Exchange Act of 1934, and failing to properly supervise short sales of securities. Short sales involve the seller selling a security it does not own, so long as it has reasonable grounds under Regulation SHO to believe that the security could be borrowed and available for delivery before accepting the sale. FINRA found that UBS’ Regulation SHO supervisory system was significantly flawed, resulting in millions of short sale orders being placed on the market without reasonable grounds to believe that the securities could be borrowed and delivered.
FINRA’s media release (25 October 2011)
(Source: FINRA;

Pharmaceutical Company Settles Illegal Marketing Claim

Bloomberg reports that Abbott Laboratories has agreed to pay “1.3 billion dollars to settle claims by the U.S. government and 24 states alleging the company illegally marketed its Depakote epilepsy drug”. Reportedly, it was alleged that Abbott marketed the drug Depakote “for unapproved uses including agitation and aggression in patients with dementia, autism, sexual compulsion and other disorders”. The drug is only approved for the prevention of migraines, treating acute manic episodes in bipolar patients and halting seizures in adults and children. 
Bloomberg: Abbott Said to Agree to Pay $1.3 Billion for Depakote Suits (22 October 2011)
(Source: Bloomberg)