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Avco - A history of consumer dispute 3, 3.1
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Avco - a history of consumer dispute
It is of great concern that the complaints of consumers outlined in Part 2 of this report appear to raise substantially the same issues that have arisen for over 10 years. In that time a number of legal actions have been brought against Avco by and on behalf of consumers. However, despite some success and criticism of Avco by Courts and Tribunals, Avco’s practices appear to remain substantially unchanged.
With the commencement of the Credit Acts in New South Wales, Victoria, Western Australia and Australian Capital Territory in 1985, the ability of consumers and their advocates to take legal action against Avco was significantly increased. In particular, the licensing and the civil penalty regimes established by credit legislation at that time allowed consumer organisations, such as community legal centres and Departments of Consumer Affairs to take legal proceedings opposing various practices of Avco. Some of the most important of these are detailed here.
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3.1 The Avco licence case
3.1.1 The licence objection
In Victoria, under the Credit (Administration) Act 1984, a credit provider had to obtain a licence to provide consumer credit. On the 12th September 1988 Consumer Credit Legal Service (Victoria) lodged an 82 page objection to the grant of a licence to Avco. The objection covered 14 areas of general complaint with the way in which Avco did business. The areas of complaint included:
That Avco did not have adequate loan approval guidelines in place to properly assess whether a consumer could reasonably afford a loan, leading consumers to become over-committed. In particular, Avco provided credit to those persons who were marginally credit-worthy and provided that credit at excessive interest rates.
That Avco acted illegally in requiring consumers to take out consumer credit insurance, or unilaterally including consumer credit insurance in the loan documentation without the consumer being aware of its existence.
That Avco had a policy of refinancing previous loans, and that the manner of refinancing these loans resulted in consumers paying additional costs as compared to taking out a separate loan contract.
That where a consumer was having difficulty meeting repayments under a particular loan it was a practice of Avco to refinance that problem loan into a new loan contract (as opposed to varying the repayments under the existing problem loan) resulting in additional costs to the consumer.
That Avco had a practice of rounding up the amount of credit sought by the consumer to the nearest hundred dollars. For example where a consumer applied to Avco for a loan of $5,000 and entered into a loan contract under which the consumer is to obtain $5,000 plus consumer credit insurance. The insurance premium was included as a part of the loan resulting in the amount financed being increased to, say, $5,160. In such circumstances, the consumer was told that the loan would need to be written at the amount of $5,200. This practice is known as “up-selling” and was alleged to be improper.
That Avco unreasonably harassed consumers who were in default of their loan repayments
That Avco failed to disclose information about their loan contracts as required by the Credit Act.
That guarantors were, on occasions, required to sign a credit contract and so become primarily liable as a borrower.
The Consumer Credit Legal Service objection includes some 41 case studies. In many of these cases the Legal Service took individual legal action on behalf of these consumers against Avco.
3.1.2 The licence hearing
The licence hearing was a lengthy one. Although many issues arose in the course of the licence hearing, two are of note. First, in the course of that hearing Mr. G. Anderson, the General Manager of the Victoria/Tasmanian Division Business Unit, admitted that:
errors had been made in loan documentation;
guarantors had on occasions been improperly described as borrowers;
payments had been accepted from borrowers after the borrower had become bankrupt and no longer liable to pay the loan;
some borrowers probably did not understand that consumer credit insurance was optional, did not agree to taking out insurance, or were not aware that insurance was included in the loan;
payments were received from consumers and retained by Avco after they had made an insurance claim on their consumer credit insurance and so were no longer liable to make payments under the contract.
Second, prior to the commencement of the hearing, Avco placed a number of notices in Melbourne daily newspapers inviting customers who had complaints to contact the company. Avco received some 363 complaints. In an area where consumers were not noted for their ability to make complaints, this was an extraordinarily large response.
The Credit Licensing Authority granted a licence to Avco but did so on the basis that Avco provide the following undertakings The decision is digested as Re Avco Financial Services Limited (1991) ASC 56-045.:
A memo would be sent to all staff making it plain that the previous practice of upselling loans to the nearest hundred dollars was to cease;
That over the period of 2 years, Avco internal auditors would carry out a number of branch audits to determine the extent to which insurance was sold in conjunction with loan contracts, and whether borrowers took this insurance voluntarily. This information was to be reported to the Credit Licensing Authority and Minister of Consumer Affairs on a six monthly basis during the two year period. |
