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Avco - a history of consumer dispute - 3.2 back to contents The civil penalty cases The next major objection to Avco’s practices was taken by the Ministry of Consumer Affairs in Victoria. In the course of preparing for the licence hearing, Avco conducted an internal investigation to determine the organisation’s level of compliance with the law, and in particular the Credit Act. The investigation revealed that Avco had apparently failed to disclose certain information in relation to loan contracts as required by the Credit Act. The failure to disclose this information results in a credit provider losing its entitlements to interest charges, although the credit provider can apply to a Credit Tribunal for reinstatement of those interest charges. Avco filed a series of applications for reinstatement of credit charges with the Credit Tribunal of Victoria to deal with these breaches of the Credit Act’s disclosure requirements. Ultimately the most significant breach was the failure of a significant number of loan contracts to disclose that a commission was paid by Hallmark General and/or Hallmark Life to Avco in relation to the sale of consumer credit insurance. It was accepted by all parties that the failure to disclose commissions was initially not wilful. However, there was considerable debate as to when Avco became aware of the failure and whether Avco was reasonably prompt in taking steps to address the error. The Credit Tribunal decided that the failure to disclose commissions should be penalised by a loss of interest charges of 10% [Avco Financial Services Limited v Various Debtors (1992) ASC 56-196]. The Tribunal expressed considerable concern about the delay in bringing the applications and the lack of frankness exhibited by Avco in explaining such delays. These concerns are seen in two passages from the judgment. “In a case involving credit charges of up to a possible $8,000,000. it is incumbent upon an applicant to establish its bona fides by at least attempting to interview the corporate office holders at all relevant times, and if necessary to subpoena those officers to attend the hearing before the Tribunal. The failure to do so and the failure to provide evidence of the reasons for same, leaves the impression that there is something missing in the case put before the Tribunal, and the Tribunal finds in these cases that the failure to interview followed by the failure to endeavour to call appropriate officers is a failure to present a full and frank case to the Tribunal.” The Tribunal later commented: “Such argument does little to suggest to the Tribunal that the applicant has a thorough and sound knowledge of the legislation, or to convince the Tribunal that the applicant has been full and frank it its approach to the Tribunal in relation to the applications before it. It does little to convince the Tribunal that the applicant intends to resolve issues relating to those other disbursements by bringing applications pursuant to Section 85B(1) to the Tribunal or elsewhere or Section 85 and 86 applications to the Credit Tribunal.” On appeal the Supreme Court of Victoria upheld the decision of the Credit Tribunal in relation to the failure to disclose commissions [Avco Financial Services v Abschinski & Ors (1994) ASC 56-256.] The Court also overturned a finding by the Tribunal that the inclusion of valuation fees in the amount financed was a breach of the Credit Act (Vic) 1984. and did not alter the penalty applied by the Tribunal. Indeed one Judge, Mr. Justice Ormiston, viewed the Tribunal’s decision to reinstate 90% of credit charges as being too generous. Two passages from his judgment sum up his attitude towards Avco’s failure to disclose commissions: “Mr. Berry’s [a senior officer of Avco] ignorance of the operation of the Credit Act at the relevant time was manifest in the passages to which I have just referred discussing commission payments. In other words, there was really no excuse for Mr. Berry’s ignorance and thus the apparent ignorance of the applicant, of the consequences of non-disclosure of commission charges in 1988. It would also follow that the manuals and compliance procedures at that time with respect to that type of contract must be treated as having been deficient, without the elaborate examination embarked upon as to other matters, by reason of the very fact that no steps were taken for nearly a year and a half after the matter had come to the attention of a senior officer of the applicant.” [Supra at p.58,670]. He later commented: “Finally, the attitude of the appellant after discovering left a great deal to be desired. There was a clear breach but no attempt was made to notify the debtors affected by the breach who were entitled, in the absence of an application such as this, to be relieved of the obligation to pay the credit charges.” [Supra at p.58,673]. |
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