Telstra in court over unconscionable sales to Indigenous consumers

The ACCC has today instituted Federal Court proceedings against Telstra (ASX:TLS) for admitted unconscionable conduct in the sale of post-paid mobile products to Indigenous consumers.

Telstra has admitted it breached Australian Consumer Law and acted unconscionably when sales staff at five licensed Telstra-branded stores signed up 108 Indigenous consumers to multiple post-paid mobile contracts which they did not understand and could not afford between January 2016 to August 2018.

In each case, these contracts were entered into with individual consumers on a single day when they visited a store.

Telstra has admitted that staff at five stores in the Northern Territory, South Australia and Western Australia used unfair selling tactics and took advantage of a substantially stronger bargaining position when selling post-paid mobile products on behalf of Telstra.

Many of the consumers spoke English as a second or third language, had difficulties understanding Telstra’s written contracts, and many were unemployed and relied on government benefits or pensions as the primary source of their limited income. Some lived in remote areas where Telstra provided the only mobile network.

In some cases, sales staff at the Telstra licensed stores did not provide a full and proper explanation of consumer’s financial exposure under the contracts and, in some cases, falsely represented that consumers were receiving products for ‘free’.

In many instances, sales staff also manipulated credit assessments, so consumers who otherwise may have failed its credit assessment could enter into post-paid mobile contracts. This included falsely indicating that a consumer was employed.

Telstra’s board and senior executives were unaware of the improper sales practices when they occurred, and Telstra has acknowledged that it had no effective systems in place to detect or prevent this type of conduct.

Telstra has agreed to the filing of consent orders and joint submissions in Court in support of penalties totalling $50 million being imposed by the Court. It is a matter for the Court to decide whether these penalties are appropriate.

“This case exposes extremely serious conduct which exploited social, language, literacy and cultural vulnerabilities of these Indigenous consumers,” ACCC Chair Rod Sims said.

“Even though Telstra became increasingly aware of elements of the improper practices by sales staff at Telstra licensed stores over time, it failed to act quickly enough to stop it, and these practices continued and caused further, serious and avoidable financial hardship to Indigenous consumers.”

The average debt per consumer was more than $7400.

The improper sales practices caused many of the affected consumers severe personal financial hardship and great distress. Telstra referred some unpaid debts to debt collectors, which had the potential to cause those consumers to feel further personal and cultural shame and embarrassment.

“These debts significantly impacted the affected individuals. For example, one consumer had a debt of over $19,000; another experienced extreme anxiety worrying they would go to jail if they didn’t pay; and yet another used money withdrawn from their superannuation towards paying their Telstra debt,” Mr Sims said.

The Federal Court will decide at a later date whether the orders sought are appropriate. If imposed by the Court, the penalties would be the second highest total penalties ever imposed under Australian Consumer Law.

Telstra has since taken steps to waive the debts, refund money paid and put in place steps to reduce the risk of similar conduct in the future.

In addition to the remedies to be determined by the Court, the ACCC has accepted a court-enforceable undertaking from Telstra in which Telstra undertakes to provide remediation to affected consumers, improve its existing compliance program, review and expand its Indigenous telephone hotline and enhance its digital literacy program for consumers in certain remote areas.

“Telstra is Australia’s largest telecommunications provider. It has clearly failed to meet community expectations for appropriate business behaviour,” Mr Sims said.

“This case is a reminder to all businesses to ensure that they comply with Australian Consumer Law in their dealings with all consumers, especially vulnerable consumers in regional or remote communities.”

Background

Telstra is Australia’s largest retail supplier of mobile telephones and telephony and data services for mobile telephones and tablets, which offers pre-paid and post-paid services to its customers. It is a publicly listed company, incorporated in Australia.

Telstra operates stores across Australia, including stores operated by independent licensees which sold Telstra products and services on behalf of Telstra through Telstra-branded stores.

The admitted unconscionable conduct occurred at licensed stores in Alice Springs, Casuarina and Palmerston (NT), Arndale (SA), and Broome (WA).

Consumers from remote Indigenous Australian communities located near these stores were affected by the alleged conduct, including the regions surrounding Darwin, the islands off Northern Territory, the Kimberley region and the Anangu Pitjantjatjara Yankunytjatjara Lands (APY Lands) in central Australia.

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