Statement from FCA re High Court decision in Kobelt
While Financial Counselling Australia respects the recent decision by the High Court in ASIC v Kobelt we want to place on record our disappointment. We also want to commend ASIC in pursuing this important case and note that it reinforces the need for urgent law reform.
ASIC had asked the High Court to find that the ‘book-up credit’ system run by the owner of Nobby’s General Store in the remote community of Mintabie in South Australia was unconscionable. ‘Book up’ is credit offered by traders and generally allows consumers to buy goods now and pay later.
Store owner Lindsay Gordon Kobelt ran the system for people living in the surrounding APY Lands. Under the system, he held their debit cards and PIN, withdrawing the money as it was paid in from wages and Centrelink. He took almost $1 million from the accounts of 85 book-up customers between mid-2010 and November 2012. Most of his customers were Anangu people, and many had a low level of financial literacy.
But the bulk of Mr Kobelt’s business was second-hand car sales. While ‘book-up’ in the store was interest free, the second-hand car sales attracted a steep credit charge. In some cases, people ended up paying three times the value of the car they had bought because of the high interest charges.
The majority of the court found that Mr Kobelt had not engaged in unconscionable conduct in providing “book-up credit’’.
The prohibition on unconscionable conduct is meant to protect the most vulnerable Australians, including remote indigenous communities, from predatory and exploitative business practices. It is disappointing that the prohibition does not offer the level of protection expected by the community.
Financial counsellors who work in remote Indigenous communities regularly raise concerns about the exploitative practices of the book-up system.
Book up is commonly used by Aboriginal people, especially in regional and remote areas of Australia, and developed largely in response to historical welfare practices, the absence of appropriate financial services like banking (especially in remote areas), and the lack of opportunities to learn financial management skills.
The case shows the need for a law that prohibits clearly unfair practices – a law that is focused on fairness and better reflects community expectations. Such a law would tackle the harm cause by legal business. It is not about scams, or frauds, but about businesses that exploit customers. The media release from the Consumer Action Law Centre has more information here.
For more information, contact Fiona Guthrie, CEO of Financial Counselling Australia on 0402 426 835.