ASIC response: ASIC gives green light for massive unsolicited card mail out

Response to Thomson Reuters article, 'ASIC gives green light for massive unsolicited card mail-out', by Nathan Lynch, published on Thursday, 30 January 2014

30 January 2014
Letters to editor
'Thomson Reuters'
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ASIC response to unsolicited card offers

ASIC provides the following comments on the Qantas and Velocity stored value cards and the operation of s12DL of the ASIC Act.

Section 12DL was initially designed to deal with the unsolicited distribution of credit cards, and later, the distribution of debit cards that are linked to a consumers existing deposit account with their financial institution.

The type of cards distributed by Qantas and Velocity did not exist at the time s12DL was enacted and are fundamentally different from the cards contemplated when s12DL was being drafted in that they do not give any access to a deposit account, or to credit, when they are sent to the consumer. When the card is sent to a consumer, the stored value card component of the card is completely inactive and only capable of use following an application by the consumer and the consumer subsequently loading value onto the card.

The risks (including financial risks) for the consumer in being sent one of these cards are low and are certainly much lower than the risks involved where a credit card or debit card linked to a deposit account, such that the card can immediately be used to access the consumer's funds, is sent to a consumer.

ASIC has provided a no action position to Qantas and Velocity for distribution of loyalty program membership cards incorporating an inactive and empty stored value card facility to existing members. The No Action position was granted on the following conditions:

• card recipients must be able to choose to apply for the stored value facility or use the card solely as a loyalty program membership card (ie use of the stored value capability on the card must be optional)
• at the time of the distribution of the new membership cards, the stored value card capability must be completely inactive and only capable of use following an application for a non-cash payment facility by the member
• disclosure of information about the optional nature, key features and risks associated with the facility must be made to members
• the application process for the stored value capability must require consumers to expressly acknowledge the key features and risks of this type of product, and
• the applicant and other parties involved in issuing and distributing the cards must comply with Ch 7 of the Corporations Act and other relevant legislation.

The no action position granted to Qantas and Velocity is conditional in order to ensure that an appropriate balance between the interests of the relevant businesses and consumers is maintained. In granting the no action positions, individuals' rights have not been removed. Consumers are able to seek compensation if they consider they have suffered loss or damage as a result of the card being sent on an unsolicited basis including by taking the matter to the relevant External Dispute Resolution (Ombudsman) Scheme.

ASIC is actively monitoring the distribution of cards such as the Qantas and Velocity cards. To date ASIC has received no queries or complaints about those cards.

The decision in Westpac Banking Corporation v Australian Securities & Investments Commission [2009] FCA 1506 is referred to in the article. That case did not involve the type of cards we are dealing with in this instance (that is, inactive and empty stored value cards) and the comments of Rares J in that case do not assist the discussion of this matter. The Westpac decision referred to in the article in fact resulted, against ASIC's opposition, in a liberalisation of the distribution of unsolicited debit cards with new features to consumers.

Businesses frequently approach ASIC for assistance to help make the law work better for them and to cut red tape. ASIC uses its discretion to vary or set aside certain requirements of the law where there is a net regulatory benefit or where ASIC can facilitate business or cut red tape without harming other stakeholders such as consumers. This is a key part of ASIC's functions.

ASIC publishes clear, consistent guidance on applications for relief (RG 51) and for no action letters (RG 108), and applies that guidance in a fair and consistent way. ASIC also publishes reports several time a year outlining, in general terms, the relief and no action letters it has granted.

ASIC has refused applications for no action positions on unsolicited offers of credit and debit cards where the risks are very different from the risks involved in inactive stored value cards such as those distributed by Qantas and Velocity. ASIC is also active in dealing with various issues involving credit and debit cards including the marketing of these products.

Australian Securities and Investments Commission
This letter was published on 31 January 2014