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Thursday 10 November 2016

16-383MR Federal Court finds book up practices in South Australian Indigenous community unconscionable

The Federal Court has found that Mr Lindsay Gordon Kobelt, owner and operator of Nobby's Mintabie General Store (Nobby's) in the Anangu Pitjantjatjara Yankunytjatjara Lands (APY Lands) in remote South Australia, has engaged in unconscionable and unlicensed conduct.

Mr Kobelt provided a form of credit known as 'book up', which allows the customer to buy goods now and pay for them later. Book up is commonly used in Indigenous communities such as the APY Lands and can play a useful role in certain communities. Book up is generally an informal arrangement with no set repayment dates or formal documentation. However, Nobby's book up practices were exploitative: consumers were required to provide their debit cards, PINs and details of their income to Mr Kobelt, who then used the information and cards to withdraw all or nearly all of the customer’s money from their bank account on or around the day they were paid.

The court found that the unconscionable conduct occurred from at least 1 July 2008 up until the date of the trial. During this time Mr Kobelt withdrew significant amounts of money from his customers' accounts. For example, in the period between 1 July 2010 and 30 November 2012, Mr Kobelt withdrew a total of just under $1 million ($984,147.90) from the accounts of 85 of his book up customers. On one particular day, Mr Kobelt withdrew $56,944 from some of his customers' accounts, despite having no authority to do so in relation to a significant portion, due to a bank glitch which allowed withdrawals despite insufficient funds being available.

The Federal Court found that Mr Kobelt's book up practices tied his customers to him, leaving them with little practical alternative but to continue shopping at Nobby's, and that:

The combined effect of Mr Kobelt taking possession of the customer's key cards, and using them on the first day of the pay periods, was to deprive the customers of independent means of obtaining the necessities of

Another dimension is that it creates a prolonged dependence by the customers on the continued exercise of discretions by Mr Kobelt in their favour.  … Mr Kobelt exercises a form of de facto control about where the customers shop and explicit control of the amounts which they can spend on any one shopping trip as well as of the kinds of items they can buy.

The Federal Court further found that Mr Kobelt's book up system involved arrangements which were:

… largely undocumented; the transactions are poorly recorded; the customers have, at best, only a limited ability to check on the reliability of Mr Kobelt's records of the transactions he has effected on their accounts; the withdrawals often operate to the customer's detriment (for example, when Mr Kobelt withdraws amounts to which he is not entitled or does not record …); and any audit of what has occurred is not feasible.

and the credit being provided was of a very expensive kind, where:

… in most cases, the customers were not aware that they were being charged for the Book-up which Mr Kobelt provided, let alone the amount of the charge.

The Federal Court also found that Mr Kobelt charged customers more for buying second hand cars on book up, which amounted to payment of a charge for the provision of credit. Under the provisions of the National Consumer Credit Protection Act 2009 (National Credit Act), payment of a charge in association with the provision of a credit service requires the provider to be licensed. As Mr Kobelt does not hold an Australian credit licence and was not authorised to provide credit services, he was found to have breached the licensing provisions of the National Credit Act.

ASIC Commissioner Peter Kell said, "In making this finding of unconscionable conduct, the Federal Court has made it clear that book up services must be provided in a manner that complies with the law. ASIC will take action against anyone that seeks to take advantage of vulnerable consumers."

ASIC took this action because the practices of Nobby's are indicative of the serious detriment that poor book up can cause to consumers. The taking of cards and PINs from consumers and using those cards and PINs to drain consumers' funds is exploitative of often vulnerable consumers and creates a cycle of dependency and debt. ASIC wants to ensure that following the court's finding, book up practices improve and will be looking to ensure fair systems are in place.

In addition to this action, ASIC is continuing its work to educate stores and consumers on legal ways in which book up can be provided.

This is the first matter examining the conscionability of book up practices that has ever reached final judgement in Australia. As such, this is a landmark decision and ASIC will examine the judgement closely to consider options for ensuring book up providers across the country operate in a best practice manner that complies with the law and does not exploit vulnerable consumers.

ASIC Commissioner Peter Kell said, ‘Book up can be a beneficial service for consumers, providing access to a source of credit and helping to manage money between payments. This is particularly the case where those consumers do not have ready access to alternative banking services in remote or regional areas. However, there is also a significant risk that book up can result in the exploitation of financially vulnerable consumers, so ASIC wants to ensure that providers of book up services treat customers fairly and act in accordance with the law.'

The matter will be listed for a further hearing, on a date to be set, in relation to the declarations sought by ASIC, civil penalties and consequential orders.

A directions hearing has been listed on 25 November 2016.

The court may impose a penalty of up to $340,000 against an individual for each contravention of s12CB of the ASIC Act and s29(1) of the National Credit Act (penalties applicable at time of breaches).

Read and download the judgment here.


ASIC issued proceedings against Mr Kobelt in May 2014 (refer: 14-119MR). The matter was heard between 9 June 2015 and 2 July 2015.

This action came as a result of work by ASIC's Indigenous Outreach Program (IOP), which is staffed by lawyers and analysts, the majority of whom are Indigenous. The IOP gathers intelligence from Indigenous consumers and their advocates, undertakes surveillance, implements targeted financial literacy programs and works with industry to improve access to appropriate products and services.

Other outcomes affecting Indigenous consumers coming as a result of the work of ASIC and the IOP include:

Money tips for Aboriginal and Torres Strait Islander people can be found here on ASIC's MoneySmart website.

ASIC also offers a dedicated help line to assist Indigenous consumers with financial issues (Phone: 1300 365 957).

Editor's note:

On 25 November 2016, the matter was adjourned to 13 December 2016 at 9.30am for argument on declaratory and injunctive relief.

Editor's note 2:

On 13 December 2016, the Federal Court made orders in relation to declarations and injunctions. The matter was adjourned to 20 February 2017 at 2.15pm for a hearing on penalty and costs.

Editor's note 3:

On 20 February 2017, the Federal Court heard submissions from the parties with respect to the imposition of penalties and costs. The decision has been reserved.

Editor's note 4:

On 13 April 2017, the Federal Court made orders on penalty, requiring Mr Kobelt to pay $167,500 for engaging in unconscionable and unlicensed conduct. (Refer: 17-115MR)

Editor's note 5:

On 23 January 2017, Mr Kobelt filed a Notice of Appeal against the whole of the judgment of the Federal Court given on 13 December 2016.

Editor's note 6:

On 14 and 15 August 2017, the appeal was heard by the full Federal Court. The decision has been reserved.

Editor's note 7:

On 15 February 2018, the Full Federal Court handed down its decision, partially allowing Mr Kobelt's appeal. (Refer: 18-047MR).

Editor's note 8:

On 20 March 2018, ASIC applied to the High Court of Australia for special leave to appeal from the orders made by the Full Court on 20 February 2018. On 17 August 2018, the High Court of Australia granted special leave to ASIC to appeal from the orders made by the Full Court on 20 February 2018. A date for the hearing of the appeal is yet to be set.

Editor's note 9:

The hearing of the High Court appeal has been set down for 4 December 2018 at 10am.

Editor's note 10:

On 4 December 2018, ASIC’s appeal was heard before the Full Court of the High Court. The decision has been reserved. Mr Kobelt’s application for special leave to appeal the finding that he engaged in unlicensed credit activity was refused.