The following keynote speech was delivered by Consumer Action CEO, Gerard Brody at the National Consumer Congress 2019 on Thursday, 14 March 2019 in Melbourne.
Today I want to ask whether we – consumer advocates, regulators, policy makers – are doing enough to support people experiencing vulnerability and disadvantage.
Australia’s fair-trading agencies and regulators have long prioritised the welfare of disadvantaged and vulnerable consumers. Each year, when it publishes its strategic priorities, the ACCC calls vulnerable consumers an “enduring priority”.
Agencies have particularly focused on consumer education or support, as well as enforcement outcomes. For example, many state-based fair-trading agencies fund financial counselling or consumer advocacy to help those experiencing disadvantage.
Furthermore, much of the ACCC’s enforcement work over recent years has focused on conduct that has affected the vulnerable or disadvantaged.
Action taken in the last twelve months has included selling inappropriate vocational training courses and loans to indigenous and other marginalised peoples; debt collection including harassment and intimidation of residents of care facilities; and misleading advertisements about hearing aids to pensioners.
These are important enforcement actions that benefit people experiencing vulnerability.
But today I want to speak about the fact that those who are most vulnerable still seem to do the worst in competitive markets. I’m talking about essentials services markets, like energy, banking, lending, insurance and telecommunications.
In 2005, the Consumer Law Centre Victoria, a predecessor to Consumer Action, published a research report, Do the poor pay more? This report found that, across these markets, lower income and vulnerable people pay more to maintain access to essential services. The report questioned whether deregulation and competition had failed the poor. I think that question has only got more significant over recent years.
It is now clear that many of these service providers – energy, financial services, telcos – are willing to penalise people who don’t regularly switch. Here, I’m talking about the loyalty penalty. Reports over the last twelve months have shown how if you don’t switch every year, you will pay more.
In energy, the loyalty penalty has been calculated as up to $800 for some regions in South Australia – that’s how much someone could be paying more than their neighbour for the same product, because they haven’t shopped around.
In insurance, a recent study found a price gap of almost 27% between policyholders who renewed compared to policy costs for new customers. In mortgages, the ACCC mortgage price inquiry found that an existing borrower with an average-sized mortgage could save up to $850 per year in interest if they negotiated to pay the same interest rate as the average new borrower.
We’re sometimes told that this is the market at work. And people just need to shop around, be more engaged. And, further, if consumer policy has a role to play, it should be limited to helping people engage and switch, particularly those that are disadvantaged, like older people or those living on low incomes.
In dealing with this issue, I think it’s time to move past this ‘disadvantage lens’ to consumer policy.
By ‘disadvantage lens’ I mean a focus on specific groups who are more likely to suffer detriment from certain business practices. An example of this sort of lens can be seen in the recently published Code of Banking Practice.
This code includes a chapter on being inclusive and accessible – it commits banks to being more accessible to indigenous consumers, those who are older or have a cognitive impairment, those who have experienced elder or financial abuse, those with mental health issues and other specific groups.
It’s welcome of course that banks are making these commitments, but it’s also important to recognise what they aren’t doing. Banks aren’t agreeing to make their services inclusive of all.
This is because the code includes the following important clause: “we become aware of your vulnerability (and therefore act) if you tell us about it.” So it’s up to consumers to disclose their vulnerability before they are offered support.
In practice, of course, consumers do not or cannot always disclose difficult issues, and identification is unreliable when so many vulnerability factors are invisible, transient, episodic or present in complex combinations. Most people are dealing with their banks online now, and so I’m not sure how one could disclose vulnerability in that context.
A similar problem exists with the range of laws and codes that require businesses to offer support to people experiencing financial hardship. These rules require people to ask for assistance. Recent research from Melbourne Law School found that only a quarter of people made use these provisions to obtain hardship arrangements.
All this means that some vulnerable people risk missing out on additional support that may be available. It also means that businesses are distracted from treating all their customers fairly or taking steps to avoid harm that can arise when their products, information or conduct cause or increase vulnerability.
This is why banks, utilities and others persist with charging loyalty penalties while also saying that they are responding to disadvantaged customers. Rather than responding to vulnerability in a way that embeds it in strategy and culture of the business, they can say that they are compliant with consumer laws, while not delivering a service that benefits all.
Today, I want to argue that we need to turn this “disadvantage lens” on its head and recognise that any of us can be vulnerable. Indeed, a few years ago the European Union published a large research project looking a consumer vulnerability, and they come up with a definition of vulnerable consumers. This definition says that most consumers can become vulnerable, depending on their circumstances or situation.
This definition from the EU covers people who:
- Are at higher risk of experiencing negative outcomes in the market
- Have limited ability to maximise his/her wellbeing
- Have difficulty in obtaining or assimilating information
- Are less able to buy, choose or access suitable products, or
- Are more susceptible to certain marketing practices
Unfortunately, our current consumer protection laws have gaps, they don’t effectively support people who are vulnerable. They don’t fully protect people from detriment.
Let me explain a little about how our laws – while robust and important – don’t adequately respond to concerns about fairness, including how businesses treat vulnerable consumers.
First, the prohibition on misleading conduct. This prohibition doesn’t require businesses to be upfront, hence they can hide consents and other matters in terms and conditions. For businesses like energy companies and telcos, they don’t have to be clear and upfront about what happens at the end of a contract period meaning they can benefit from the ‘loyalty penalty’.
Second, the prohibition on unconscionable conduct. This is the primary provision that protects vulnerable people. Unfortunately, judicial application of this prohibition has been mixed; the recent case between ACCC v Medibank demonstrated that changes in health insurance coverage for certain customers had, to quote the judge, a “harsh and unfair” impact. However, the conduct was found not to be unconscionable. A key problem with the prohibition on unconscionable conduct, I think, is that it’s largely focused the ‘conscience’ of the business (i.e. whether they are acting immorally), not on the impact of the conduct on consumers.
Third, the prohibition on unfair contract terms. This prohibition evens the playing field with respect to the fairness of terms and conditions. But it doesn’t deal with other practices like unfair marketing or information provision. Furthermore, as ACCC has argued, there aren’t penalties associated with unfair contract terms – just voidance of the term.
So, what can be done to address this?
In 2017, the Review of the Australian Consumer Law recommended exploration of how an unfair trading prohibition could be adopted in the Australian context to address potentially unfair business practices. This followed a discussion paper published by Consumer Action the year prior. Consumer Affairs Ministers have indicated they will explore an unfair trading prohibition further this year, so it’s timely that we consider this further.
Recently, the ACCC published its digital platforms inquiry preliminary report. In that report, the ACCC noted that Australia has fallen behind the standard of international jurisdictions by failing to impose a prohibition on unfair practices. The ACCC suggests that, if adopted in Australia, an unfair trading prohibition could address many of the problems identified in its digital platforms inquiry. These include the way in which disclosures are provided by digital platforms, the use of personal information and data by digital platforms, and the approach to consumer consents and information control.
An unfair trading prohibition might also help address the problems we see in complex services markets more generally, including energy, private health insurance and others. Such a prohibition could address pricing strategies that significantly disadvantage certain groups of customers, including vulnerable groups. If applied in this way, such a prohibition will be pro-competitive by promoting competitive outcomes across the whole market, rather than just for some customers.
The recently published Final Report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry also examined the issue of fairness. In fact, one of the six precepts set down by Commissioner Hayne for financial services entities was to act fairly. Commissioner Hayne noted that these precepts are reflected in existing law, but that the reflection is piecemeal.
A new general provision in our consumer law prohibiting unfair trading could mean that our law is no longer piecemeal when it comes to fairness.
A new provision on fairness could also have a range of other benefits. It could ensure a better balance between business and customer responsibilities – it might help address the incessant problems caused by long and impenetrable terms and conditions, and ensure that businesses are more upfront with their customers.
It could help us focus on prevention – an unfair trading provision might encourage businesses to identify potential consumer harm caused by their products and sales methods, adopting a “prevention is better than cure” approach.
And it could encourage universal approach to fairness, and move us away from focusing solely on specific areas of disadvantage – in this way, it would improve the position of all consumers, including those who need more support due to their vulnerable characteristics or circumstances.
In my view, a prohibition on unfair trading would strengthen the arsenal of consumer representatives and those working at fair trading agencies and regulators, to ensure that the marketplace meets community expectations.
Of course, laws are not the sole solution to the problem of changing industry conduct and practice to promote a culture of fairness. I also think there is more that can be done by policy makers, regulators and consumer advocates to better address the problems experienced by vulnerable consumers.
I will mention two.
First, the UK consumer group Citizens Advice made a super complaint to their regulator last year about loyalty penalties charged in various markets. Incidentally, I think it’s really pleasing that the ALP have announced a policy that would allow consumer groups to make super complaints, which would trigger a public investigation by a regulator. I hope the other parties follow suit.
The response to this super complaint was made last year, finding that the loyalty penalty can cost billions and impacts those who can least afford to pay. They recommended not only giving better support to consumers; but getting tougher on harmful business practices. This includes using targeted pricing interventions where needed, to protect those who suffer most, particularly those who are vulnerable. The example of default pricing in energy which is being introduced at the moment is a good example of this.
Second, there has been much greater research published by regulators in the UK generally on the issue of consumer vulnerability. My question to Australian regulators and fair-trading agencies is where is your workstream on consumer vulnerability.
Just last week, the UK Competition & Markets Authority published a research paper covering:
- The challenges faced by vulnerable consumers in engaging with markets
- Evidence on outcomes for vulnerable consumers
- Undertaking trials of interventions to see what works
- Having a much greater focus on inclusive or universal design, that is, designing products or services so they are accessible to, and usable by, as many people as possible.
Inclusive design, CMA finds, helps to address the fact that vulnerable consumers (for example those with mental health problems) often do not disclose their vulnerability to suppliers.
By making access to services easier for consumers generally, the need for disclosure may be reduced. The report talks about the need to have a range of communication channels, including web, phone, letter and chat. Those with mental health issues can struggle with suppliers over the phone. Offering a range of channels can mean that those with complex needs can also access support in the format that works for them.
This returns us to my initial point – that we shouldn’t be taking a “disadvantage lens”, but we need a changed focus, both in regulatory research and analysis and in our law, for example through an unfair trading prohibition, that encourages industry to provide services that are appropriate and affordable for all in the community.