“ASIC has launched legal action against Latitude Finance Australia (Latitude) and Harvey Norman Holdings Ltd (Harvey Norman) over the promotion of interest free payment methods”
— Per ASIC Media Release 22-270MR dated 5 October 2022
“Misleading and Deceptive” conduct: Australian Securities and Investments Commission (ASIC) v Latitude Finance Australia & Harvey Norman
Gerry Harvey doesn’t seem to be able to take a trick.
After being savaged on social media for keeping job-keeper payments, and complaining about being cancelled, Harvey Norman are back in the media. It’s attention that Harvey Norman would probably have preferred to do without.
In essence, ASIC have commenced legal action alleging that the material conduct of Latitude and Harvey Norman (the Defendants) was misleading, in contravention of sections 12DA, 12DB and 12DF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
You may think that, as an adviser or licensee, this doesn’t matter to you; but you’re wrong, because it does.
ASIC’s view (and the Facts)
You may be aware that Latitude is a licensed credit provider and Harvey Norman is a retail franchise that sells home and electrical products.
During the period 1 January 2020 to 11 August 2021, the Defendants distributed and earned significant revenue from the co-branded credit card (the Mastercard). Under their arrangement:
- Latitude agreed to provide credit facilities to Harvey Norman customers in connection with the Mastercard, and
- Harvey Norman agreed to actively promote the Mastercard.
Furthermore, under the arrangement:
- If a consumer used the Mastercard to purchase Harvey Norman goods then the consumer was not liable to pay Latitude for the agreed term, but incurred interest charges thereafter,
- The consumer was also required to pay an establishment fee and a monthly account service fee, and
- Harvey Norman received millions of dollars in exclusivity fees from Latitude as well as fees each time the Mastercard was used at its stores.
The advertising for the co-branded credit card is where this arrangement fell foul of ASIC.
The Defendants pursued a national advertising campaign together that represented that consumers could use the Mastercard to purchase Harvey Norman goods upfront and make periodic repayments over a 60 month period and on no deposit and interest free terms.
The advertising campaign was conducted over newspapers, radio and television. ASIC cites an example of the newspaper advertisements in their legal proceedings, specifically that the newspaper advertisements:
- Carried a large, coloured banner displaying the words “60 MONTHS INTEREST FREE” in a very large font,
- Stated “NO DEPOSIT NO INTEREST” under the first statement, again in a large font,
- Stated “with 60 equal monthly payments…Minimum financed amount $100” in slightly smaller font, and
- In one or two lines of fine print below the above statements included the statement “Fees & charges apply”
ASIC argues that the dominant message of the advertisements was that a payment method was available, for purchasing Harvey Norman goods, that comprised 60 equal monthly repayments on no deposit and interest free terms. Further, the advertising is misleading because:
“The dominant message of the advertisements conveyed to reasonable consumers the impression that the material terms of the arrangement to be provided in connection with the payment method were only those state above…
…That misleading impression masked the essential nature of the arrangement being offered to consumers. The GO Mastercard brings into existence a continuing credit contract, which contemplates multiple advances of credit and permits Latitude to change contractual terms over time. Fees and charges apply for the right to hold and use the card, including an establishment fee and/or a monthly account service fee, and (in certain circumstances) late payment fees, payment handling fees, fees on international transactions, paper statement fees, cash advance fees and interest”
The misleading representation was partly express and partly implied but the regulator’s view is that these misleading conduct and representations lured consumers into taking on a Mastercard without having an informed choice to do so and exposed them to the risk of incurring further debt, charges and experiencing a detrimental impact on their credit ratings.
ASIC alleges that the Defendants contravened sections 12DA, 12DB(1)(a), (b) and (i) and 12DF of the ASIC Act by way of the misleading representations.
Section 12DA prohibits misleading or deceptive conduct and states:
“(1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive”
Next up, Section 12DB prohibits false or misleading representations and states:
“(1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:
a) Make a false or misleading representation that services are of a particular standard, quality, value or grade, or
b) Make a false or misleading representation that a particular person has agreed to acquire services, or
c) Make a false or misleading representation that purports to be a testimonial by any person relating to services, or
d) Make a false or misleading representation concerning a testimonial by any person or a representation that purports to be such a testimonial relating to services, or
e) Make a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits, or
f) Make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation, or
g) Make a false or misleading representation with respect to the price of services, or
h) Make a false or misleading representation concerning the need for any services, or
i) Make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy,
j) Make a false or misleading representation concerning a requirement to pay for a contractual right that:
i) Is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy, and
ii) A person has under the law of the Commonwealth, a State or a Territory (other than an unwritten law)”
Section 12DF states: “(1) A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services”
For clarity, conduct in carrying on a financial services business will be considered as conduct in trade or commerce in most imaginable scenarios.
Please notice that the prohibitions on misleading conduct are extremely broad. They apply in relation to financial services and in connection with the supply or proposed supply of financial services, therefore capturing not only conduct and representations made in providing financial services but also conduct in advertising or reporting on financial services and conduct in carrying on a financial services business in general.
ASIC also correctly relates the misconduct in this case to the impression conveyed to ‘reasonable consumers’. This is because misleading conduct or representations are assessed objectively and contextually.
That is to say, the conduct is assessed in relation to a reasonable person within the class of persons it was directed to.
This imposes a higher standard of conduct upon advisers and licensees in many cases because of the fiduciary nature of the relationship between a financial advisor and their client.
What is ‘Misleading’ Conduct?
Misleading conduct can include a failure to disclose information, creating a false impression, or causing confusion or uncertainty for a counter-party.
A prediction or opinion is not necessarily misleading if it turns out to be incorrect. However, a person making a representation about a future matter, such as a profit or investment forecast must have reasonable and contemporaneous grounds to do so.
Lessons for licensees and representatives
The case of ASIC v Latitude and Harvey Norman is yet to be decided. However, in view of the above, licensees and their representatives must be particularly conscious when:
- Drawing comparisons with other products,
- Advertising bundled services and fees,
- Formatting warnings and disclosures (prominence is considered),
- Using sponsored link internet advertising (such as purchasing Google keywords for advertising when those words are not comparable to the product or service offered),
- Monitoring promotional material and marketing material for currency and accuracy, and
- Document reasons for particular representations where appropriate.
If you have any questions about this case, or advertising and promotion, reach out to our compliance team via firstname.lastname@example.org