Need to know
- CHOICE gave Harvey Norman a Shonky Award back in 2020 for its partnership with Latitude Finance, whose credit cards have some of the highest interest rates in Australia
- Harvey Norman shoppers were signed up to Latitude credit cards at point of sale without proper responsible lending checks
- The Federal Court recently ruled that advertisements for a Harvey Norman/Latitude Finance interest-free offer were misleading
When we handed the retailer Harvey Norman a CHOICE Shonky Award in 2020, it was because the company had entered into what we considered an unholy alliance with the firm Latitude Financial.
At the time, Latitude had four credit card products that were on our list of the 10 highest interest rate cards in Australia. In fact, the Latitude cards were in the top five, with interest rates ranging from 21.99% to 24.99%.
Harvey Norman was signing up customers to Latitude cards at point of sale, meaning customers in the store were given the ability on the spot to buy something without a proper check by the card issuer on whether the purchase was appropriate to their financial situation.
Latitude cards were in the top five, with interest rates ranging from 21.99% to 24.99%.
Many people who are extended credit under such circumstances go on to pay only the minimum amount due each month, since they really didn't have the money to buy the item in question and can't pay off the balance.
Making only the minimum repayments on a $5000 Harvey Norman Latitude Mastercard Go at 22.74% would mean paying $17,909 over the 29 years and eight months it would take to pay off the loan ($12,909 in interest).
We documented cases of Harvey Norman pushing Latitude credit cards with $12,000 limits at point of sale and encouraging customers to buy items on finance they didn't need or ask for. These were often marketed as 'interest-free' offers, but the catch was that you had to pay off the total debt before the interest-free term expired or the interest rate would jump sky high.
Consumers misled by ad campaign
The Australian Securities and Investments Commission (ASIC) took an interest in the Harvey Norman/Latitude Finance partnership around the same time we handed them a Shonky Award.
ASIC's recent win in the Federal Court against both companies shows just how dubious their interest-free offers can be.
The issue for the regulator was that advertisements for the Harvey Norman/Latitude Finance 60-month interest-free offer neglected to make clear that you needed to sign up to a credit card to access it.
The Harvey Norman interest-free ads failed to make clear that it was a credit card on offer. (Source: ASIC)
It's an issue we highlighted in a related story about Latitude's partnership with Apple stores, where our case study only found out at the store that Apple's interest-free deal was actually a credit card offer.
Regarding the recent ASIC win, deputy chair Sarah Court says the regulator "took this case because we believed many consumers may have been unaware of the financial arrangements they were entering into when they bought everyday products at Harvey Norman stores. In some cases, this may have meant they paid considerably more for purchases than they expected".
The financial obligations on customers with a credit card "are different to what was advertised by Harvey Norman. A continuing credit contract can involve multiple advances of credit together with monthly account service fees and high interest rates, all of which add up for consumers", Court says.
A continuing credit contract can involve multiple advances of credit together with monthly account service fees and high interest rates, all of which add up for consumers
ASIC deputy chair Sarah Court
The essence of ASIC's case was straightforward: consumers need to know what such interest-free promotional offers really entail "so that they can consider their current financial position and decide if a credit card is the appropriate product for them", Court says.
ASIC is seeking financial penalties against both companies. In a statement issued to the ASX, Latitude said it was reviewing and considering whether to appeal the court decision.
Stock images: Getty, unless otherwise stated.
