Need to know
- A young woman thought she was being offered an interest-free payment plan at Apple, but it turned out to be a Latitude Finance credit card with lots of traps
- Latitude's current offer at Apple stores can also be used for cash advances and Eftpos purchases – at 25.90% interest
- For consumers on a tight budget, interest-free offers can be tempting, but if you don't pay off the balance in time they can really backfire
When a 24-year-old university student we'll call Belinda visited an Apple store in Newcastle last year, she was in a tight spot.
Her old MacBook Air had stopped working, and she needed to get a new one fast to meet her assignment deadlines.
Belinda's dilemma was a familiar one for people short on disposable income – she didn't have the $1700 it would take to get a new computer.
She'd seen an ad on the Apple website offering interest-free payment plans, but when she arrived at the store the offer seemed to have changed.
I was under the impression that the ad clearly stated that it was going to be like a payment plan. It was nothing like what I had expected
Belinda, university student and Apple customer
An Apple employee said she could set her up for interest-free payments, but first she had to fill out an application.
"And I was like, what's this? I didn't really understand what she meant. And it was a Latitude credit card," Belinda tells CHOICE.
"I was under the impression that the ad clearly stated that it was going to be like a payment plan. It was nothing like what I had expected. I don't have a credit card for a very good reason."
(The current Latitude ad on the Apple website does say it's a credit card.)
Confused and distressed, Belinda called her mum.
Apple is taking advantage of students who have little financial experience, particularly with credit products. I wonder how many have missed an interest-free payment and are unaware of the consequences
Belinda's mum, Amy
"She couldn't understand why she was getting a credit card when all she wanted was to replace her laptop urgently so that she could finish her assignments," Belinda's mum Amy tells CHOICE, adding that she herself had had a similar experience with an interest-free offer at Harvey Norman.
"Many young people are in the same situation as my daughter," Amy says. "Apple is taking advantage of students who have little financial experience, particularly with credit products.
"I wonder how many have missed an interest-free payment and are unaware of the consequences."
(Amy ended up providing Belinda an unconditional interest-free loan of the parental kind.)
When the interest-free period ends
For some, the current long-term interest-free Latitude offer at Apple (called the Latitude Creditline card) is a potential debt trap waiting to spring shut – especially for someone in Belinda's shoes, working multiple jobs while studying and struggling to make ends meet.
Paying the minimum monthly payment only on the Creditline card, for instance, would not pay off the debt before the end of the interest-free period, at which point the interest rate would jump to 25.90%.
And Latitude would continue charging a $4.95 monthly card fee as long as the account was open.
And there are other temptations lurking: the card can also be used for cash advances and Eftpos purchases, also at 25.90% interest.
It is extremely concerning that businesses may be using deceptive tactics to sign-up unsuspecting people to high-rate credit cards
CHOICE head of policy Patrick Veyret
Latitude Finance says it'll take you 10 minutes to apply online for the Creditline card (while in the store or elsewhere) and that you'll find out whether you've been approved "in under 60 seconds".
If approved, you can start shopping using your credit card account number immediately, without having the actual physical credit card in hand.
But you'd end up paying a lot more than the original $1700 if you only made the minimum monthly repayment. We calculated that it would take six years and 10 months to pay off the debt, and you'd incur about $1000 in fees and interest along the way.
If your monthly payments are not enough and there's a balance on the card after the interest-free period is over, you'll be charged 25.90% interest.
Apple is just one of many Latitude Financial retail partners that allow customers to sign up for credit cards in store.
Latitude refutes claims
"It is extremely concerning that businesses may be using deceptive tactics to sign-up unsuspecting people to high-rate credit cards," says CHOICE head of policy Patrick Veyret. "We've heard from financial counsellors who say that credit cards sold in stores regularly lead people into a debt spiral."
But the company denies its products have this effect.
"Latitude does not lend credit unless a customer can demonstrate, via a full serviceability assessment, that they can afford to repay their credit balance in full," a spokesperson tells CHOICE.
They also say that Latitude's "high lending standards mean that we reject many more applications for credit than we approve".
We've heard from financial counsellors who say that credit cards sold in stores regularly lead people into a debt spiral
Patrick Veyret, CHOICE head of policy
Referring to the Apple Creditline offer, the spokesperson says, "No interest is charged for the duration of the interest-free plan and the vast majority of customers pay off their full balance by the end of the interest-free plan."
Over 5000 Latitude complaints and counting
In 2020, CHOICE gave Harvey Norman a Shonky award for flogging Latitude credit cards at point of sale. And we're hardly the only critics of the card issuer.
Latitude Finance Australia has received more complaints to the Australian Financial Complaints Authority than any other medium-sized financial services business over the last four financial years by a wide margin, a total of 5307.
(While Latitude also offers personal loans, it received approximately seven times more complaints for its credit cards.)
ASIC takes Latitude to court
In October 2022, ASIC started legal proceedings against Latitude and Harvey Norman for its advertising of interest-free payments between January 2020 and August 2021.
The ads neglected to mention that you had to apply for and receive a Latitude Go Mastercard first, and they also misrepresented how much you'd end up paying. Belinda didn't recall seeing a credit card mentioned in the ads she saw either.
Latitude Finance Australia has received more complaints to the Australian Financial Complaints Authority than any other medium-sized financial services business
The Latitude cards on offer at Harvey Norman "attracted substantial fees over the course of the 60-month payment term, and exposed consumers to the risks of incurring further debts and charges, as well as potentially affecting their credit rating," ASIC deputy chair Sarah Court said in October.
Latitude says it disputes ASIC's allegations and will be defending the matter in court.
Shoppers short on funds are particularly vulnerable to Apple's in-store Latitude Finance interest-free credit card offers.
Meanwhile, the company's business model seems to be working. Latitude became an ASX-listed company in financial year 2021 and made a net profit of $232 million. It also acquired the personal loan platform Symple and launched a new version of its buy now, pay later platform, LatitudePay, that allows purchases up to $10,000.
In addition to Apple, you can apply for a Latitude credit card at retailers including JB Hi-Fi and The Good Guys.
Design and distributions obligations
It turns out there are rules around who you can target with credit card offers.
In December last year ASIC took legal action against American Express Australia (Amex) for its handling of two credit cards co-branded with the retailer David Jones.
It was a significant move – the regulator's first court case for alleged breaches of the 'design and distribution obligations' (DDO) that came into effect in October 2021.
[The DDO regime] turned a new page in the regulation of financial products in Australia and is intended to deliver better outcomes for consumers
Sarah Court, ASIC
The DDO regime requires that issuers and distributors of financial products "ensure that consumers obtain products that are likely to be consistent with consumers' objectives, financial situation and needs".
According to ASIC's Sarah Court, the DDO regime "turned a new page in the regulation of financial products in Australia and is intended to deliver better outcomes for consumers".
In the Amex case, ASIC contends that the card issuer knew that the David Jones Amex Card and David Jones Amex Platinum Card, which could be applied for instore, were not always suited to their users' financial situations. There were high cancellation rates, for one thing, and some customers weren't sure if they'd applied for a credit card or a loyalty card.
Latitude says it will check in December 2023 whether too many people are paying long-term interest or getting cash advances
That meant that Amex's 'target market determination' – an aspect of the DDO regime that requires issuers of credit to describe who their products would be appropriate for – was likely off the mark. In such a case, Amex should have stopped issuing the cards and reviewed its TMDs. But it failed to do that for at least six months, according to ASIC.
The Latitude Creditline target market determination is dated 9 December 2022 and says it's not meant for people who use credit cards to "finance substantial interest-bearing balances for prolonged periods" or "require frequent access to cash advances".
Latitude says it will check in December 2023 whether too many people are paying long-term interest or getting cash advances, but by then it will be too late for those who are.
(Note: Names of sources were changed to protect their privacy.)
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