Need to know
- The government is considering introducing a new set of laws prohibiting unfair trading, but these laws may not immediately apply to financial services
- Super Consumers Australia says ensuring the new laws apply to financial services, including super, is essential to protect people from unfair practices in the industry
In Australia, businesses have to follow certain rules about how they sell and provide products and services – this is called the Australian Consumer Law.
While Australian Consumer Law offers consumers a range of rights, the government has recently acknowledged that there are some business practices that can be unfair, but aren't explicitly banned under the current law.
A newly proposed unfair trading law could eliminate this grey area with a broad ban on behaviour that undermines people's choices.
But the current proposal to government excludes financial services like superannuation.
What is unfair trading?
Some examples of business behaviour that could be considered unfair trading, include:
- presenting choices in a way that exploits or ignores a customer's vulnerabilities
- not properly disclosing important information when people sign up for a service (for example, joining a super fund or taking out disability insurance through super)
- misleading or hidden information.
These underhanded practices are commonly seen in super, and with disability insurance that is bundled with super. For example, the disclosure documents for these products are often lengthy and highly legalistic, meaning it's too hard for people to understand the product they're paying for.
Why unfair trading laws should apply to financial services
For many Australians, super is their biggest asset after their family home. Unfair practices by super funds and insurers can have a massive impact on people's retirement income and quality of life. With this in mind, Super Consumers Australia believes it's essential that these laws apply to financial service providers.
The government plans to run a separate consultation on applying these laws to financial services, but, in the meantime, companies can potentially continue with unfair practices so any delay risks watering down this important change.
Any delay risks watering down this important change
Super Consumers Australia policy manager Rebekah Sarkoezy says there is a risk companies will exploit the loophole of having unfair trading laws that don't apply in the financial sector.
"If all companies apart from financial services providers are banned from unfair trading, this situation would create a perverse incentive for shonky companies to move into finance, which is the last thing we want."
What does the regulator say?
The Australian Competition and Consumer Commission (ACCC), the competition watchdog responsible for enforcing consumer law in Australia, has been supporting the introduction of unfair trading laws for years.
The ACCC said the reforms would help both individuals and small businesses get a fair deal.
An ACCC report that specifically looked at digital platforms (like social media, search engines and online content aggregators) also recommended the government introduce unfair trading laws.
Treasury has found that while there are already laws to protect people, such as those in the Australian Consumer Law, "these provisions are narrowly drafted, and are not likely to capture new or emerging potentially unfair conduct that stakeholders have identified."
In June 2023, Stephen Jones, Minister for Financial Services, said that unfair trading practices are a "problem that's been left to fester too long". Jones' office did not respond to a request to comment for this story.
An example of unfair trading: Fund failure letters
In 2021, the government started an annual test for some super products, assessing their fees and performance. The government required those funds that failed to send their members a letter letting them know they were in an underperforming product.
While the funds met this legal requirement, some muddied the message by including unnecessary information in these letters that could confuse members and distract them from the issue – that they were in an underperforming super product.
Funds using their obligation to notify members of their poor performance as an excuse for marketing is a classic example of unfair trading
Super Consumers Australia policy manager Rebeka Sarkoezy
In their letters, some funds disputed the performance test criteria, listed different awards they had received or even referred to reward programs and promotions they had on offer, like discounted fun park tickets.
"Funds using their obligation to notify members of their poor performance as an excuse for marketing is a classic example of unfair trading," says Sarkoezy.
The Treasury report noted one possible example of unfair trading is "Omitting or obfuscating material information which distorts consumers' expectations or understanding of the product or service being offered."
Complaints about financial services at all time high
The Australian Financial Complaints Authority saw a 136% rise in complaints about delays in insurance and death benefit claims over the last financial year.
We've previously reported on the experiences of Australians like 'Carol', whose health and finances were severely stretched when her insurer was extremely slow to process her disability insurance claim. Lawyers say such delays cause claimants unnecessary distress and can even destroy relationships.
Yet, despite the unfairness of this conduct, funds and insurers may not be doing anything illegal by dragging their feet when processing insurance claims. A broader ban on unfair trading may help put a stop to these harmful delays.
Unfair trading in the digital era
A Treasury discussion paper on potential unfair trading laws noted "a large and growing range of commercial practices and business models", including in the digital economy, that are unfair but not covered by existing laws to protect consumers.
The Consumer Policy Research Centre (CPRC) has outlined how companies are increasingly using 'dark patterns' to manipulate people using their websites and apps to influence their choices.
The company wasn't doing anything illegal, but was cleverly using what experts identified as 'dark patterns' to influence people to sign up to a particular fund
Super Consumers Australia policy manager Rebekah Sarkoezy
Super Consumers Australia previously outlined how MYOB's employee onboarding software 'nudged' users towards Slate Super, a super fund associated with MYOB. (MYOB has since severed ties with Slate Super).
"The MYOB example is the kind of practice that unfair trading laws could catch," says Sarkoezy.
"The company wasn't doing anything illegal, but was cleverly using what experts identified as 'dark patterns' to influence people to sign up to a particular fund linked to the platform provider."
Consumer advocates weigh in
Drew MacRae, senior policy and advocacy officer at Financial Rights Legal Centre, says a ban on unfair trading would "fill in all the gaps that currently exist in the law".
He also believes it's "disappointing" that the current consultation on unfair trading excludes financial services.
"The whole point of a prohibition on unfair trading practices was … to prevent behaviours that have managed to fall through gaps. Putting this off is creating one giant gap for financial services. It's only fair that (financial services companies) are subject to the same prohibitions as every other firm in the country."
The Financial Rights Legal Centre has seen a particular rise in unfair business practices online, including subscription traps and 'dark patterns', that aren't covered by current laws.
MacRae says digital commerce "has been the wild west", but banning unfair trading practices could curb this behaviour.
What are other countries doing?
Sarkoezy says the ideal unfair trading laws would combine a broad ban on unfair practices with a list of specific examples to help the regulator prosecute unfair traders. A general prohibition would allow the law to stay relevant and protect Australians from unfair tactics even as business practices and digital technology continue to develop.
The ideal unfair trading laws would combine a broad ban on unfair practices with a list of specific examples to help the regulator prosecute unfair traders
Some countries already have a combination of a general and specific prohibition against unfair trading, including Singapore, the United Kingdom and the European Union.
"These international examples show how we can develop clear laws that can move with the times and protect people from companies acting unfairly, she says."
"This is a vital protection to ensure super funds act fairly in the hugely important role of building up the retirement incomes of Australians."
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
Stock images: Getty, unless otherwise stated.
