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Telstra faces court, $50m fine for exploiting 108 Indigenous customers

Telstra is being taken to court by the ACCC. (Photo: WILLIAM WEST/AFP via Getty Images)
Telstra is being taken to court by the ACCC. (Photo: WILLIAM WEST/AFP via Getty Images)

Australia’s competition watchdog has launched Federal Court proceedings against Telstra for “unconscionable conduct” towards Indigenous customers, who were each plunged into $7,400 debt on average as a result.

Between January 2016 and August 2018, sales staff at five Telstra stores sold multiple post-paid mobile contracts to 108 Indigenous customers who did not understand or could not afford it, according to the Australian Competition and Consumer commission (ACCC).

Telstra has admitted its staff used “unfair selling tactics” and “took advantage of a substantially stronger bargaining position”.

Some staff falsely represented that the customers were getting products for “free” and also manipulated credit assessments – including lying about the employment status of a consumer – so that customers could sign up to the contracts, the ACCC said in a statement.

The stores were based in the Northern Territory’s Alice Springs, Casuarina and Palmerston; South Australia’s Arndale; and Western Australia’s Broome.

For many of the Indigenous customers, English was a second or third language, and they had difficulties understanding the written contracts.

Many were also unemployed and received government pensions or benefits as their primary source of income.

Social, language, literacy, cultural vulnerabilities ‘exploited’, says ACCC

As a result of the malpractice, each Indigenous customer was sent into debt of more than $7,400 on average.

“This case exposes extremely serious conduct which exploited social, language, literacy and cultural vulnerabilities of these Indigenous consumers,” ACCC Chair Rod Sims said.

The wrongful sales practices triggered personal financial hardship and a high volume of distress.

Telstra even referred some unpaid debts to debt collectors, potentially causing further shame and embarrassment, the watchdog said.

“These debts significantly impacted the affected individuals. For example, one consumer had a debt of over $19,000; another experienced extreme anxiety worrying they would go to jail if they didn’t pay; and yet another used money withdrawn from their superannuation towards paying their Telstra debt,” Sims said.

Telstra has admitted it didn’t have any systems in place in order to detect or prevent this kind of conduct, the ACCC said. The telco’s board and senior executives were also unaware of the behaviour when they occurred.

“Even though Telstra became increasingly aware of elements of the improper practices by sales staff at Telstra licensed stores over time, it failed to act quickly enough to stop it, and these practices continued and caused further, serious and avoidable financial hardship to Indigenous consumers,” said Sims.

As the country’s largest telecommunications provider, Telstra has failed to meet community expectations for appropriate business behaviour, he added.

“This case is a reminder to all businesses to ensure that they comply with Australian Consumer Law in their dealings with all consumers, especially vulnerable consumers in regional or remote communities.”

The ACCC is seeking penalties of $50 million, and the Federal Court will decide if this penalty is appropriate. If approved, it would be the second-highest total penalty ever imposed under Australian Consumer Law.

Telstra has since made efforts to waive debts, refund money and put in place steps to minimise the risk of similar conduct in the future.

The major telco has also entered into an enforceable undertaking (EU) with the ACCC under which it has remediated affected customers, will improve its existing compliance program, review and expand its Indigenous hotline and improve its digital literacy program for customers in some rural areas.

‘This is not OK’: Telstra CEO

In a statement, Telstra CEO Andrew Penn apologised for the malpractice.

“While it was a small number of licensee stores that did not do the right thing, the impact on these vulnerable customers has been significant and this is not okay,” he said.

“We have taken steps to provide full refunds with interest, waived debts and allowed most customers to keep their devices to help make things right.”

“I have spoken often about doing business responsibly including about these failings since earlier this year. I am determined we have a leadership position and hold ourselves accountable in this regard,” he added.

Telstra has also appointed a customer advocate to better identify similar issues and work more closely with community representatives and financial counsellors, he said.

A specific call centre in the Northern Territory will also be established.

Penn said he had visited NT, SA and WA earlier this year to meet with some affected communities and personally apologise.

The company had initially thought these were isolated issues, he said.

“When we looked more deeply it was clear there were additional instances where our processes had not been followed and our understanding of customers could have been better.

“Being a responsible business and doing what is right for customers and the community is a non-negotiable for Telstra, but we do not always get it right.

“We need to acknowledge when that happens, and today is unfortunately one of those times.

“Disappointingly these customers did not receive the standard of care or service they should expect from us, and we did not then act quickly enough to fix the issues once they became known.”

Yahoo Finance has contacted Telstra for further comment.

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