FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701
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IN THE FEDERAL COURT OF AUSTRALIA |
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IN THE MATTER OF GE CAPITAL FINANCE AUSTRALIA ACN 008 583 588
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AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff | |
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AND: |
GE CAPITAL FINANCE AUSTRALIA ACN 008 583 588 Defendant |
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT DECLARES THAT:
1. In the period from 5 January 2012 to 27 May 2012, GE Capital Finance Australia:
(a) required cardholders seeking to activate their credit card by telephone (Activation Cardholders) to follow instructions spoken by a pre-recorded automated voice (Activation Scripts), which:
(i) informed them that by activating their credit card they gave their consent to GE Capital Finance Australia sending them credit card limit increase invitations (CCLI Invitations); and
(ii) did not inform them that they could activate their credit card irrespective of whether they gave their consent to GE Capital Finance Australia sending them CCLI Invitations; and
(b) represented that an Activation Cardholder could not activate their credit card unless they consented to GE Capital Finance Australia sending them CCLI Invitations (First Activation Representation), which representation was false or misleading:
(i) in that it was not a requirement or condition of the activation of a credit card that the Activation Cardholder give their consent to GE Capital Finance Australia sending them CCLI Invitations; and also
(ii) in that a credit card could be activated irrespective of whether the Activation Cardholder consented to GE Capital Finance Australia sending them CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
2. In the period from 5 January 2012 to 27 May 2012, GE Capital Finance Australia represented to Activation Cardholders that the only way to activate their credit card was for them to consent to GE Capital Finance Australia sending them CCLI Invitations (Second Activation Representation), which representation was false or misleading:
(a) in that it was not a requirement or condition of the activation of a credit card that the Activation Cardholder give their consent to GE Capital Finance Australia sending them CCLI Invitations; and also
(b) in that a credit card could be activated irrespective of whether the Activation Cardholder consented to GE Capital Finance Australia sending them CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the ASIC Act.
3. In the period from 19 March 2012 to 27 May 2012, GE Capital Finance Australia:
(a) required cardholders who telephoned GE Capital Finance Australia seeking to increase the credit limit on their credit card (Telephone CCLI Cardholders) to follow the instructions spoken by a pre-recorded automated voice (CLI Eligible Scripts), which:
(i) informed them that by accepting a new credit limit, the Telephone CCLI Cardholder gave consent to GE Capital Finance Australia sending them CCLI Invitations; and
(ii) did not inform them that the credit limit on their credit card could be increased irrespective of whether they gave consent to GE Capital Finance Australia sending them CCLI Invitations; and
(b) represented that to obtain the new or increased credit limit on their credit card the Telephone CCLI Cardholder was required to consent to GE Capital Finance Australia sending them CCLI Invitations (First CLI Eligible Representation), which representation was false or misleading:
(i) in that it was not a requirement or condition of obtaining the new or increased credit limit on their credit card that the Telephone CCLI Cardholder give their consent to GE Capital Finance Australia sending them CCLI Invitations; and also
(ii) in that the Telephone CCLI Cardholder could obtain the new or increased credit limit on their credit card irrespective of whether they consented to GE Capital Finance Australia sending them CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the ASIC Act.
4. In the period from 19 March 2012 to 27 May 2012, GE Capital Finance Australia represented to Telephone CCLI Cardholders that the only way to obtain the new or increased credit limit on their credit card was for them to consent to GE Capital Finance Australia sending them CCLI Invitations (Second CLI Eligible Representation), which representation was false or misleading:
(a) in that it was not a requirement or condition of obtaining the new or increased credit limit on their credit card that the Telephone CCLI Cardholder give their consent to GE Capital Finance Australia sending them CCLI Invitations; and also
(b) in that the Telephone CCLI Cardholder could obtain the new or increased credit limit on their credit card irrespective of whether they consented to GE Capital Finance Australia sending them CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the ASIC Act.
5. In the period 1 from February 2012 to 27 May 2012, GE Capital Finance Australia:
(a) sent letters (CLI Letters) to the holders of credit cards (CLI Letter Cardholders) inviting them to apply for an increase in the credit limit on their credit card, which letters contained an application form which informed them that when they signed the application form, they consented to receiving CCLI Invitations; and
(b) at no time informed CLI Letter Cardholders, via the CLI Letter or the application form, that they could apply for an increase in the credit limit on their credit card irrespective of whether they consented to receiving CCLI Invitations; and
(c) represented that to apply for an increase in the credit limit on their credit card, the CLI Letter Cardholder was required to consent to GE Capital Finance Australia sending them CCLI Invitations (the First Letter Representation), which representation was false or misleading:
(i) in that it was not a requirement or condition of applying for an increase in the credit limit on their credit card that the CLI Letter Cardholder consent to receiving CCLI Invitations; and also
(ii) in that the CLI Letter Cardholder could apply for an increase in the credit limit on their credit card irrespective of whether they gave their consent to receiving CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the ASIC Act.
6. In the period from 1 February 2012 to 27 May 2012, GE Capital Finance Australia represented that the only way for a CLI Letter Cardholder to apply for an increase in the credit limit on their credit card was for them to consent to GE Capital Finance Australia sending them CCLI Invitations (the Second Letter Representation), which representation was false or misleading:
(a) in that it was not a requirement or condition of applying for an increase in the credit limit on their credit card that the CLI Letter Cardholder consent to receiving CCLI Invitations; and also
(b) in that the CLI Letter Cardholder could apply for an increase in the credit limit on their credit card irrespective of whether they gave their consent to receiving CCLI Invitations;
and thereby, in trade or commerce, in connection with the supply or possible supply of financial services, made false or misleading representations concerning the existence, exclusion or effect of a condition or right, in contravention of section 12DB(1)(i) of the ASIC Act.
THE COURT ORDERS THAT:
7. Pursuant to section 12GBA of the ASIC Act, the Defendant pay to the Commonwealth a pecuniary penalty of $1,500,000.
8. Pursuant to section 12GLA(2)(c) or 12GLB(1) of the ASIC Act, and subject to the exceptions noted below, the Defendant:
(a) within 14 days of the date of these orders, send by email, or pre-paid ordinary mail if the Defendant does not know the email address, a communication in the form of Annexure A to each Cardholder who registered to receive future CCLI Invitations only in response to one or more of the First Activation Representation, the Second Activation Representation, the First CLI Eligible Representation or the Second CLI Eligible Representation;
(b) within 14 days of the date of these orders, send by email, or pre-paid ordinary mail if the Defendant does not know the email address, a communication in the form of Annexure B to each Cardholder who registered to receive future CCLI Invitations both:
(i) in response to one or more of the First Activation Representation, the Second Activation Representation, the First CLI Eligible Representation or the Second CLI Eligible Representation; and
(ii) in response to the First Letter Representation or the Second Letter Representation;
(c) within 14 days of the date of these orders, send by pre-paid ordinary mail a communication in the form of Annexure C to each Cardholder who registered to receive future CCLI Invitations only in response to the First Letter Representation or the Second Letter Representation;
(d) within 7 days of the date of these orders, place a notice in the form of Annexure D on the homepage of its website for a period of 1 month.
Despite the requirements of paragraphs 8(a) to (c), the Defendant is not required to send a communication in the form of Annexure A, B or C to a Cardholder:
(iii) who is now deceased; or
(iv) who has since been determined by the Defendant to have been fraudulently named as a Cardholder and so not to have been a person with whom the Defendant contracted; or
(v) in respect of any account that the Cardholder held with the Defendant that has since been closed by agreement with the Defendant or terminated by the Defendant in accordance with its contractual rights.
9. Within 21 days of the date Order 8 is made, the Defendant provide to the Plaintiff a statement from the Chief Executive Officer of the Defendant setting out the steps taken by the Defendant to comply with that order.
10. The Defendant pay the Plaintiff's costs fixed in the amount of $50,000.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A – EMAIL OR LETTER TO EACH REGISTRANT
[In the usual form of email or on letterhead of defendant]
MISLEADING STATEMENT ABOUT CONSENTING TO RECEIVE CREDIT CARD LIMIT INCREASE INVITATIONS
The Federal Court has ordered us to write to you about your consent to receive credit card limit increase invitations.
In proceedings brought by the Australian Securities and Investments Commission, the Federal Court of Australia (Federal Court) found that a message we played to you when you:
telephoned us and activated your credit card between 5 January 2012 and 27 May 2012; and/or
applied over the phone for a credit card limit increase between 19 March 2012 and 27 May 2012,
contained false or misleading representations.
The message advised you that by activating your credit card or accepting a new credit limit, you gave us consent to potentially send you credit limit increase invitations from time to time.
The Federal Court found that our message contained false or misleading representations because it represented that you could not activate your credit card or obtain an increased credit limit unless you consented to us sending you invitations to increase your credit card limit, when the correct position was that your credit card could be activated or you could obtain your new credit limit increase whether or not you agreed to receive invitations for credit card limit increases.
This means that your consent to receive credit card limit increase invitations was not validly given.
How This Affects You
If you do not want to receive credit card limit invitations in the future you do not need to do anything. You can still apply for a credit card limit increase at any time.
If, after 30 June 2012, you have provided a subsequent consent to us in relation to receiving a credit limit increase invitations, this letter does not affect that subsequent consent.
If you have any queries please contact us on [insert address] or [insert telephone number].
ANNEXURE B –EMAIL OR LETTER TO EACH REGISTRANT
[In the usual form of email or on letterhead of defendant]
MISLEADING STATEMENT ABOUT CONSENTING TO RECEIVE CREDIT CARD LIMIT INCREASE INVITATIONS
The Federal Court has ordered us to write to you about your consent to receive credit card limit increase invitations.
In proceedings brought by the Australian Securities and Investments Commission, the Federal Court of Australia (Federal Court) has made the following findings.
1. A message we played to you when you:
telephoned us and activated your credit card between 5 January 2012 and 27 May 2012; and/or
applied over the phone for a credit card limit increase between 19 March 2012 and 27 May 2012
contained false or misleading representations.
2. Our conduct when we sent you an invitation to apply to increase your credit card limit between 1 February 2012 and 27 May 2012 contained false or misleading representations.
Some time ago, we sent you a letter inviting you to change your credit card limit. That letter contained an application form to change your credit limit. Both the letter and the application form said that by signing the form authorising us to action your application to increase your credit limit, you also gave us consent to send you credit card limit increase invitations in the future.
The Federal Court found that our messages contained false or misleading representations because they represented that you could not activate your credit card, or obtain an increased credit limit, unless you consented to us sending you invitations to increase your credit limit, when the correct position was that your credit card could be activated or you could obtain your credit limit increase whether or not you agreed to receive invitations for credit card limit increases.
This means that your consent to receive credit card limit increase invitations was not validly given.
How This Affects You
If you do not want to receive credit card limit invitations in the future you do not need to do anything. You can still apply for a credit card limit increase at any time.
If, after 30 June 2012, you have provided a subsequent consent to us in relation to receiving a credit limit increase invitations, this letter does not affect that subsequent consent.
If you have any queries please contact us on [insert address] or [insert telephone number].
ANNEXURE C – LETTER TO EACH REGISTRANT
[Letterhead of defendant]
MISLEADING STATEMENT ABOUT CONSENTING TO RECEIVE CREDIT CARD LIMIT INCREASE INVITATIONS
The Federal Court has ordered us to write to you about your consent to receive credit card limit increase invitations.
In proceedings brought by the Australian Securities and Investments Commission, the Federal Court of Australia (Federal Court) found that our conduct when we sent you an invitation to apply to increase your credit card limit between 1 February 2012 and 27 May 2012 contained false or misleading representations.
Some time ago, we sent you a letter inviting you to change your credit card limit. That letter contained an application form to change your credit limit. Both the letter and the application form said that by signing the form authorising us to action your application to increase your credit limit, you also gave us consent to send you credit card limit increase invitations in the future.
The Federal Court found that our message contained false or misleading representations because it represented that, in order to apply for an increase in your credit card limit, you were required to consent to us sending you credit card limit increase invitations in the future, when the correct position was that you could apply to change your credit card limit whether or not you agreed to receive invitations for credit limit increases in the future.
This means that your consent to receive credit card limit increase invitations was not validly given
How This Affects You
If you do not want to receive credit card limit invitations in the future you do not need to do anything. You can still apply for a credit card limit increase at any time.
If, after 30 June 2012, you have provided a subsequent consent to us in relation to receiving a credit limit increase invitations, this letter does not affect that subsequent consent.
If you have any queries please contact us on [insert address] or [insert telephone number].
ANNEXURE D – NOTICE ON HOMEPAGE
[In the usual form of the Defendant's notice to customers. 25% of homepage]
MISLEADING STATEMENT ABOUT CONSENTING TO RECEIVE CREDIT CARD LIMIT INCREASE INVITIONS
The Federal Court has ordered us to display this message on our homepage because of what we told our customers about receiving credit card limit increase invitations.
In proceedings brought by the Australian Securities and Investments Commission (ASIC), the Federal Court of Australia (Federal Court) found that we made false or misleading representations in relation to obtaining customers' consent to receiving credit card limit increase invitations after 1 July 2012.
This happened when:
we sent letters to customers about changing their credit card limits between 1 February 2012 and 27 May 2012;
played telephone messages to customers who activated their credit card over the telephone between 5 January 2012 and 27 March 2012;
played telephone messages to customers who applied for an increase to their credit card limit over the phone between 19 March 2012 and 27 May 2012.
The Federal Court found that our messages and letters were misleading because the letters and messages represented that you could not activate your credit card or apply for a change in credit card limit unless you consented to receiving credit card limit increase invitations in the future, when the correct position was that you could activate your credit card or apply for a change in credit card limit without giving consent.
How This Affects You
If we made these representations to you, your consent to receive credit card limit increase invitations was not validly given.
If you do not want to receive credit card limit invitations in the future you do not need to do anything. You can still apply for a credit card limit increase at any time.
If, after 30 June 2012, you have provided a subsequent consent to us in relation to receiving a credit limit increase invitations, this letter does not affect that subsequent consent.
If you have any queries please contact us on [insert address] or [insert telephone number].
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NEW SOUTH WALES DISTRICT REGISTRY |
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GENERAL DIVISION |
NSD 2136 of 2013 | |
IN THE MATTER OF GE CAPITAL FINANCE AUSTRALIA ACN 008 583 588
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BETWEEN: |
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff |
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AND: |
GE CAPITAL FINANCE AUSTRALIA ACN 008 583 588 Defendant |
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JUDGE: |
JACOBSON J |
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DATE: |
1 JULY 2014 |
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PLACE: |
SYDNEY |
REASONS FOR JUDGMENT
Introduction and Overview
1 The defendant (GE Capital) is a specialist financial services provider operating in Australia as part of the global business of the well-known American conglomerate, General Electric. GE Capital’s business includes issuing credit cards to consumers under a variety of brand names, including cards bearing the GE name, as well as cards supplied under the Master Card and Visa brand names. The business of GE Capital is large and profitable, holding approximately 7.7% of the credit card market in Australia.
2 In March 2011, the Commonwealth proposed certain amendments to the National Consumer Credit Protection Act 2009 (Cth) (the NCCP Act). The effect of the proposed amendments was, relevantly, to prevent a credit provider under a credit card contract from making an invitation to a cardholder to increase his or her credit limit unless the credit provider had previously obtained express consent from the cardholder to the making of the invitation.
3 In addition, the proposed amendments included a provision that, with effect from 1 July 2012, written invitations made to credit cardholders to increase their credit limit were required to seek the consumer’s consent only in relation to whether or not to receive such invitations. In particular, the invitations could not be coupled (or in the industry jargon, “bundled”) with requests for consent to other services.
4 The expression written invitation for a credit limit increase is sometimes referred to in these reasons by the acronym CCLI. Consents to such an increase are referred to as a CCLI Consent. The prohibition against an invitation without prior consent, and the prohibition against bundling, are together referred to as the Prohibition.
5 The Prohibition was proposed as part of the then Commonwealth Government’s tightening regulatory environment for consumer credit transactions. The problem which it posed for GE Capital was a loss in the growth of revenue from its credit card business. GE Capital sought to mitigate its losses by establishing a strategy that was intended to capture CCLI Consents in advance of the cut-off date of the proposed Prohibition.
6 The strategy, as ultimately implemented, involved a range of communications with cardholders designed to obtain their consents to credit limit increases, that is to say CCLI Consents, by bundling a request from GE Capital to the cardholders to give such consents as part of an application for another service.
7 The effect of the communications was that GE Capital represented to its customers that by activating a credit card, or obtaining a new or increased limit on an existing credit card, it was a requirement that they consent to receiving invitations in the future to increase their credit limits.
8 In fact there was no such requirement but the communications were intended to capture consents from existing customers ahead of the introduction of the Prohibition. The intention was to mitigate losses expected to be suffered by GE Capital as a result of not having express consents from customers after the new regulatory regime became effective on 1 July 2012.
9 The strategy, which was implemented and approved by a steering committee established by GE Capital, was intended to avoid between $5.27 million and $6 million of losses which would otherwise have been expected to be suffered by GE Capital in the period from 2012 to 2015 under the new regulatory regime.
10 GE Capital’s strategy for avoiding those losses is referred to as the Pre-FSB Consent Project. A number of concerns were expressed within GE Capital by persons working on that project in the period prior to its implementation. The initial concerns were expressed in November 2011. Another very perceptive remark was made in an internal email dated 5 January 2012 from a Compliance Analyst as follows:
I have a concern that the wording of this message could be seen to be misleading and/or pressuring customers to accept in order to be able to use their card.
11 The message to which the Compliance Analyst referred in the email was contained in a customer communication described as an Activation Script.
12 Notwithstanding the concerns expressed in the email, GE Capital commenced using the Activation Scripts on 5 January 2012 and continued to do so until 27 May 2012.
13 The other communications which are the subject of these proceedings are described as the CLI Letters and the CLI Eligible Scripts. I will refer to them in more detail later. GE Capital commenced sending CLI Letters to its customers on 1 February 2012 and continued to do so until 27 May 2012. GE Capital commenced using the CLI Eligible Scripts on 19 March 2012 and continued to do so until 27 May 2012.
14 Each of the forms of communication used by GE Capital in its pre-FSB Consent Project resulted in a large number of consents from customers to receive CCLI Invitations
15 In late April 2012, ASIC communicated to GE Capital its concerns that GE Capital was not informing its customers of the option not to receive the CCLI invitation. GE Capital ceased to use each of the forms of communication with cardholders described above on 27 May 2012. Subsequently, GE Capital informed ASIC that, given its concerns, GE Capital had not relied and did not intend to rely on the CCLI Consents obtained through each of the forms of communication with cardholders referred to above.
16 ASIC commenced this proceeding on 16 October 2013. It seeks six declarations under s 21 of the Federal Court of Australia Act 1976 (Cth) that GE Capital has contravened s 12DB(1)(i) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by making false or misleading representations in its communications with cardholders.
17 GE Capital acknowledges the contraventions and consents to the making of the declarations sought by ASIC. The parties have agreed upon a proposed pecuniary penalty of $1 million to be imposed upon GE Capital pursuant to s 12GBA of the ASIC Act.
18 However, the agreement between the parties does not absolve the Court from its duty to consider the appropriateness of the proposed penalty, or the appropriateness of the declarations. As Barrett J observed in Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411 at [9], this is made clear by a number of well-known decisions of the Full Federal Court to which I will refer later. The effect of those authorities has not been altered by more recent decisions.
19 I have received comprehensive joint submissions from the parties in relation to the proposed relief. I have also received a detailed Statement of Agreed Facts (SOAF). For convenience, I have annexed the SOAF as Annexure “A” to my reasons for judgment. The comprehensive and detailed nature of these documents has enabled me to reduce the length of my reasons.
20 After I reserved my judgment, my Associate wrote to the parties at my request to inform them that I was considering whether to impose a higher penalty than the sum which had been agreed between them. I gave the parties an opportunity to file further submissions addressing the question of a higher pecuniary penalty.
21 The supplementary submissions emphasised the public interest in giving effect to the settlement which is for a substantial sum that the regulator considers to be appropriate. The submissions also reiterated the need for judicial caution in these circumstances, and the weight to be given to GE Capital’s cooperation with ASIC.
Agreed Facts
22 GE Capital’s credit card business (the Business) is described in the SOAF at paragraphs 4 to 7. The Business issues a range of credit cards bearing 14 different brands. For the financial year ending 31 December 2011 GE Capital had issued more than 1.6 million credit cards to its customers and was the sixth largest provider of credit cards in the Australian market.
23 GE Capital’s income for the 2011 year was over $494 million and it had a profit after tax of $116,759,000.
24 The Commonwealth Government’s exposure draft of 4 March 2011 containing proposed amendments to the NCCP Act is described in the SOAF at paragraphs 8 to 12. The amendments formed part of the Government’s “Fairer, Simpler, Banking” (FSB) reforms. The Prohibition contained in the NCCP Act commenced with effect on 1 July 2012. Contravention of the Prohibition attracted a civil penalty or was capable of constituting a criminal offence of strict liability.
25 GE Capital was aware of the proposed Prohibition when the exposure draft was released in 4 March 2011. It was also aware from that time that the Prohibition was likely to commence on 1 July 2012.
26 The FSB Steering Committee and the Pre-FSB Consent Project were established by GE Capital with a view to mitigating the losses that were expected to flow from the introduction of the Prohibition. As I said earlier, one of the strategies was bundling consents with the acquisition of other services. The strategy was described in minutes of the FSB Steering Committee on 8 September 2011. The minutes were circulated to GE Capital directors and senior executives and stated that the intention of bundling choice of credit card activation with consent to receive invitations for credit limit increases was that:
... the committee understands that it will be less straightforward for customers to activate cards without consenting.
27 The minutes of 8 September 2011 went on to state that Legal Counsel, who was named in the minutes, had “endorsed this”.
28 The Pre-FSB Consent Project was an important one for GE Capital. It was a project in which John Malcolm, the President and CEO of GE Capital’s operations in Australia took an active interest.
29 The objective of GE Capital in implementing the Pre-FSB Consent Project was reflected in various documents referred to in paragraph 19 of the SOAF. The documents included a description of FSB reforms and stated that the key requirement by 1 July 2012 was that unsolicited credit limit extension offers were not allowed unless the consumer had agreed to the service.
30 As I said earlier, GE Capital’s objective in the Pre-FSB Consent Project was to establish a process to obtain CCLI Consents from existing customers ahead of the introduction of the Prohibition and to mitigate losses expected to follow from it. This objective was set out in one of the documents referred to in the SOAF at paragraph 19.
31 GE Capital’s objective of optimising the number of pre-FSB consents with a view to avoiding $5 million to $6 million of potential losses is described in the SOAF at paragraphs 20 to 22. GE Capital proposed to use Activation Scripts to reach over 800,000 cardholders, and CLI Letters to reach more than 680,000 cardholders.
32 The project sponsors of the Pre-FSB Consent Project comprised three senior executives of GE Capital, two of whom were directors. They are described in the SOAF at paragraph 25.
33 The development of the documentation and requirements for implementing the Pre-FSB Consent Project are described in the SOAF at paragraph 26 ff. A large number of persons worked on the Project. They included Ms Debra Kruse who held the position of Deputy General Counsel in GE Capital’s Legal Department, Mr Scott French who was the head of the Compliance Department and Mr David Gelbak, the Marketing Director.
34 On 26 August 2011 Mr Gelbak sent an email to Ms Kruse and others stating:
... we all agreed with coupling express consent with CLIP offers prior to July 1 ... we also agreed that coupling express consent with card activation represents a significant opportunity given the number of reissues we have before July.
35 In the period from August to September 2011 GE Capital contemplated an option for cardholders to tick a separate box in the CLI Letters which would indicate consent to receiving CCLI Invitations. The intention of this was to give cardholders a choice to either “opt- in” or “opt-out” of the choice to receive CCLI Invitations.
36 However, the proposed separate tick box was not adopted. Instead, GE Capital decided to advise cardholders in the CLI Letters that by making an application to increase their credit limit they also consented to receive further CCLI Invitations.
37 In adopting this process, GE Capital’s intention was that the CLI Letters would not inform the cardholders of the option to choose not to receive CCLI Invitations.
38 It was also initially contemplated that there would be a similar “opt-in/opt-out” option in the Activation Scripts but GE Capital did not proceed with this option.
39 GE Capital’s decision to remove the option of choosing not to give CCLI Consents was reflected in various documents set out in paragraph 59 of the SOAF. One of the documents is the draft of the Activation Script dated 29 September 2011 which is set out in the SOAF at paragraph 59(c).
40 The concerns with the form of the Activation Script expressed within GE Capital during November 2011, are set out at paragraphs 71-73 of the SOAF. In the email from Mr French dated 16 November 2011 set out at paragraph 73, he stated that it was not clear that the customer had the option of not proceeding and asked that this be made clear in the communication.
41 The perceptive comment in the email of 5 January 2012, that is to say that the wording of the message could be seen to be misleading, was sent by Mr Sam Sharples, Compliance Consultant – Consumer Lending and Operations, to two employees who had the title of Communication Stream Leader. The email was referred to Mr French on 9 January 2012. He was the most senior non-legal person to receive the email.
42 A response to the email was provided by GE Capital’s Legal Department but the content of that response has not been included in the SOAF.
43 The Communication Stream Leaders replied to Mr Sharples’ email on 5 January 2012. The reply forms part of Appendix 31 to the SOAF. The effect of the reply was to assert that the customers had a choice because they could talk to an operator at any time. Notably, the email apparently refers to legal advice but the content of the advice has been redacted to claim legal professional privilege.
44 The final form of the Activation Scripts is set out at paragraph 99 of the SOAF. It included a statement that:
Before we proceed, by activating your card, you also give us consent to potentially send you credit limit increase invitations from time to time. ... Please press 1 to proceed.
45 If the cardholder pressed 1 within five seconds of the instruction to “press 1 to proceed”, the card was activated and the cardholder was recorded as giving consent to GE Capital sending them CCLI Invitations.
46 However, if the cardholder did not press 1 within five seconds after the instruction “press 1 to proceed” and waited on the line to receive the instruction “please hold”, or spoke to a customer service representative, the cardholder’s credit card was activated but he or she was not recorded as giving consent to GE Capital sending CCLI Invitations.
47 Accordingly, it was not a requirement or condition of the activation of a credit card that the cardholder give his or her consent to GE Capital sending them CCLI Invitations. Rather, a credit card could be activated irrespective of whether the cardholder consented to receiving CCLI Invitations from GE Capital.
48 Moreover, GE Capital did not inform cardholders, either in the Activation Script, or otherwise, that they had the option to choose not to give their consent to the receipt of CCLI Invitations.
49 The admission contained in paragraph 105 of the SOAF is pertinent and I will set it out in full:
By its conduct referred to in paragraphs 97-104 above, GE Capital represented that an Activation Cardholder could not activate their Credit Card unless the Activation Cardholder consented to GE Capital sending them CCLI Invitations and that the only way to activate their Credit Card was for the Activation Cardholder to consent to GE Capital sending them CCLI Invitations.
50 The Activation Scripts had a very high measure of success in procuring the consent of cardholders. This can be seen in the figures contained in paragraph 106 of the SOAF. Over 187,000 of the 202,000 cardholders who telephoned GE Capital and were told to “press 1” provided their consent to receiving credit limit increases.
51 The form of application to receive credit limit increases contained in the CLI Letters is set out at paragraph 111 of the SOAF. The CLI Letters also contained the acknowledgment set out in paragraph 113 of the SOAF as follows:
By signing this form authorising us to action your application to increase (or decrease) your current credit limit, you will also be giving us consent to send you invitations to apply to increase your credit limit from 1 July 2012.
52 However, for the reasons explained at paragraph 105 of the SOAF, GE Capital acknowledges at paragraph 116 that it was not a requirement or condition of applying for an increase in a credit limit that the cardholder consent to receive CCLI Invitations.
53 The admission which GE Capital makes at paragraph 118 of the SOAF in relation to CLI Letters is to the same effect as that contained in paragraph 105 of the SOAF, which I have set out at [49] above.
54 The CLI Letters were very successful in obtaining the consent of cardholders to receive CCLI Invitations. The figures are set out at paragraph 119 of the SOAF.
55 The methodology for Eligible Scripts was similar to that which was used for Activation Scripts. Cardholders were advised by letter that they could increase their credit limit by telephoning GE Capital. If they telephoned they were told to follow the instructions in the Eligible Scripts set out in the SOAF at paragraph 124.
56 The Eligible Scripts included the statement that by accepting the new credit limit “you are also giving us consent to potentially send you credit limit increase invitations”. The cardholder was instructed to press the number 2 in order to change the credit limit as explained in the Eligible Script.
57 If the cardholder followed the instructions as explained at paragraph 126(a) of the SOAF he or she was recorded as giving consent to GE Capital sending CCLI Invitations.
58 However, for the reasons set out in the SOAF at paragraph 128 it was not a requirement or condition of obtaining an increased credit limit that the cardholder consent to receive CCLI Invitations.
59 The admission at paragraph 130 of the SOAF is to the same effect as that contained in paragraph 105 of the SOAF.
60 The use of Eligible Scripts had a similar success rate to that which resulted from the Activation Scripts and the CLI Letters. The figures are set out at paragraph 131 of the SOAF.
61 Senior management monitored the implementation and progress of the Pre-FSB Consent Project from the time when telephone activation through the Activation Scripts commenced on 5 January 2012.
62 The matters set out at paragraphs 134 to 142 of the SOAF indicate that senior management was aware of the Project and wanted it to succeed.
63 The total cost of the Pre-FSB Consent Project was $366,000.
64 Details of ASIC’s intervention, and GE Capital’s cooperation, commencing in late April 2012 are set out at paragraphs 144 to 154 of the SOAF. I will refer to this in more detail later.
65 GE Capital’s financial position for the year ending 31 December 2013 is set out at paragraphs 156-157 of the SOAF. The figures contained in those paragraphs show some measure of growth in performance since 31 December 2011, including an after tax profit of more than $122 million.
66 There is an important public interest in the settlement of litigation brought by a regulator to enforce a civil penalty, particularly where a proceeding is likely to be lengthy and expensive: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 291; Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004] ATPR 41-993 at 48,626.
67 It is unnecessary to consider in the present case whether a different approach to that stated in NW Frozen Foods should be applied because the parties accept that I should not impose the agreed penalty unless I am satisfied that it is appropriate in all the circumstances: cf Australian Securities and Investments Commission v Ingleby [2013] VSCA 49.
68 Nor is my approach to the question of penalty affected by the decision of the High Court in Barbaro v R (2014) 305 ALR 323. I respectively adopt the observations made in a number of recent authorities that, in Barbaro, the Court did not intend to exclude, in the civil context, the making of submissions by a regulator as to the penalty: Australian Competition and Consumer Commission v Energy Australia Pty Ltd [2014] FCA 336; Australian Competition and Consumer Commission v Mandurvit Pty Ltd [2014] FCA 464.
69 In determining the appropriate pecuniary penalty in the present case, I must have regard to all relevant matters, including those which are set out in s 12GBA(2)(a) to (c) of the ASIC Act.
70 The three mandatory considerations contained in s 12GBA are relevantly identical to those in ss 76 and 76E of the former Trade Practices Act 1974 (Cth). The “French factors” stated in Trade Practices Commission v CSR Limited (1991) ATPR 41-076 therefore provide a guide to the determination of the appropriate penalty.
71 The factors identified by French J in TPC v CSR are to similar effect to those stated by Santow J in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [125]-[126] as providing guidance in the exercise of the discretion to impose a pecuniary penalty.
72 The overriding principle is that the Court must weigh all the relevant circumstances. The guiding principles stated by French J in TPC v CSR and by Santow J in ASIC v Adler may be applied to inform the exercise of the discretion but they should not be treated as a rigid catalogue of matters to be applied in every case.
73 The principal purpose of the imposition of a pecuniary penalty is to act as a specific deterrent and as a general deterrent to others who might be tempted to contravene the law: TPC v CSR at 52,152; ASIC v Adler at [125]; see also the authorities cited in Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412 at [225]-[228].
74 Nevertheless, the role of deterrence in determining the amount of a pecuniary penalty is subject to the qualification that the amount should not be greater than is necessary to achieve the objective of deterrence. An appropriate balance must be struck to avoid oppression: NW Frozen Foods at 293; ASIC v Adler at [125].
75 The process of fixing the quantum of a penalty is not an exact science. The approach which should be adopted is one of “instinctive synthesis”: Markarian v The Queen (2005) 228 CLR 357. All of the circumstances must be weighed so as to mark the Court’s view of the seriousness of the offence. Attention must be paid to the maximum penalty fixed by the statute so as to compare the worst possible case with the one before the Court. The exercise is not a mathematical one, and there is no single correct penalty: see ATSIC v Matcham at [126]-[128].
76 In determining the appropriate penalty the Court should not leave room for any impression of weakness. Nor should there be any suggestion that the quantum of the penalty may be treated as an acceptable risk of doing business: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186 at [65]-[66].
77 Separate contraventions arising from separate acts should ordinarily attract the imposition of a separate penalty appropriate for each contravention. The course of conduct principle is to be applied according to the facts of each case. The general objective of the course of conduct principle is to ensure that the penalty reflects the substance of the offending conduct, rather than a mathematical total for each separate offence: see the authorities cited in ATSIC v Matcham at [195]-[201].
78 The totality principle is to be applied as a final check to ensure that the penalty is appropriate for all of the offences: see Mill v The Queen (1988) 166 CLR 59 at 62-63; Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [5] ff.
Consideration
79 The contraventions were serious and the reach of GE Capital’s conduct was extensive and substantial.
80 This is not a case of inadvertence but is part of a carefully developed and implemented strategy which was intended to have far reaching effect. The parties are agreed that the conduct was systematic and deliberate in a number of material respects.
81 In particular, the joint submissions acknowledged that:
the misrepresentations were part of a project that was carefully developed, implemented and monitored from mid-2011 to June 2012;
the Pre-FSB Consent Project was an important one which was intended to avoid projected losses of up to $6 million;
GE Capital knew that by coupling or bundling requests for CCLI Consents with other cardholder processes, it was “less straightforward” for customers to activate cards or increase credit limits without consenting to the receipt of invitations to receive future credit limit invitations;
GE Capital contemplated an option to include separate tick boxes but deliberately chose not to give cardholders the opportunity to exercise that degree of freedom of choice; and
serious concerns were expressed within GE Capital as to whether the Project was likely to mislead or pressure cardholders, but GE Capital proceeded with its strategy notwithstanding those misgivings.
82 The importance of the Project is plain from the fact that GE Capital’s President and CEO took an active interest in it. Also, it was sponsored by senior executives who had day to day oversight and responsibility for its development and management. Two of those persons were directors of GE Capital.
83 The seriousness of the contraventions is mitigated by the fact that GE Capital has co-operated with ASIC during its investigations and in the efficient resolution of the proceeding.
84 GE Capital’s cooperation has been prompt and, subject to two qualifications, may be fairly described as comprehensive. The steps taken by GE Capital are set out in the annexed SOAF and in the joint submissions at paragraphs 125-126.
85 In particular, GE Capital’s cooperation includes the voluntary provision of documents to ASIC to assist its investigations and by agreeing not to rely on any of the consents obtained through the various forms of communication identified above.
86 The first qualification is, that as ASIC notes at paragraph 127 of the joint submissions, there was some delay in notifying cardholders that GE Capital would not rely on the CCLI Consents. The relevant dates are set out at paragraphs 147 to 150 of the SOAF.
87 The second qualification is one that is not directly noted in the joint submissions or the SOAF. It is that GE Capital received in-house legal advice in relation to the concerns expressed about the misleading nature of the communications but it has claimed privilege for the advice.
88 The content of that advice would have been a matter bearing upon the assessment of the seriousness of the contraventions but neither ASIC nor the Court has the benefit of seeing the advice that was given.
89 I have taken into account the fact that cardholders did not suffer any loss because GE Capital has agreed not to rely on any of the consents that were given.
90 Accordingly, GE Capital did not profit, in the sense that it was unable to mitigate its losses of up to $6 million which was the fundamental objective of its strategy. Nevertheless, it is well established that a substantial penalty may be imposed even though the strategy did not ultimately cause loss to consumers: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 at [57].
91 I have also taken into account the fact that GE Capital has not previously been found by the Court to have engaged in conduct which is similar to the conduct that is the subject of this proceeding: see s 12GBA(2)(c) of the ASIC Act.
92 The parties are agreed that six declarations of contravention should be made. I am satisfied that it is appropriate to make those declarations. They also agree that there were three classes of contravention. I am satisfied that I should accept that approach. It follows that the maximum penalty for each of the categories is $1.1 million which provides for a total penalty of $3.3 million.
93 Whilst in my view it is appropriate to give real credit for the prompt and comprehensive nature of GE Capital’s cooperation, the seriousness and deliberate nature of each of the contraventions must be fully reflected in the assessment of an appropriate penalty.
94 This was a systematic and deliberate attempt to mislead cardholders into giving their consent to receive invitations for future credit increases so as to avoid losses of up to $6 million which were projected to be suffered by GE Capital as a result of the tightening regulatory environment.
95 And it was a strategy which was pursued notwithstanding the concerns expressed by responsible senior employees. The concerns which they expressed, even if not communicated directly to the executives who were ultimately responsible for the project, raised matters which should have been clear to those who had the overall responsibility for its implementation.
96 The penalty to be imposed for each category of contravention should not be assessed at the lower end of the range when the seriousness of the offences is compared with the maximum penalty.
97 The penalty for the contravention reflected in the Activation Scripts should fall in the upper level of the range. Giving the maximum possible credit for GE Capital’s cooperation, it seems to me that the appropriate penalty is $600,000.
98 There is no real distinction to be drawn in the seriousness of the contravention reflected in the CLI Letters even though they were put into effect approximately three weeks after GE Capital commenced to use the Activation Scripts. In my opinion the appropriate penalty for this contravention should also be fixed at $600,000.
99 Nor is there any real distinction between the contravention reflected in the CLI Eligible Scripts and those which followed from the Activation Scripts and the CLI Letters. Nevertheless, I would be inclined to fix a figure of $500,000 for this contravention to take into account the shorter time period and the lesser number of cardholders potentially affected by the conduct.
100 The total penalty which follows from these assessments is therefore $1.7 million. However, taking into account the totality principle as a final check, it seems to me that the appropriate pecuniary penalty is $1.5 million.
101 In coming to this view, I have taken into account the need to address specific and general deterrence. It is true that GE Capital is not the largest participant in the market but it is a very substantial and profitable company. This is a matter which is relevant to achieving specific deterrence: see Australian Competition and Consumer Commission v Rural Press (2001) ATPR 41-833 at [56]; see also Australian Competition and Consumer Commission v Telstra Corporation Limited (2010) 188 FCR 238 at [209].
102 I have also taken into account the absence of a compliance program because it follows that specific deterrence is to be achieved solely through the imposition of a pecuniary penalty.
103 Here, ASIC submits that a compliance program is unnecessary because there is said to be little risk of repetition. This is because the contravening conduct was engaged in to take advantage of the opportunity to seek bundled consents before the FSB legislation came into force. In those circumstances, ASIC submits that the opportunity is no longer available to GE Capital.
104 However, in my opinion, the contravening conduct should be looked at more broadly. What was involved was an attempt to obtain consents in an unlawful manner, and the adoption of a cynical approach by seeking to make the cardholders’ choices less straightforward. This is an approach which should be marked with the Court’s disapproval of the conduct so as to deter the contravener from repeating it in any circumstances in which a cardholder is asked to consent to a course of conduct proposed by GE Capital.
Orders
105 I will therefore make the orders proposed by the parties except that order 7 which provided for a pecuniary penalty of $1 million is to be replaced by an order imposing a penalty of $1.5 million.
|
I certify that the preceding 105 (one hundred and five) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. |
Associate:
Dated: 1 July 2014
Annexure A to Reasons for Judgment
Statement of Agreed Facts
Federal Court of Australia NSD2136/2013
District Registry: New South Wales
Division: General
IN THE MATTER OF GE CAPITAL FINANCE AUSTRALIA ACN 008 583 588
Australian Securities and Investments Commission
Plaintiff
GE Capital Finance Australia ACN 008 583 588
Defendant
STATEMENT OF AGREED FACTS
Incoming legislative prohibition on credit limit increase invitations 4
GE Capital's awareness of and reaction to the Prohibition 5
Development of the Pre-FSB Consent Project 11
Pre-FSB Consent Project documents and approvals 12
Development of the Pre-FSB Consent Project documents in the period up to September 2011 15
Further concerns raised in relation to Activation Scripts in January 2012 33
Activation Scripts commence 5 January 2012 35
CLI Letters commence 1 February 2012 38
CLI Eligible Scripts commence 19 March 2012 41
Monitoring of the Pre-FSB Consent Project 45
ASIC investigation and GE Capital co-operation 48
GE Capital’s current financial position 49
1. The Plaintiff (ASIC) is a body corporate:
(a) established by section 7 of the Australian Securities Commission Act 1989 (Cth);
(b) continued by section 261 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and
(c) entitled to sue in its corporate name, pursuant to section 8 of the ASIC Act.
2. The Defendant (GE Capital) is a body corporate entitled to be sued in its own name.
3. GE Capital has since 1 March 2011 held Australian Credit Licence number 392145.
4. GE Capital is a specialist financial services provider operating in Australia and part of the global GE Capital business, which operates in 55 countries around the world and is one of the eight main businesses of General Electric. GE Capital offers retail customers in Australia credit cards. As at April 2014, GE Capital has approximately 1,624,159 retail customers and 7.7% of the credit card market in Australia, employs over 137 staff and had a profit after tax of $122,449,000 for the financial year ended 31 December 2013.
5. In the period from 5 January 2012 to 27 May 2012 (the Relevant Period), GE Capital carried on the business of providing credit to consumers (the GE Business), which business included but was not limited to:
(a) issuing the following credit cards to consumers (the Credit Cards):
(ii) GE CreditLine;
(iii) AFS CreditLine;
(iv) Buyer's Edge;
(v) Coles Group Source MasterCard (Standard and Gold Cards), rebranded as Coles MasterCard (Standard and Platinum Cards) in February 2012;
(vi) GE Money Eco MasterCard;
(vii) GE Money MasterCard;
(viii) Gem Visa;
(ix) GO MasterCard;
(x) GE Money Low Rate MasterCard;
(xi) Myer Card;
(xii) Myer Visa Card (Standard and Gold Cards);
(xiii) Care Credit;
(xiv) Coles Group Card;
(b) enabling consumers issued with Credit Cards (Cardholders) to activate their Credit Card;
(c) allowing Cardholders to change the credit limits on their Credit Card (subject to lending parameters); and
(d) providing credit to Cardholders.
6. The GE Business was undertaken in trade and commerce and was a financial service within the meaning of the ASIC Act.
7. As at the financial year ending 31 December 2011, GE Capital had:
(a) 1,685,735 customers in the GE Business (measured by the number of credit cards issued);
(b) approximately 8% of the credit card market in Australia (measured by the outstanding balances on the credit cards issued);
(c) a ranking of 6th largest credit provider in terms of Australian credit card market share;
(d) a total capital base of $939,341,663;
(e) a credit card business gross exposure (i.e. the total balance on all credit cards issued) of $4,226,378,213; and
(f) a finance income of $494,471,000 and a profit after income tax for the year of $116,759,000.
Incoming legislative prohibition on credit limit increase invitations
8. On 4 March 2011, an exposure draft of the National Consumer Credit Protection (Home Loans and Credit Cards) Bill 2011 (Cth) was released, which Bill was part of the Commonwealth Government’s “Fairer, Simpler Banking” (FSB) reforms. The Bill proposed various amendments to the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act), including ss 133BE and 133BF prohibiting a credit provider under a credit card contract from making a credit limit increase invitation by way of written communication (CCLI Invitation) in relation to the contract, unless the credit provider has first obtained express consent from the debtor to the making of CCLI Invitations (CCLI Consent) (the Prohibition).
9. In addition and as part of the Prohibition, if express consent was to be provided on or after 1 July 2012 to the making of CCLI Invitations, the written communication was required to seek the consumer's consent only in relation to whether or not to receive CCLI Invitations (and could not be coupled with other requests for consent in the same communication).
10. The Bill was assented to on 25 July 2011. According to the Explanatory Memorandum, its purpose was to “assist consumers to actively choose whether to increase their credit limit, rather than being prompted to do so by written letters from their credit provider. A consumer who accepts these types of offers can, over time, have a high credit limit and find they are unable to repay the debt in full within a relatively short period of time…”.
11. Contravention of the Prohibition by an Australian Credit Licence holder could attract a civil penalty (s 133BE(1)) or be a criminal or strict liability offence (s 133BE(2) and (3)). The Explanatory Memorandum explained the reason for the strict liability offence in the following terms: "this punishment applies regardless of fault. This is to encourage strict compliance with the prohibition on sending out credit limit increase invitations, given the potentially adverse consequences for consumers."
12. The Prohibition commenced on 1 July 2012, as did the requirement (described in paragraph 9 above) not to couple requests for CCLI Consent with other requests. The proceeding concerns breaches of the ASIC Act which occurred prior to the commencement of the Prohibition. ASIC does not allege a breach of the Prohibition or the NCCP Act itself.
GE Capital's awareness of and reaction to the Prohibition
13. By at least 4 March 2011, when the exposure draft referred to in paragraph 8 above was released, GE Capital was aware of the likely commencement of the Prohibition on 1 July 2012.
14. On 23 May 2011, GE Capital provided a submission to the House of Representatives Standing Committee on Economics in respect of the Bill introducing the Prohibition. The submission was signed by John Alexander Malcolm (also known as Skander Malcolm, President and CEO of GE Capital’s operations in Australia and New Zealand) and Debra Kruse (Deputy General Counsel and Government Relations Manager, who reported to the General Counsel, GE Australia and New Zealand).
15. GE Capital implemented a steering committee to determine strategies for, among other things, marketing and customer communications prior to and following commencement of the Prohibition (FSB Steering Committee). Those strategies included a range of communications with Cardholders to seek CCLI Consents from them in the period before commencement of the Prohibition, some of which involved coupling (also known as "bundling") requests for these CCLI Consents with other Cardholder processes ("Pre-FSB Consent Project"). The Pre-FSB Consent Project was also variously referred to in documents as the CLIPS Project, the CLIPS Interim Solution, and the Pre-FSB CLIPS, with "CLIPS" being a reference to "credit limit increase promotional invites". The three coupling strategies implemented by GE Capital during the Relevant Period and the subject of the proceeding were as follows:
(a) requiring Cardholders seeking to use their Credit Card to first activate their Credit Card (Activation Cardholders) by following instructions spoken by a pre-recorded automated voice (Activation Scripts) which informed them that by activating their Credit Card they gave CCLI Consent (as described further in paragraphs 97 to 107 below);
(b) requiring Cardholders who telephoned GE Capital seeking to increase the credit limit on their Credit Card (Telephone CCLI Cardholders) and where GE Capital offered the Cardholder a credit limit increase, to follow the instructions spoken by a pre-recorded automated voice (CLI Eligible Scripts) which informed them that by accepting a new credit limit they gave CCLI Consent (as described further in paragraphs 120 to 132 below); and
(c) sending letters (CLI Letters, also variously referred to in documents as solus letters and CLIPS letters) to the holders of credit cards referred to in paragraphs 5(a)(i) to 5(a)(xii) above (CLI Letter Cardholders) inviting them to apply for an increase in the credit limit on their Credit Card and including in the CLI Letters an application form (the Application Form) which required the Cardholder to give CCLI Consent (as described further in paragraphs 108 to 119(b) below).
16. The intention of GE Capital in coupling CCLI Consent with the Credit Card activation process was described in the minutes of the FSB Steering Committee meeting of 8 September 2011, which were prepared and distributed by Adrian Caminiti (Regulatory Program Manager) to GE Capital directors and senior executives including Greg White (Managing Director, Retailer Solutions), Rachel Cobb (General Manager, Myer), Paul Varro (Head of Finance – Retailer Solutions), David Gelbak (Marketing Director), and Matt Mansour (Chief Information Officer). The minutes stated:
“David Gelbak cleared up intention of process to bundle choice on IVR for card activation with wording added for consent by doing so. Subject to wording the committee understands that it will be less straightforward for customers to activate cards without consenting. Gavin Byrnes [Legal Counsel] endorsed this. FSB Working Group had assumed a separate choice in the activations process.”
17. David Gelbak was, at all relevant times until 27 November 2011, Marketing Director, and from 28 November 2011, General Manager – Retail Partners and the Marketing Leader. He reported at all relevant times to Rachel Cobb (Managing Director, Retailer Solutions). A copy of the email recording the minutes of the FSB Steering Committee meeting of 8 September 2011 is at Appendix 6.
18. The Pre-FSB Consent Project was an important project for GE Capital at the relevant time, and one in which John Malcolm (President and CEO of GE Capital's operations in Australia and New Zealand) took an active interest.
19. The objective of GE Capital in implementing the Pre-FSB Consent Project was reflected in various documents including the following:
(a) a document titled "Project Fairer Simpler Banking (FSB) CLIPs Interim Solution Process Business Functional Specification" issued on 12 August 2011 (the draft specification), as follows:
"2 Project Information
2.1 Project Overview
The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011, otherwise known as Fairer, Simpler Banking (FSB), introduces six separate reforms, listed below. Industry has until 1st July 2012 to comply.
The key requirements to be compliant with the Regulation by 1st July 2012 in scope are:
1. Unsolicited credit limit extension offers are not allowed unless the consumer has agreed to the service.
…
In consequence of requirement #1, because lenders can no longer offer unsolicited credit limit extensions unless the consumers' consent is received beforehand, an interim solution will take place to try getting the customers consent sooner rather than later and allow enough time for the customers consent to be received before July 1st, which solution will be the focus of this document…"
A copy of this document is at Appendix 2.
(b) a document titled "CLIP Update: 1) Turning CLIPS Back On 2) Pre FSB CLIP Activity", dated 16 August 2011 (the CLIP Update presentation), as follows:
"2) Pre FSB CLIP Activity
Background FSB regulation takes effect from July 2012.
From this date, CLIP offers can only be made to customers who have provided 'consent'.
Our Brief Identify what we can do now to capture CLIP 'consent' before the end of 2011"
A copy of the CLIP Update presentation is at Appendix 3.
(c) a draft presentation titled "Limit Impacts of FSB CLI reforms GET early CLIPS consents PRC-1 Pitch", circulated on 16 September 2011 (draft PRC-1 Pitch presentation), contained the following statement:
"Problem Statement
The objective is enable [sic] an early process to capture CLIPS consents from existing customers ahead of the introduction of FSB to mitigate the expected losses from not having express consents to leverage for CLIPS campaign post the introduction of new laws under FSB from 1 July 2012."
A copy of the draft PRC-1 Pitch presentation is at Appendix 9.
(d) the final version of the PRC-1 Pitch presentation dated 20 September 2011, as follows:
"Synopsis
Problem
Post FSB (1 July 2012) GE needs customer consents prior to sending CLIPS.
…
Opportunity
In the interim, consents can be coupled with other business activities e.g, BAU CLIP campaigns, combine with card activation calls."
A copy of this document is at Appendix 10.
(e) a presentation titled "Interim CLIPS Proposal", attached to an email dated 14 September 2011 from Adrian Caminiti (Regulatory Program Manager) to GE Capital directors and senior executives including Rachel Cobb (General Manager, Myer), Scott French (Head of Compliance – Consumer Lending), Matt Mansour (Chief Information Officer), Gavin Byrnes (Legal Counsel), Paul Varro (Head of Finance – Retailer Solutions) and others as follows:
"…
The objective is to assess the feasibility of capturing consents from existing customers ahead of the introduction of FSB to mitigate the expected losses from not having express consents to leverage for CLIPS campaigns post the introduction of new laws under FSB from 1 July 2012."
A copy of this document is at Appendix 8.
(f) the following statements in a document titled "Pre FSB CLIPs Consents PRC-2 Pitch" dated 13 December 2011:
"Problem Statement
Part of the Federal Government's Fairer, Simpler, Banking reforms requires that express consents are obtained before CLIPs can be offered. This law will take effect from 1 July 2012.
GE would send approx. 720,000 CLIPs in 2H 2012. The RACV terms, this is estimated to be worth approx. $27MM over 4 years.
This asset growth and revenue opportunity will be lost completely unless efforts are made to capture consents prior to 1 July 2012.
Opportunity
The following strategy has been agreed with the FSB Steering Committee to maximise the number of consents obtained before the implementation of FSB. It is estimated that these investments will avoid losing approx. $5MM of projected BAU RACV stated above over 4 years.
• Customer insights driven campaign (Pre Christmas)
• Merchant referral CLI calls
• CLIPs Letters
• Inbound IVR Activation calls"
A copy of this document is at Appendix 29.
20. GE Capital wanted to optimise the number of CCLI Consents that were to be obtained from existing Cardholders since at least 40% of growth in GE Capital’s credit card business was generated from those existing (not new) Cardholders using their credit limit or obtaining an increase in their credit limit and using it.
21. GE Capital projected that the Pre-FSB Consent Project would involve approximately 2.7 million Cardholder contacts over 7 months, to attract an estimated 5% to 10% (or 137,200 to 274,400) CCLI Consents. Those projections included:
(a) the proposed use of Activation Scripts to reach over 800,000 Cardholders, including the following:
(i) 184,000 Credit Cards issued on new accounts;
(ii) 216,000 Credit Cards re-issued on existing accounts after expiry or as an additional card; and
(iii) 400,000 Credit Cards issued as replacement cards in respect of “Project Diamond”, an extensive card re-issue for Coles branded Credit Cards;
(b) the proposed use of the CLI Letters to between 684,000 and 686,000 Cardholders.
22. The Pre-FSB Consent Project was intended to mitigate:
(a) $5.27 to $6.00 million, or about 22%, of projected losses of $27 million rate adjusted contributed value (RACV) for the period 2012 to 2015; and
(b) up to $1 million of the projected losses for 2012 alone.
23. Copies of the presentations containing the projections referred to in paragraphs 21 and 22 above are at Appendices 8, 10 and 29.
Development of the Pre-FSB Consent Project
24. The development of the Pre-FSB Consent Project was managed by Retailer Solutions. Retailer Solutions was responsible for the credit card business. For the financial years ending 31 December 2011 and 31 December 2012, Retailer Solutions was responsible for almost all of GE Capital's net income.
25. The project sponsors of the Pre-FSB Consent Project, in the period mid-2011 to June 2012, were the following people in the following positions, each of whom was either the Head of Retailer Solutions at the relevant time or a senior executive within that division:
(a) Greg White, at all relevant times until 30 September 2011, Managing Director - Retailer Solutions (which position, at all relevant times, included a directorship of GE Capital) and from 1 October 2011, Managing Director - Fleet and Equipment Finance. Mr White was formally appointed as a director of GE Capital between 30 March 2010 and 11 October 2011. At all relevant times, Mr White reported to the President and CEO;
(b) Rachel Cobb, at all relevant times until 2 October 2011, General Manager, Myer during which time she reported to Greg White, and from 3 October 2011, Managing Director - Retailer Solutions where she reported to John Malcolm (President and CEO). Ms Cobb was formally appointed as a director of GE Capital on 13 October 2011 and continues to hold that role; and
(c) Paul Varro, at all relevant times Head of Finance – Retailer Solutions, reporting to the Managing Director – Retailer Solutions (initially Greg White and subsequently Rachel Cobb).
Pre-FSB Consent Project documents and approvals
26. The business requirements for implementing the Pre-FSB Consent Project, including the requirements for the Activation Scripts, CLI Eligible Scripts and CLI Letters, were recorded in specification documents (specification documents) as follows:
(a) The draft versions of the Activation Scripts and CLI Eligible Scripts referred to in paragraphs 65-68 below, and the final version of the CLI Letters referred to in paragraphs 67 and 108 - 119 below, were outlined in a specification document titled “Project Fairer Simpler Banking (FSB) FS04-01 CLIPS Consent Interim Solution Process Business/Functional Specification” issued 15 November 2011 (the first specification document). In the case of the draft Activation Scripts and CLI Eligible Scripts, this was done by including an appendix titled "Appendix F:IVR Script Samples" which contained electronic copies of the draft Activation Scripts and the CLI Eligible Scripts;
(b) The draft Activation Scripts and CLI Eligible Scripts were also contained in a specification document titled “Project Fairer Simpler Banking (FSB) FS04-02 IVR Interim CLIPS Consent Solution Business/Functional Specification" issued 2 February 2012 (the second specification document).
27. There were several drafts of each of the first specification document and the second specification document. Agreed final versions of these documents for the purposes of the proceeding are at Appendices 26 and 33.
28. Each of the specification documents recorded the names of all "stakeholders" (approvers, recommendatory persons, contributors, enablers and general reviewers), and indicated whether each stakeholder was to be a "reviewer" and/or a "signatory". The specification documents were to be approved by the persons identified as "signatories" and who represented the various divisions of GE Capital. These signatories included:
(a) In relation to the first specification document, the following persons holding the following positions:
|
Name |
Department |
Title |
|
Adrian Caminiti |
Project Management Office |
Regulatory Program Manager |
|
Lorna Sneddon |
Product |
General Manager – Product and Card Direct |
|
Debra Kruse |
Legal |
Deputy General Counsel |
|
Scott French |
Compliance |
Head of Compliance – Consumer Lending |
|
David Gelbak |
Marketing |
Marketing Director |
|
Elise Heslop |
Marketing |
Marketing Leader |
|
Tracey Banson |
Credit Card Operations |
Process Improvement Leader |
(b) In relation to the second specification document, the following persons holding the following positions:
|
Name |
Department |
Title |
|
Adrian Caminiti |
Project Management Office |
Regulatory Program Manager |
|
Blessie Javellana |
Product |
Product Manager |
|
Debra Kruse |
Legal |
Deputy General Counsel |
|
Scott French |
Compliance |
Compliance Leader (Global Growth and Operations) |
|
Elise Heslop |
Marketing |
Marketing Leader |
|
Tracey Banson |
Credit Card Operations |
Process Improvement Leader |
|
Dale Sadler |
Business Solutions & Readiness |
Business Analyst Lead, FSB Project |
29. The specification documents and relevant approvals are described in further detail in paragraphs 64 to 70 and 90 to 96 below.
Development of the Pre-FSB Consent Project documents in the period up to September 2011
30. From mid-2011 to March 2012, GE Capital developed the Activation Scripts, the CLI Eligible Scripts and the CLI Letters.
31. On 1 August 2011, Debra Kruse (Deputy General Counsel) provided the following legal advice concerning the requirements to be met with respect to obtaining CCLI Consents from customers "on book" before 1 July 2012:
"This is what is required:
1. We must obtain express consent by no later than 30 June 2012 (no need for it to be written, but cannot be implied by failure to opt out)
…
What happens if the customer just does not respond to our request to provide consent, before 1 July 2012? In my view, we are entitled to continue ask for the consent as many times as we want to – up until 30 June 2012."
32. The advice was discussed by Ms Kruse with Ms Houston (Consumer and Product Manager), and set out in a memorandum emailed to Ms Houston and Adrian Caminiti (Regulatory Program Manager), which email was copied to Lorna Sneddon (General Manager – Product and Card Direct) and Scott French (Head of Compliance – Consumer Lending who reported to the Head of Compliance, GE Australia and New Zealand until on 9 January 2012 he was promoted to Compliance Leader (Global Growth and Operations), General Electric Australia and New Zealand and reported to the General Counsel, General Electric Australia and New Zealand).
33. Copies of Debra Kruse's email and memorandum, both dated 1 August 2011, are at Appendix 1.
34. In the period from August to early September 2011, GE Capital contemplated coupling requests for CCLI Consent with CLI Letters and with Credit Card activation. This was reflected in an email sent on 26 August 2011 by David Gelbak (Marketing Director) to Debra Kruse and Brendan Barrett (Product Manager), copied to Ms Sneddon, Mr Caminiti, Jonnathan Creet (Operations Project Lead), Elise Heslop (Marketing Leader) and Sonali Senaratna (Business Solutions Readiness Leader). David Gelbak (Marketing Director) stated: "…we all agreed with coupling express consent with CLIP offers prior to July 1, at D-Day we also agreed that coupling express consent with card activation represents a significant opportunity given the number of reissues we have before July."
35. A copy of Mr Gelbak's email is at Appendix 4.
36. In the period from August to early September 2011, GE Capital also contemplated an option to include a separate tick box in the CLI Letters by which a CLI Letter Cardholder could indicate consent to receiving CCLI Invitations. The intention was to seek a response from each customer as to whether they wanted to "opt-in" or "opt-out" of CCLI Invitations. This response was to be sought separately from any response concerning whether or not customers wanted to change the credit limit on their Credit Card.
37. The intention referred to in paragraph 36 above was reflected in various documents, including the following:
(a) the draft specification referred to in paragraph 19(a) above as follows:
"3 High Level Business Requirement
3.1 Requirements Overview
Currently if a customer is eligible for credit limit increase, a letter or statement message is sent out inviting the customer to apply for credit limit increase. These invitations are referred to as CLIPs or Credit Limit Increase Promotional (CLIP) invites. A customer may respond to their CLIP invite by requesting an Increase, a Decrease or no change to their current credit limit.
All the customers are considered opted-in to the service by default. However a customer can choose to opt-out by contacting GE customer service.
With the FSB regulation, financial institutions will have to obtain the customer's consent prior to sending out CLIP invites. A CLIP invite cannot be sent to a customer who has not opted-in to the service. All the customers should be considered opted-out by default.
In order to have enough time to gather the customers' consent before July 1st, the business decided to put in place an interim solution focusing on all existing customer with process should start as soon as possible. The interim solution will be in place until November 2011.
…
4 Detailed Business Functional Requirement
…
4.3.1 Existing letters updated and opt-in option incorporated
Existing CLIP letters will require amendment to incorporate the new opt-in option."
…
4.4.5 Opt-in/opt-out of CLIP invites via Mail Recorded in V+
A customer should be able to opt-in/opt-out of CLIP invites through the existing CLIPs letters which will be amended and provide the opt-in/out tick box options”
A copy of the draft specification is at Appendix 2;
(b) the CLIP Update presentation referred to in paragraph 19(b) above which illustrated the various channels for the Pre-FSB Consent Project and explained the process to be undertaken in respect of CLI Letters in a series of steps. The first three were as follows:
A copy of the CLIP Update presentation is at Appendix 3.
(c) An email dated 7 September 2011 from Elise Heslop (Marketing Leader) to Gavin Byrnes (Legal Counsel) and Tracey Richardson (Senior Compliance Officer), as follows:
"Further to our conversation this morning, I wanted to get a read from you on what a description of FSB CLIP express consent should look like for the interim solution.
I have the following below to include in the CLIP solus letter and statement for CLIPs pre 1 July 2012:
Front page where customer accepts CLIP:
Tick-Box – I choose to receive credit limit increase invitations after 1 July 2012 and understand that I can withdraw my consent at any time.
…
I'll have a discussion with Dave tomorrow when he's back in the office regarding our meeting this morning and the risks you highlighted regarding coupling express consent with CLIP acceptance pre 1 July 2012."
A copy of this document is at Appendix 5.
38. The proposed separate tick box was not adopted, and instead GE Capital determined to advise CLI Letter Cardholders that by making an application to increase their credit limit, they also consented to receiving further CCLI Invitations. The decision to adopt such a process was reflected in various documents, including the following:
(a) An email dated 25 August 2011 from Brendan Barrett (Product Manager) to Debra Kruse (Deputy General Counsel) and David Gelbak (Marketing Director), suggesting “we could integrate the CLIP Consent option into the acceptance of the current CLIP offer”. A copy of this email is at Appendix 4;
(b) An email recording the minutes of the meeting of the Interim CLIPs Solution Decipha Group dated 14 September 2011, as follows:
“GE will be capturing express consent from customers as part of the existing Credit Limit Increase offer letters Decipha process on GE's behalf.
Existing CLIPS Offer letters… wording will be amended to reflect by [sic] accepting the credit limit increase offer, the customer will also be consenting to receiving future credit limit increase offers. Only 1 tick box will feature on the CLIP offer letter (existing tick box)
…
Consent exceptions may include:
a. Customer ticks box but crosses out consent wording (indicating they only want that offer not to receive future offers); or
b. Writes note on return slip re not wanting to receive future offers (may have or have not ticked box for accepting offer);or
c. Ticks box for future offers but crosses out accepting offer; or
d. Writes note saying they want to receive future offers but doesn't want to accept current offer and therefore does not tick box …"
A copy of this email is at Appendix 7;
(c) A response to an issue raised by Tracey Banson (Process Improvement Leader) as recorded in an excel spreadsheet titled "FS04-01 FSB CLIPs Interim Solution BFS v0.1 Feedback Log" dated 27 September 2011 (Feedback Log) (BFS being an acronym for "Business Functional Specification"). The Feedback Log was used to record issues raised by the persons nominated as "Reviewers" of the specification documents, and responses from GE Capital's team of business analysts working on the Pre-FSB Consent Project.
The Feedback Log recorded that Tracey Banson raised the following issue: “I thought it was not going to give the customer the option to opt out, simply a tick box that they will tick if they do wish to opt in”.
The recorded response was: “We will not provide opt-out option but it doesn’t mean the customer cannot write something in the slip saying he opts out and we have to prevent that this may happen and decide what action to take.”
A copy of this document is at Appendix 14.
(d) an email from Elise Heslop (Marketing Leader) to Debra Kruse (Deputy General Counsel) on 12 October 2011 requesting that Ms Kruse review and approve a draft CLI Letter which did not include a separate tick box and which Ms Kruse approved on 13 October 2011. A copy of this email is at Appendix 18.
39. In adopting this process, the intention was that the CLI Letters did not inform CLI Letter Cardholders of the option to choose not to receive CCLI Invitations.
40. It was also originally contemplated that there could be an express "opt-in/opt-out" option for the Activation Scripts, as set out in paragraphs 51-52 below.
41. In mid-September 2011, the Pre-FSB Consent Project was pitched to GE Capital’s Project Review Committee (PRC) for approval.
42. The PRC was responsible for approval of projects requiring significant funding and met monthly to discuss various projects, including the timeframes for delivery of projects and budget management. The Pre-FSB Consent Project was one such project. At all relevant times the members of the PRC were the following functional heads of various divisions within GE Capital, each of whom was a director or officer of GE Capital:
(a) John Alexander Malcolm, at all relevant times President and CEO – GE Capital Australia and New Zealand (also a director of GE Capital at all relevant times);
(b) Matt Mansour, at all relevant times Chief Information Officer;
(c) Suzana Ristevski, at all relevant times Chief Marketing Officer;
(d) Mark Toohey, at all relevant times Chief Financial Officer who was formally appointed as a director of GE Capital between 1 December 2002 and 26 August 2005; and
(e) Nathan Cockerill, at all relevant times Chief Operating Officer who was formally appointed as a director of GE Capital between 30 November 2012 and 13 August 2013.
43. Rachel Cobb, (Managing Director – Retailer Solutions), Nathan Cockerill, (Chief Operating Officer), Matt Mansour (Chief Information Officer) and Suzana Ristevski (Chief Marketing Officer) all reported directly to the President and CEO, John Malcolm.
44. On 16 September 2011, in preparation for the PRC meeting, a draft presentation for the PRC was provided to Rachel Cobb (General Manager - Retailer Solutions), Nathan Cockerill (Chief Operating Officer), Debra Kruse (Deputy General Counsel), Lorna Sneddon (General Manager – Product and Card Direct), Paul Varro (Head of Finance – Retailer Solutions), and David Gelbak (Marketing Director) for review, with comment being expressly sought from Mr Varro, Ms Sneddon, Mr Gelbak and Mr Cockerill. That draft presentation:
(a) outlined the matters identified in paragraphs 19(c) and 20 to 22 above;
(b) recommended, in respect of the CLI Letters, to “add FSB consent into CLIP consent”;
(c) included, as an annexure, a draft of the CLI Letters with the Application Form referred to in paragraph 111 below and which highlighted the proposed phrase “I also consent to receiving credit limit increase invitations after 1 July 2012” as shown below;
(d) referred to "consent coupled with CLIP acceptance" in respect of the CLI Letters;
(e) included a draft of the CLI Letters which highlighted the proposed paragraph “By choosing to receive credit limit increases past 1 July 2012, you have provided consent to receiving credit limit invitations that we may choose to make from time. You can choose to withdraw your consent at any time.” as shown below, and which was ultimately incorporated into the CLI Letters in the form referred to in paragraphs 108-119 below;
(f) stated a total estimated project costs to set up the Pre-FSB Consent Project of $474,174; and
(g) stated a total forecast project cost to run the Pre-FSB Consent Project of $690,000.
45. A copy of the draft presentation referred to in paragraph 44 above is at Appendix 9.
46. On 19 September 2011, the final presentation to the PRC was distributed to each of John Malcolm (President and CEO), Matt Mansour (Chief Information Officer), Nathan Cockerill (Chief Operating Officer), Mark Toohey (Chief Financial Officer), Suzana Ristevski (Chief Marketing Officer), Rachel Cobb (General Manager,- Retailer Solutions) and Paul Varro (Head of Finance – Retailer Solutions). That presentation:
(a) included each of the matters described in paragraph 44(a) to 44(f) above but did not include draft Activation or CLI Eligible Scripts (which had not been formulated at the time of the PRC meeting);
(b) stated a total forecast project cost to run the Pre-FSB Consent Project of $710,000; and
(c) included projections for Credit Card limit increase acceptances based on deployment of the processes referred to in paragraph 21 above, as follows:
47. A copy of the final presentation referred to in paragraph 46 above is at Appendix 10.
48. On 20 September 2011, the Pre-FSB Consent Project was presented to the PRC which on that date comprised John Malcolm (President and CEO), Nathan Cockerill (Chief Operating Officer), Matt Mansour (Chief Information Officer) and Paul Varro (Head of Finance – Retailer Solutions) as delegate for Mark Toohey (Chief Financial Officer). The PRC:
(a) approved GE Capital obtaining CCLI Consents from Cardholders seeking to activate their Credit Card or to obtain a new or increase credit limit on their Credit Card by way of a pre-recorded automated voice and CLI Letters;
(b) approved the estimated cost to set up the Pre-FSB Consent Project of $0.48 million on the Pre-FSB Consent Project;
(c) requested, at John Malcolm’s (President and CEO) instigation, further insights from the business into the effectiveness of the CLI Letters in obtaining CCLI Consents compared to using periodic statements of account; and
(d) requested the business do further work to provide a “more targeted campaign” to obtain CCLI Consents in order to “maximise” GE Capital's recovery above the 22% of projected losses of $27 million rate adjusted contributed value which was the subject of the pitch to the PRC. Mr Malcolm (who had been Managing Director – Retailer Solutions prior to becoming President and CEO) was of the view that further analysis of existing Cardholders and marketing options could “produce better results”.
49. A copy of the minutes of the 20 September 2011 PRC meeting is at Appendix 11. A copy of the email advising GE Capital employees of the outcomes of the PRC meeting is at Appendix 12.
Further development and approval of the Pre-FSB Consent Project documents in the period up to October 2011
50. From September 2011 to February 2012, approvals for the specification documents were given by the various nominated stakeholders with approval responsibilities (as to which see paragraph 28 above).
51. Consistent with the approach taken in developing the CLI Letters (as to which see paragraphs 36 to 39 above), early draft versions of the Activation Scripts contained in a document titled "FSB Interim IVR Solution Sample Customer Experience Scripts revision 1" issued 23 September 2011, included an express option to give or refuse CCLI Consent as follows:
“…Your card is now active.
Now, are you interested in receiving credit limit increases in the future? If so press 1 otherwise press 2.”
52. A copy of this version of the Activation Scripts is at Appendix 13. However, as with the CLI Letters, this approach was ultimately not adopted, as described in paragraphs 58 and 59 below.
53. On 3 October 2011, Elise Heslop (Marketing Leader) sent further drafts of the Activation Scripts and CLI Eligible Scripts, as contained in a document titled "FSB Interim IVR Solution Customer Experience scripts revision 2" dated 3 October 2011, to David Gelbak (Marketing Director), Debra Kruse (Deputy General Counsel) and Scott French (Head of Compliance – Consumer Lending) for review and feedback.
54. On 6 October 2011, Scott French approved drafts of the Activation Scripts and CLI Eligible Scripts. On 12 October 2011, Debra Kruse advised in an email to Dale Sadler that none of the draft Activation Scripts or CLI Eligible Scripts were acceptable. Ms Kruse recommended replicating the wording in the CLI Letters.
55. On 11 October 2011 Tracey Banson (Process Improvement Leader) sent an email to Kelly Viera (Business Analyst) and Dale Sadler (Business Analyst Lead, FSB Project) stating “have legal given the ok that by asking a customer if they wish to give consent in the ivr and the customer does not hit the button to say yes, that they are technically not saying no, that they wish to opt out?”. Ms Banson received a response from Ms Viera “Legal will review the FS and provide sign-off” to which she responded “can you please let me know their response to this.” A copy of the email is at Appendix 19.
56. In October 2011, the final version of the CLI Letters (with the wording set out in paragraphs 111 and 113 below) was approved by persons including:
(a) David Gelbak (Marking Director) on 13 October 2011;
(b) Debra Kruse (Deputy General Counsel) on 13 October 2011; and
(c) Scott French (Head of Compliance – Consumer Lending) on 21 October 2011.
57. On 13 October 2011, Debra Kruse confirmed that the Activation Scripts and CLI Eligible Scripts "do not need to offer an opt-out option …(e.g. press 2 for No)." A copy of this document is at Appendix 20.
58. Around this time, GE Capital determined not to inform Activation Cardholders of the option to refuse CCLI Consent in the Activation Scripts. GE Capital also determined not to inform Telephone CCLI Cardholders of the option to refuse CCLI Consent in the CLI Eligible Scripts.
59. The decision not to inform Activation Cardholders or Telephone CCLI Cardholders of the option to refuse CCLI Consent was reflected in various documents, including the following:
(a) the statement to the meeting of the FSB Steering Committee meeting of 8 September 2011, referred to in paragraph 16 above. A copy of this document is at Appendix 6;
(b) a response in a document dated 27 September 2011 to a query raised by Tracey Banson (Process Improvement Leader) in the Feedback Log: “the action code IVRC is listed for opt in via the IVR but it does not list the opt out action code for IVR. Should this be included?” The response was: “No, the business decided that CSR would be the only opt-out channel” and “As agreed by the working group, the only opt-out channel will be CSR". A copy of this document is at Appendix 14;
(c) the removal of the option referred to in paragraph 51 above from later revisions of the Activation Scripts, the first of which was dated 29 September 2011 (and subsequent revisions dated 3 October 2011, 5 October 2011, 17 October 2011, 20 October 2011, 4 November 2011 and 8 November 2011). In these drafts of the Activation Scripts, none of the proposed CCLI Consent processes allowed the customer any apparent option to decline consent, such as by providing a separate number that could be pressed to signify non-consent, as had been the case in the draft referred to in paragraph 51 above. For example, the version dated 29 September 2011 stated:
"IVR: So, what's the reason for your call
Customer: Activate my card
IVR: I can help with that. First, please enter your card or account number… By activating your card you are also consenting to receive credit limit increase invitations in the future
Customer <enters card>"
And
"IVR: So what's the reason for your call
Customer: what's my available credit
…
IVR: Before I proceed with your request I've noticed something on your account. Your card is currently inactive. To activate your card now and consent to receiving credit limit invitations in the future press 1, Otherwise to proceed with your request press 7"
Copies of these documents are at Appendices 15, 16, 17, 21, 23, 24 and 25.
60. On 17 October 2011, at its next meeting the PRC again discussed the Pre-FSB Consent Project. On that date, the PRC comprised Mark Toohey (Chief Financial Officer), Suzana Ristevski (Chief Marketing Officer), Nathan Cockerill (Chief Operating Officer) and Matt Mansour (Chief Information Officer).
61. In response to the PRC’s request referred to in paragraph 48(c) above, data to indicate the effectiveness of the proposed use of the CLI Letters in obtaining CCLI Consents (as compared with the potential for use of the periodic statements of account) was presented to the PRC, and it was determined to proceed with the CLI Letters.
62. In response to the PRC’s request referred to in paragraph 48(d) above, the PRC was informed that this was still under investigation, and it was determined that the research and recommendations would be presented to John Malcolm (President and CEO) directly by David Gelbak (Marketing Director).
63. A copy of the minutes of the 17 October 2011 PRC meeting is at Appendix 22.
Further development of the Pre-FSB Consent Project documents, including approval of the first specification document and concerns raised
64. On 4 November 2011, Dale Sadler (Business Analyst Lead, FSB Project) sent Debra Kruse a further version of the Activation Scripts and CLI Eligible Scripts for her review. Ms Kruse provided comments on the same day. A copy of that further version is at Appendix 24.
65. On 8 November 2011, Dale Sadler sent Debra Kruse a further version of the Activation Scripts and CLI Eligible Scripts for her review and approval. On the same day, Debra Kruse responded "Approved". A copy of the Activation Scripts and CLI Eligible Scripts which Ms Kruse approved on 8 November 2011 are at Appendix 25.
66. Subsequently on 10 November 2011, Dale Sadler sought Debra Kruse's approval to further minor changes to the Activation Scripts and CLI Eligible Scripts which were approved by Ms Kruse on 8 November 2011. On the same day, Ms Kruse approved those changes.
67. On or about 15 November 2011, the first specification document was issued. A copy of that document is at Appendix 26. It is dated 15 November 2011. The first specification document contained the final CLI Letters referred to in paragraphs 108-119 below, including the Application Form referred to in paragraph 111 below.
68. The first specification document also attached as an appendix the version of the Activation Scripts and the CLI Eligible Scripts referred to in paragraph 65 above.
69. The first specification document provided for CLI Letters to indicate CCLI Consent even where:
(a) the CLI Letter Cardholder signed the CLI Letters, but did not tick the box indicating that a credit limit increase was requested; and
(b) the CLI Letter Cardholder signed the CLI Letters indicating that the credit limit offer was accepted but crossed out the wording on the CLI Letters that related to CCLI Consent, indicating that no future offers were wanted.
70. The Project Sponsor for the first specification document was Paul Varro (Head of Finance – Retailer Solutions). The first specification document was approved within GE Capital in the period October to December 2011 by all signatories referred to in paragraph 28(a) above.
71. On about 11 November 2011, Dale Sadler (Business Analyst Lead, FSB Project) sent an email to Scott French (Head of Compliance – Consumer Lending) and Tracey Richardson (Compliance Officer) recording statements made at a customer experience workshop, as follows:
“Re card activations via IVR the concern raised this morning was whether by using the wording “press 1 to proceed” (and not providing an opt-out or voicing a way a customer can speak to an operator) that we’re not getting ‘express consent’ and may also affect card activations.”
72. The concern referred to in this email was discussed by Tracey Richardson (Compliance Officer) with Scott French (Head of Compliance – Consumer Lending), including the possibility of raising the concern with the business divisions within GE Capital.
73. On about 16 November 2011, Scott French (Head of Compliance – Consumer Lending) stated in an email to Dale Sadler (Business Analyst Lead, FSB Project), Tracey Richardson (Compliance Officer) and Jonnathan Creet (Operations Project Lead) as follows in relation to approval of the Activation Scripts:
“...My concern is separate to the above in that I do not believe it is in any way clear that the customer has the option of not proceeding on this basis. I would ask that this be made more clear. Instead of having “dead space” after the IVR prompt I would suggest that after a brief pause, the IVR prompts “OR, if you would prefer to speak to an operator please press 2.
Can you please include this as a requirement.”
74. The procedure adopted by the Compliance Division was for risks to be highlighted and for the wording of marketing and business process releases to be approved by the Legal Division.
75. Scott French did not further pursue the concern he had raised in relation to the Activation Scripts, and did not ascertain whether his direction to include further scripting referred to in paragraph 73 above was implemented.
76. A copy of the emails referred to in paragraphs 71 to 73 above is at Appendix 27.
Information provided to and communications by Mr Malcolm in relation to CCLI Consents in November 2011
77. On about 17 November 2011, John Malcolm (President and CEO) received by email a presentation from David Gelbak (Marketing Director) on behalf of Rachel Cobb, himself and other members of the FSB Steering Committee. The presentation outlined strategies by which CCLI Consents could be sought from a further 225,000 Cardholders. The presentation was the result of the further work requested by the PRC at its 20 September 2011 meeting, referred to in paragraph 48(d) above.
78. On about 18 November 2011, the proposed strategies referred to in paragraph 77 above were approved of by John Malcolm (President and CEO), and he sent an email to the executive leadership team, forwarding the email and presentation he had received from Mr Gelbak and referred to in paragraph 77 above in which email he stated:
“…the RS is moving to a new regulatory regime whereby customers will have to consent to having their credit limits reviewed/new offers being extended. Imagine if you had to ask your customers, and get written consent, before you could have a business development discussion. With >2MM customers, we have a huge challenge. Also worth noting for context is that ~40% of all growth, probably more, comes from existing customers using the limit or getting an increase and using it. So you can understand why RS is facing into a tough challenge. The way they have responded is to use insight to target their efforts to get not as many consents as possible, but the right consents.”
79. A copy of the email and presentation is at Appendix 28.
80. The campaign the subject of Mr Malcolm's email and the presentation referred to at paragraph 77 above, was presented to the PRC at the December 2011 PRC Meeting referred to below, and implemented as a separate campaign to the campaign the subject of this proceeding.
81. On 21 December 2011, the Pre-FSB Consent Project was again discussed at a meeting of the PRC attended by each of Mark Toohey (Chief Financial Officer), Nathan Cockerill (Chief Operating Officer) and Mark Gay (Chief Technology Officer). The presentation to the PRC on that occasion:
(a) outlined the matters identified in paragraphs 21 to 22 above;
(b) stated “this asset growth and revenue opportunity will be lost completely unless efforts are made to capture consents prior to 1 July 2012”;
(c) recommended the “bundling” of CCLI Consents with Telephone Activation and CLI Letters;
(d) referred to "Consents bundled with… CLIP Letters" in respect of the CLI Letters;
(e) included projections for Credit Card limit increase acceptances based on deployment of the processes referred to in paragraph 21 above, as follows:
(f) did not include examples of the CLI Letters, or the Activation or CLI Eligible Scripts.
82. A copy of the presentation to the PRC is at Appendix 29.
83. The PRC resolved that the Pre-FSB Consent Project should “proceed as planned” with “full implementation by 31 Jan 2012, monthly campaigns there after” and proposed expenditure of $0.42m.
84. A copy of the minutes of the December 2012 PRC meeting is at Appendix 30.
85. At no relevant time prior to, or when, giving the approvals referred to in paragraphs 48 and 83 above, was the PRC provided with copies of the Activation Scripts or the CLI Eligible Scripts.
Further concerns raised in relation to Activation Scripts in January 2012
86. On 5 January 2012, GE Capital commenced using the Activation Scripts, and this continued until 27 May 2012.
87. On 5 January 2012, Sam Sharples (an internal Compliance Analyst) sent an email to Steve Susanto and Nicholas Ryan (Communications Stream Leaders) stating the following in respect of the Activation Scripts:
“I have a concern that the wording of this message could be seen to be misleading and/or pressuring customers to accept in order to be able to use their card.”
88. On 9 January 2012, the email referred to in paragraph 87 above was copied to Scott French (Compliance Leader (Global Growth and Operations) GE Australia and New Zealand). Mr French was the most senior non-legal person to receive the email. A response to the email was provided by a member of the legal department.
89. A copy of the email referred to in paragraph 87 above is at Appendix 31.
Development and approval of the second specification document in the period October 2011 to February 2012
90. The second specification document was developed and approved between October 2011 and February 2012.
91. The Project Sponsor for the second specification document was Rachel Cobb (Managing Director – Retailer Solutions). The draft version of the second specification document was approved within GE Capital in the period between October 2011 and February 2012 by all signatories referred to in paragraph 28(b) above. This included Scott French (Head of Compliance) on 31 October 2011.
92. The agreed final version of the second specification document for the purposes of the proceeding was issued on 2 February 2012 and is at Appendix 33. It contained further draft versions of the Activation Scripts and CLI Eligible Scripts which were not materially different to those approved by the signatories referred to in paragraph 28(b) above, as described in paragraph 91 above.
93. On 10 February 2012, Debra Kruse (Deputy General Counsel) approved the agreed final version of the second specification document.
94. The second specification document provided that the functional requirements for all calls (whether via the Activation Scripts, the CLI Eligible Scripts, or some other means not the subject of this proceeding) included the following:
"To opt out of CLIP consent requires that the customer request to speak with an agent or operator and they will need to request the opt out via an agent. It is not possible to opt out of clip consent via the IVR"
95. The second specification document provided that the functional requirements for calls via the Activation Scripts included the following:
“These are the requirements around the card activation clip consent offers where the card activation is requested by the customer.
FS04-02-101 Customers will be informed during the card activation process that they will be giving consent as part of the activation process
FS04-02-102 Customers that are activating as because they requested card activation will be told they are consenting when the IVR requests the customer enter their card number
FS04-02-103 Customer [sic] that are activating their card based on the IVR suggestion will be told they are consenting when the IVR informs them that they can activate their card by making a menu selection
…
FS04-02-105 The customer will not be given an option to activate in the IVR without also giving clip consent."
96. The second specification document provided that the functional requirements for calls via the CLI Eligible Scripts included the following:
“Where an account is eligible for a credit limit increase the CLIP consent will be coupled as part of the acceptance of the new limit”.
Activation Scripts commence 5 January 2012
97. During the Relevant Period, namely from 5 January 2012 to 27 May 2012, GE Capital required Cardholders seeking to use their Credit Card to first activate their Credit Card. Activation Cardholders consisted of:
(a) Cardholders who telephoned GE Capital in order to activate their Credit Card; and
(b) Cardholders who telephoned GE Capital for a reason other than to activate their Credit Card, and when advised that their Credit Card was inactive elected to activate their Credit Card – for example Cardholders who telephoned to inquire about an available credit limit, to inquire about a payment date, to advise GE Capital that a payment had been made, or to request a copy of a recent statement in respect of their Credit Card.
98. GE Capital communicated to Activation Cardholders during the Relevant Period that they could activate their Credit Card by telephoning GE Capital. Those communications were made:
(a) at the time of delivery of the Credit Card, by a letter delivered with the Credit Card and with the Credit Card's PIN, on a sticker applied to the Credit Card on delivery;
(b) by follow up letters sent to Cardholders that had not activated the Credit Card; and
(c) by reminders posted on the online service page.
99. During the Relevant Period, GE Capital required Activation Cardholders to follow the instructions in the final versions of the Activation Scripts which informed them that by activating their Credit Card they gave their consent to GE Capital sending them CCLI Invitations. The Activation Scripts stated:
"Before we proceed, by activating your card, you also give us consent to potentially send you credit limit increase invitations from time to time. In each case, whether you want to apply for a credit limit increase will be your choice and granting the credit limit increase will be at our discretion. You can withdraw your consent at any time by speaking with a customer service representative.
Please press 1 to proceed."
100. There were no material differences between the final versions of the Activation Scripts and the versions of the Activation Scripts attached to the first specification document referred to in paragraphs 67 and 68 above and approved in the circumstances referred to in paragraph 70 above. There were also no material differences between the final versions of the Activation Scripts and the versions of the Activation Scripts incorporated into the second specification document referred to in paragraphs 90 - 96 above, and approved in the circumstances referred to in paragraph 91 above. Copies of the final versions of the Activation Scripts are at Appendix 36.
101. If the Activation Cardholder pressed 1 within 5 seconds of the instruction to "press 1 to proceed", the Activation Cardholder's Credit Card was activated and the Activation Cardholder was recorded as giving consent to GE Capital sending them CCLI Invitations. If the Activation Cardholder did not do this but instead performed any one of the following actions, the Activation Cardholder's Credit Card was activated but the Activation Cardholder was not recorded as giving consent to GE Capital sending them CCLI Invitations:
(a) taking no action and instead waiting for 5 seconds after the instruction to "press 1 to proceed" until instructed to "please hold";
(b) pressing a number other than 1 within 5 seconds of the instruction to "press 1 to proceed" and then waiting until instructed to "please hold"; or
(c) speaking to a customer service representative in circumstances where the Activation Cardholder had failed to follow the instructions in the Activation Scripts correctly.
102. After a Credit Card had been activated, whether by the Activation Cardholder pressing 1 or by one of the methods identified in paragraph 101(a)-(c) above, GE Capital informed the Activation Cardholder via the Activation Scripts or the relevant customer service representative that their Credit Card had been activated.
103. Accordingly, it was not a requirement or condition of the activation of a Credit Card that the Activation Cardholder give their consent to GE Capital sending them CCLI Invitations. A Credit Card could be activated irrespective of whether the Activation Cardholder consented to GE Capital sending them CCLI Invitations.
104. GE Capital did not inform Activation Cardholders, via the Activation Scripts or otherwise, that they had an option to choose to give consent or not to give consent to receiving CCLI Invitations, nor that their Credit Card could be activated without pressing 1 by one of the methods identified in paragraph 101(a)-(c) above, nor that if they activated their Credit Card by one of the methods referred to in paragraph 101(a)-(c) above they were not required to give their consent to GE Capital sending them CCLI Invitations.
105. By its conduct referred to in paragraphs 97-104 above, GE Capital represented that an Activation Cardholder could not activate their Credit Card unless the Activation Cardholder consented to GE Capital sending them CCLI Invitations and that the only way to activate their Credit Card was for the Activation Cardholder to consent to GE Capital sending them CCLI Invitations.
106. During the Relevant Period, 202,159 Activation Cardholders were required to follow the instructions "press 1 to proceed" in the Activation Scripts. Of those Activation Cardholders:
(a) 187,621 Activation Cardholders (92.8%) provided CCLI consent by pressing 1 within 5 seconds of the instructions "press 1 to proceed";
(b) 14,538 Activation Cardholders (7.2%) did not press 1 in within 5 seconds of the instructions "press 1 to proceed" but activated their Credit Card by one of the methods described in paragraph 101(a)-(c) above; and
(c) by 11 December 2012, 114 Activation Cardholders had subsequently withdrawn the CCLI Consent given by means of the Activation Scripts.
107. During the Relevant Period, 1,121 Activation Cardholders were transferred from the Activation Scripts to a customer service representative. Some of those Activation Cardholders were transferred a customer service representative after they were required to follow the instructions to "press 1 to proceed" in the Activation Scripts.
CLI Letters commence 1 February 2012
108. On 1 February 2012, GE Capital commenced sending CLI Letters in the final form referred to at paragraphs 67 above and 111 to 113 below and approved in circumstances referred to at paragraph 56 above, and this continued until 27 May 2012.
109. From 1 February 2012 to 27 May 2012 (the February/May period), GE Capital sent CLI Letters to the CLI Letter Cardholders inviting them to apply for an increase in the credit limit on their Credit Card. The CLI Letters contained the Application Form which required the Cardholder to give their consent to GE Capital sending them CCLI Invitations in order to apply for an increase in the credit limit on their Credit Card.
110. The CLI Letters were initially proposed to be signed by Greg White, who was Managing Director – Retailer Solutions until 30 September 2011. However, they were ultimately signed by Rachel Cobb, who took over Mr White's position as the Managing Director – Retailer Solutions on 3 October 2011.
111. During the February/May period, GE Capital informed CLI Letter Cardholders, via the Application Form, that when they signed the Application Form they consented to receiving CCLI Invitations. The Application Form stated:
" [ ] I would like to increase my credit limit to $X,XXX
OR
[ ] I would prefer a lower amount of $ lower than the amount invited to apply for but higher than my current credit limit.
By signing below, I acknowledge that I have read all of the information in this letter and would like to increase my credit limit. I also consent to receiving invitations (from time to time) to apply to increase my credit limit after 1 July 2012.
Signature Date: / / "
112. A copy of the CLI Letters is at Appendix 37.
113. During the February/May period, GE Capital informed CLI Letter Cardholders, via the CLI Letters, that when they signed the Application Form they consented to receiving CCLI Invitations. The CLI Letters stated:
"By signing this form authorising us to action your application to increase (or decrease) your current credit limit, you will also be giving us consent to send you invitations to apply to increase your credit limit from 1 July 2012"
114. If the CLI Letter Cardholder signed the Application Form and sent it to GE Capital, the CLI Letter Cardholder's application for an increase in the credit limit on their Credit Card was processed by GE Capital and the CLI Letter Cardholder was recorded as giving consent to GE Capital sending them CCLI Invitations.
115. If the CLI Letter Cardholder performed any one of the following, the CLI Letter Cardholder's application for an increase in the credit limit on their Credit Card was processed by GE Capital but the CLI Letter Cardholder was not recorded as giving consent to GE Capital sending them CCLI Invitations:
(a) crossing out the text relating to the giving of consent and sending the signed Application Form to GE Capital; or
(b) writing on the Application Form words to the effect that that the CLI Letter Cardholder does not give consent to receiving CCLI Invitations and sending the signed Application Form to GE Capital.
116. Accordingly, it was not a requirement or condition of applying for an increase in the credit limit on their Credit Card that the CLI Letter Cardholder consent to receiving CCLI Invitations. The CLI Letter Cardholder could apply for an increase in the credit limit on their Credit Card irrespective of whether they gave their consent to receiving CCLI Invitations, including without consenting to receiving CCLI Invitations by adopting one of the methods referred to in paragraph 115 above.
117. GE Capital did not inform CLI Letter Cardholders, via the CLI Letters, the Application Form or otherwise, that they had an option to choose to give consent or not to give consent to receiving CCLI Invitations, nor that they could apply for an increase in the credit limit on their Credit Card without consenting to receiving CCLI Invitations by adopting one of the methods referred to in paragraph 115 above, nor that if they applied for an increase in the credit limit on their Credit Card by one of the methods referred to in paragraph 115 above, they were not required to consent to receiving CCLI Invitations.
118. By its conduct referred to in paragraphs 108 - 117 above, GE Capital represented that to apply for an increase in the credit limit on their Credit Card the CLI Letter Cardholder was required to consent to GE Capital sending them CCLI Invitations, and that the only way for a CLI Letter Cardholder to apply for an increase in the credit limit on their Credit Card using the CLI Letters was for the Cardholder to consent to GE Capital sending them CCLI Invitations.
119. During the February/May period, GE Capital sent 530,992 CLI Letters to CLI Letter Cardholders. Of those CLI Letter Cardholders:
(a) 21,046 CLI Letter Cardholders applied for a credit limit increase by means of the CLI Letters. Of those;
(i) 21,008 CLI Letter Cardholders (being 99.8% of the 21,046 referred to above) consented to receiving CCLI Invitations by means of signing and returning to GE Capital the CLI Letters;
(ii) 38 CLI Letter Cardholders (being 0.2% of the 21,046 referred to above) advised refusal of consent to receiving CCLI Invitations upon return of the CLI Letters;
(b) by 11 December 2012, 14 CLI Letter Cardholders had subsequently withdrawn the CCLI Invitation consent given by means of the CLI Letters.
CLI Eligible Scripts commence 19 March 2012
120. On 19 March 2012, GE Capital commenced using the final versions of the CLI Eligible Scripts, and this continued until 27 May 2012.
121. From 19 March 2012 to 27 May 2012 (the March/May period), Cardholders were advised by letter that they could seek an increase to their credit limit by telephoning GE Capital. During the February/May period, GE Capital sent 530,992 letters to the holders of the Credit Cards referred to in paragraph 5(a)(i) to 5(a)(xii) above advising Cardholders they could call GE Capital to apply for a credit limit increase.
122. In the March/May period, GE Capital required Telephone CCLI Cardholders, who telephoned GE Capital seeking to increase the credit limit on their Credit Card, to consent to GE Capital sending them CCLI Invitations in order to obtain an increase in their credit limit. These Telephone CCLI Cardholders consisted of:
(a) Cardholders who sought a credit limit increase which was acceptable to GE Capital and where GE Capital offered the Cardholder the credit limit increase sought by the Cardholder; and
(b) Cardholders who sought a credit limit increase which was above an amount which was acceptable to GE Capital and where GE Capital offered the Cardholder a credit limit increase lower than that sought by the Cardholder.
123. During the March/May period, GE Capital required Telephone CCLI Cardholders to follow the instructions in the final versions of the CLI Eligible Scripts.
124. During the March/May period, Telephone CCLI Cardholders were informed by the CLI Eligible Scripts that by accepting a new credit limit, the Telephone CCLI Cardholder gave consent to GE Capital sending them CCLI Invitations. The CLI Eligible Scripts stated:
"By accepting this new credit limit you are also giving us consent to potentially send you credit limit increase invitations from time to time. In each case whether you want to apply for a credit limit increase will be your choice and granting the credit limit increase will be at our discretion. You can also withdraw your consent at any time by speaking with a customer service representative.
If you are sure based on your current personal circumstances that if you use the full credit limit offered to you you'll be able to make these repayments without financial hardship press 1.
To change this credit limit press 2.
Otherwise to cancel this request press 7."
125. There were no material differences between the final versions of the CLI Eligible Scripts and the versions of the CLI Eligible Scripts attached to the first specification document referred to in paragraphs 67 and 68 above and approved in the circumstances referred to in paragraph 70 above. There were also no material differences between the final versions of the CLI Eligible Scripts and the versions of the CLI Eligible Scripts incorporated into the second specification document referred to in paragraphs 90 - 96 above, and approved in the circumstances referred to in paragraph 91 above. Copies of the CLI Eligible Scripts are at Appendix 36.
126. If, within 10 seconds of the instruction to "press 7", the Telephone CCLI Cardholder:
(a) pressed 1 - then the Telephone CCLI Cardholder received the new or increased credit limit on their Credit Card and the Telephone CCLI Cardholder was recorded as giving consent to GE Capital sending them CCLI Invitations;
(b) pressed 2 – then the CLI Eligible Scripts returned to the point where the Telephone CCLI Cardholder was asked to enter a new credit limit before following the CLI Eligible Scripts again including the instruction to "press 1";
(c) pressed 7 – then the Telephone CCLI Cardholder's request was cancelled and the Telephone CCLI Cardholder was asked if they required another service; or
(d) pressed 8 – then the CLI Eligible Scripts repeated the just concluded section of the CLI Eligible Scripts, being the CLI Eligible Scripts that led into the request for the Telephone CCLI Cardholder to press 1, 2 or 7.
127. If the Telephone CCLI Cardholder did not press 1, 2, 7, or 8 within 10 seconds of the instruction to "press 7", and instead performed any one of the following actions, the Telephone CCLI Cardholder received the new or increased credit limit on their Credit Card but the Telephone CCLI Cardholder was not recorded as giving consent to GE Capital sending them CCLI Invitations:
(a) pressing 0 and speaking to a customer service representative;
(b) not hanging up and not pressing any number and instead waiting for the CLI Eligible Scripts to repeat until transferred to a customer service representative;
(c) pressing a number other than 1, 2, 7 or 8, and then waiting for the CLI Eligible Scripts to repeat until transferred to a customer service representative; or
(d) speaking to a customer service representative in circumstances where the Telephone CCLI Cardholder pressed the incorrect button too many times.
128. Accordingly, it was not a requirement or condition of obtaining the new or increased credit limit on their Credit Card that the Telephone CCLI Cardholder give their consent to GE Capital sending them CCLI Invitations. The Telephone CCLI Cardholder could obtain the new or increased credit limit on their Credit Card irrespective of whether they consented to GE Capital sending them CCLI Invitations.
129. GE Capital did not inform Telephone CCLI Cardholders, via the CLI Eligible Scripts or otherwise, that they had an option to choose to give consent or not to give consent to receiving CCLI Invitations, nor that they could obtain an increase in the credit limit on their Credit Card without pressing 1 by one of the methods referred to in paragraph 127 above, nor that seeking an increase in the credit limit on their Credit Card by one of the methods referred to in paragraph 127 above did not require them to give their consent to GE Capital sending them CCLI Invitations.
130. By its conduct referred to in paragraphs 120-129 above, GE Capital represented that to obtain the new or increased credit limit on their Credit Card the Telephone CCLI Cardholder was required to consent to GE Capital sending them CCLI Invitations, and that the only way to obtain the new or increased credit limit on their Credit Card was for the Telephone CCLI Cardholder to consent to GE Capital sending them CCLI Invitations.
131. During the March/May period, 4,174 Telephone CCLI Cardholders were required to follow the instructions to "...press 1.... press 2.... press 7..." in the CLI Eligible Scripts. Of those Telephone CCLI Cardholders:
(a) 3,836 Telephone CCLI Cardholders (being 91.9% of the total number referred to above) pressed 1 and gave consent to GE Capital sending them CCLI Invitations, and consequently received their new or increased credit limit;
(b) 338 Telephone CCLI Cardholders (being 8.1% of the total number referred to above) did not press 1 in response to the CLI Eligible Scripts. Of those:
(i) 61 Telephone CCLI Cardholders pressed 7 and did not receive a new or increased credit limit; and
(ii) 17 Telephone CCLI Cardholders did not press any key;
(c) 46 Telephone CCLI Cardholders hung up; and
(d) by 11 December 2012, 22 Telephone CCLI Cardholders had subsequently withdrawn the CCLI Invitation consent given by means of the CLI Eligible Scripts.
132. During the March/May period, 898 Telephone CCLI Cardholders were transferred from the CLI Eligible Scripts to a customer service representative. Some of those Telephone CCLI Cardholders were transferred to a customer service representative after they were required to follow the instruction to "...press 1.... press 2.... press 7..." in the CLI Eligible Scripts.
Monitoring of the Pre-FSB Consent Project
133. Senior management monitored the implementation and progress of the Pre-FSB Consent Project after the commencement of Telephone Activation on 5 January 2012.
134. On 19 January 2012, Rachel Cobb (Managing Director – Retailer Solutions) received a status report in relation to the Pre-FSB Consent Project which:
(a) noted that there had been delays in the implementation of the Pre-FSB Consent Project which had contemplated that use the Activation Scripts, CLI Eligible Scripts and CLI Letters would commence on 15 November 2011;
(b) stated that since the "go live" date of 5 January 2012, 92.3% of Activation Cardholders had provided consent to GE Capital via the Activation Scripts; and
(c) included the following table showing GE Capital's share of the credit card market in Australia in August 2010 to August 2011:
135. A copy of the status report and covering email from Adrian Caminiti (Regulatory Program Manager) to Rachel Cobb and others is at Appendix 32.
136. On 4 April 2012, Jessica Aloi (General Manager, Product and Direct Cards) sent an email to Elise Heslop (Marketing Leader) stating the following:
“I was speaking with Rachel yesterday about pre-FSB CLIP performance and the pitch for PRC.
Given where we are in terms of our target, Rachel wants to know whether there is a business case for switching off insurance cross-sell until after 1 July, so we can claw back some of the drop out we are seeing on activations.”
137. Ms Aloi's reference to "insurance cross-sell" was a reference to GE Capital diverting Activation Cardholders who would otherwise have proceeded through the Activation Scripts away from those Scripts for the purpose of offering them insurance.
138. On 4 April 2012, Ms Heslop responded to Ms Aloi's email, attaching an activations waterfall which identified that 87,136 Activation Cardholders had been diverted away from the Activation Scripts and identifying options to claw back some of the drop out since most of GE Capital's CCLI Consents were forecast to come from the Activation Scripts. The possible options included prioritising CCLI Consent over insurance cross-sell until the end of June when the Prohibition commenced and adding CCLI Consent to the end of the insurance cross-sell process.
139. A copy of the email exchange referred to in paragraphs 136 and 137 above is at Appendix 34.
140. On 4 April 2012, Elise Heslop (Marketing Leader) sent an email to Rachel Cobb (Managing Director – Retailer Solutions) in relation to an update on the performance of the Pre-FSB Consent Project. On the same date Rachel Cobb sent a reply email stating:
“I am interested in where we are at and what more we need to do to achieve maximum opt-in.”
141. Further to Rachel Cobb's email of 4 April 2012 in paragraph 140 above, Elise Heslop (Marketing Leader) and Richard Drummond (Client Relationship Management Leader) sent emails to Rachel Cobb (Managing Director – Retailer Solutions) on 5 and 10 April 2012, respectively. On 10 April 2012, Rachel Cobb replied stating:
"Thanks Richard - feel like we need some urgency now around accelerating this...".
142. A copy of the email exchange referred to in paragraph 141 above is at Appendix 35.
143. The total cost of the Pre-FSB Consent Project was $360,000.
ASIC investigation and GE Capital co-operation
144. In late April 2012, ASIC communicated to GE Capital its concerns that GE Capital was not informing Cardholders of the option to choose not to receive CCLI Invitation.
145. On 27 May 2012, GE Capital ceased use of the Activation Scripts and CLI Eligible Scripts and sending the CLI Letters in order to allow time to prepare for new processes by which it would obtain CCLI Consents following commencement of the Prohibition.
146. On 1 July 2012, the amendments to the NCCP Act took effect, and the Prohibition commenced.
147. Following detailed discussions between ASIC and GE Capital about ASIC’s concerns, GE Capital informed ASIC on about 4 June 2012 that given ASIC’s concerns GE Capital had not relied, and did not intend to rely, on the CCLI Consents it had obtained via the Activation Scripts and CLI Eligible Scripts.
148. On 20 August 2012, the PRC (comprising John Malcolm (President and CEO), Matt Mansour (Chief Information Officer), Nathan Cockerill (Chief Operating Officer), and Kate Malone and Donna Pidduck as delegates of Mark Toohey (Chief Financial Officer) and Suzana Ristevski (Chief Marketing Officer), reviewed the performance of the Pre-FSB Consent Project. The minutes of that meeting recorded:
“In hindsight decision to bundle consents caused a significant target offset. Decision potentially improved by regulatory discussions and customer experience assessment.”
149. On about 10 January 2013, GE Capital informed ASIC that it had not relied, and did not intend to rely, on the CCLI Consents it had obtained via the CLI Letters.
150. In September and October 2013, GE Capital wrote to affected Cardholders notifying them that GE Capital would not rely on the CCLI Consents previously provided and informing Cardholders of the means by which they could now provide consent to CCLI Invitations should they wish to do so.
151. An example copy of this letter is at Appendix 38.
152. GE Capital has not used or relied on the CCLI Consents it obtained using the Activation Scripts, the CLI Eligible Scripts or the CLI Letters.
153. GE Capital has co-operated with ASIC throughout its investigation of the matters described in this document, notably by voluntarily providing to ASIC at an early stage copies of scripts which were not materially different to the Activation Scripts and CLI Eligible Scripts.
154. GE Capital has also co-operated with ASIC in respect of the Court proceedings by participating in the making of this joint statement of agreed facts.
155. GE Capital has not been previously found by a court to have contravened any provision of the ASIC Act.
GE Capital’s current financial position
156. For the financial year ending 31 December 2013, GE Capital realised:
(a) a finance income of $597,596,000;
(b) retained earnings of $385,696,000; and
(c) a profit after income tax of $122,449,000.
157. As at 31 December 2013, GE Capital had:
(a) a total equity of $1,308,739,000;
(b) total assets of $3,806,438,000; and
(c) total liabilities of $2,497,699,000.
Date: 11 June 2014
