Westpac's unsolicited debit card churn

It’s almost always against the law for banks and other financial institutions to send unsolicited credit and debit cards to consumers.
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01.Unsolicited debit cards


Update: 16 December 2009

The Federal Court of Australia has ruled in favour of Westpac, following an action taken by ASIC. The regulator had alleged that Westpac's behaviour in sending unsolicited MasterCard debit cards to customers was illegal. However, the judgement expressed the opinion that
Westpac's new MasterCard Debit cards were "of the same kind" as the bank's old HandyCard Debit cards. ASIC will assess whether or not to appeal the decision and subsequently its effect on Regulatory Guide 201, which clearly interpreted Westpac's behaviour as in breach of legislation.

What happened

Westpac sent unsolicited debit cards to consumers when shifting them to the MasterCard Debit system this year. The Australian Securities and Investments Commission (ASIC) Act 2001 outlawed the sending of unsolicited credit and debit cards in certain circumstances. ASIC's guidelines left no doubt about how it interprets the law, clarifying the circumstances under which it believes it’s illegal for banks to send unsolicited cards to their customers. But Westpac stated it was “comfortable” with the approach it took, and applied to the Federal Court for declarations that its conduct was lawful.

The potential problems arising from unsolicited cards include privacy breaches, cards falling into the wrong hands, general consumer confusion, and a potential to increase cardholder debt. Sending unsolicited cards can also churn consumers into more profitable payment systems, with new costs and features.

Generally, when your credit or debit card expires or if you lose it, the provider can send a replacement. But it must be a similar card; according to ASIC, the bank cannot replace or supplement existing EFTPOS cards with a new MasterCard or Visa Debit, for example. While customers who are shifted to MasterCard or Visa Debit usually experience no ostensible change in fees, and often some additional benefits such as chargeback protection and the ability to use a debit card online and overseas, the fees and costs behind the scenes are different.

Banks often make more money when consumers use MasterCard or Visa Debit instead of EFTPOS, while retailers face higher costs to accept such cards for payment. You can read more about this in our EFTPOS versus Scheme Debit news story.

Before the recent Federal Court judgement, a Westpac spokesperson, Jane Counsel, said the bank “issued the MasterCard debit cards in response to growing customer demand for a card with greater functionality than our standard Handycard. We remain comfortable with the approach we have taken.”

However, Westpac customers weren’t asked if they wanted the new card or access to the MasterCard debit system. They were encouraged to discard their existing in-date EFTPOS cards and to start using the new cards which have both MasterCard Debit and EFTPOS functionality.

Banks will continue pushing new products and schemes — Commonwealth Bank, for example, is currently offering a free additional American Express card to certain MasterCard and Visa account holders — but customers must opt in before new cards can be sent to them.

If you receive a new card you didn’t request or agree to, you can make a formal complaint to the card provider and if that’s not resolved satisfactorily, contact the Financial Ombudsman Service. The Regulatory Guide can be found at the ASIC website — check out example 6 for ASIC's view on banks that send unsolicited Scheme Debit/EFTPOS cards to replace existing EFTPOS-only cards. It's a view that the Federal Court disagrees with, having found that Westpac did not breach Section 12DL of the ASIC Act.

Please note: this information was current as of December 2009 but is still a useful guide to today's market.



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