ASIC swoops on GE debt 'harassment'

[Neal Lyster]

ASIC swoops on GE debt 'harassment'

Anthony Klan | May 23, 2008

http://www.theaustralian.news.com.au/story/0,25197,23743470-643,00.html

AUSTRALIA'S corporate watchdog has seized control of the debt collection practices of lending giant GE Money, amid accusations that the group harassed borrowers by contacting them at their workplaces and making late night visits to their homes.

In a rare move, the Australian Securities and Investments Commission has also taken control of what it called the "poorly managed" Hallmark insurance businesses owned by GE Money and restricted its financial services licence after the group failed to comply with earlier requirements imposed by the watchdog in 2006.

More than 1000 defaulting borrowers of GE Money -- a subsidiary of New York Stock Exchange-listed giant General Electric -- are expected to receive compensation payments after ASIC's investigations revealed the group's debt collectors had made "excessive or inappropriate" contact with customers.

Among the complaints, GE Money was accused of calling some defaulting borrowers 100 times in a month and, in some cases, calling 10 or more times in a single day.

ASIC said GE Money, which owns home lender Wizard, had also "unnecessarily and unreasonably" contacted third parties of borrowers, including neighbours, work colleagues and family members.

The range of GE Money borrowers subjected to the group's "inappropriate" debt collection activities is understood to extend to every division of the credit provider.

They include Wizard clients, personal loan holders, borrowers with car loans, and people holding GE credit cards, including Myer and Coles cardholders.

ASIC launched investigations into GE Money's debt-collection processes after receiving complaints from borrowers in 2004 and 2005.

The corporate regulator imposed an "enforceable undertaking" on GE Money's debt collection operations, requiring the business to engage an "independent expert" to review its operations over two years to ensure compliance with ASIC's debt collector guidelines.

If that expert makes recommendations for improvement, ASIC must be provided with an "action plan" outlining the implementation of changes.

GE Money's debt collection division must also pay compensation to affected borrowers -- with the rate to be set by the Banking and Financial Services Ombudsman -- and to arrange an industry workshop promoting "best practice" in debt collection.

GE Money spokesman Geoff Lynch said the group had been working with ASIC on improving its debt collection procedures for "a couple of years".

"We've done an enormous level of work over the last two years to strengthen our practices in terms of compliance and customer focus," Mr Lynch said.

He said the company would not target individual debt collectors -- all employed in-house -- but would "better train" employees.

ASIC found that GE Money's Hallmark General Insurance Company and Hallmark Life Insurance Company had failed to comply with enforceable undertakings set by the regulator in 2006.

As part of those earlier undertakings, the corporate regulator found the two had been selling insurance to customers whose needs "had not been identified or understood".

The Hallmark companies are prevented from selling insurance on a "personal level" -- that is, selling insurance on the grounds it takes into account a client's personal circumstances -- and instead may only offer insurance at a "general" level.

ASIC executive director of enforcement Jan Redfern said the regulator's approach to those "serious issues" surrounding the Hallmark companies had taken into account "major changes" to GE Money's senior management. "However ... ASIC will continue to monitor GE Money closely and will not hesitate to pursue additional regulatory options if required," she said.

GE Money's Mr Lynch said a new general manager of insurance had been appointed last year and a number of new appointments had been made in the sales and compliance areas.

Consumer advocate Denise Brailey said ASIC had taken a "soft approach" to GE Money.

"It's not good enough for ASIC to make GE Money undertake an enforceable undertaking and then just let them continue on for a couple of years without ensuring it's met," she said.

"Rather than adding more conditions to the financial services licence, ASIC should suspend the licence until these problems are corrected."