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Telstra faces $50 million fine for ‘unconscionable conduct’

Man in business attire holding up red card to denote a fine
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The Australian Competition and Consumer Commission (ACCC) has settled a case against Telstra Corporation Ltd (ASX: TLS) for “unconscionable conduct”.

The telco has agreed to the filing of court proceedings to potentially impose penalties totalling $50 million. The Federal Court will now decide what the exact penance will be.

Telstra admitted staff at 5 retail stores signed up 108 Indigenous customers to post-paid mobile phone contracts that they didn’t understand and couldn’t afford.

The sales staff used “unfair selling tactics and took advantage of a substantially stronger bargaining position” during those sign-ups.

“Many of the consumers spoke English as a second or third language, had difficulties understanding Telstra’s written contracts, and many were unemployed and relied on government benefits or pensions as the primary source of their limited income,” stated the ACCC.

“Some lived in remote areas where Telstra provided the only mobile network.”

Vulnerable customers devastated with debt

The average debt each customer racked up was more than $7,400. Many faced financial hardship with Telstra even referring some to debt collectors.

In many of the cases, the ACCC stated sales staff manipulated credit checks to allow those customers to sign contracts they otherwise would be barred from. This included inputting that the customer was employed when they weren’t.

Telstra chief Andrew Penn apologised for the conduct.

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

“Early this year I visited the NT, SA and WA to meet with some of the affected communities and customers to apologise and hear first-hand of the impact of these sales practices on them.”

The dodgy sales tactics were admitted at Telstra-licenced stores in Alice Springs (NT), Casuarina (NT), Palmerston (NT), Arndale (SA) and Broome (WA) between January 2016 and August 2018.

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

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

‘Extreme anxiety’ about going to jail

Sims said the personal toll on the affected customers was immense.

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

“Telstra is Australia’s largest telecommunications provider. It has clearly failed to meet community expectations for appropriate business behaviour.”

The telco has since waived the debts, fully refunded payments and instituted mechanisms to reduce the chance that such sales tactics could be used.

The company has also agreed to expand its Indigenous telephone helpline and upgrade its digital literacy program for customers in remote areas.

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

Penn said Telstra wanted to be “a responsible business” and do right by the community but it had failed this time.

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

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

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Returns as of 6th October 2020

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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