Federal Court Approves $50M Fine For Telstra’s ‘Unconscionable’ Conduct Towards Indigenous Customers

Federal Court Approves $50M Fine For Telstra’s ‘Unconscionable’ Conduct Towards Indigenous Customers
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In late 2020 the The Australian Competition and Consumer Commission (ACCC) announced it was taking Telstra to federal court over ‘unconscionable’ conduct regarding selling mobile plans to Indigenous customers. The telco accepted the proposed $50 million fine in April and the Federal Court has now accepted the amount.

The Federal Court approves the ACCC’s proposed fine for Telstra

In a court-enforceable undertaking Telstra will pay the $50 million fine originally proposed by the ACCC, plus costs. This is the second-largest penalty ever handed down under Australian Consumer Law.

The ACCC made the announcement on Thursday, also stating that further remedies have been taken by Telstra. This includes remediation to affected consumers, improve its existing compliance program, reviewing and expanding its Indigenous telephone hotline and enhance its digital literacy program for consumers in some remote areas.

“We expect much better behaviour from large businesses like Telstra,  but all businesses in Australia have a responsibility to ensure sales staff are not breaching consumer law by manipulating or tricking consumers into buying products or services they do not need or cannot afford,” ACCC chair, Rod Sims, said in a statement.

“Today the Federal Court has formally approved the settlement. This brings an end to what has been a deeply challenging and disappointing chapter in our history and one in which we are already taking steps to fix,” Telstra CEO, Andrew Penn, said in a blog post on Thursday.

In addition to the above remediation Telstra also announced a new policy statement.

“We have also launched our new Indigenous Policy statement which details how we engage, support and play our part in Indigenous communities, including through the positive difference that communication and connectivity can have in these communities,” Penn said.

“It is an important document, but I want to stress that words are easy but it is living up to them that is the real test. It’s a test all of us at Telstra accept and are committed to passing.”

Penn also took the opportunity to apologise again.

“We should have listened more carefully. We should have been more attuned to what was happening. We should have picked this up earlier,” Penn said.

“What we want to build is connection and a partnership and that will be at the heart of our approach going forwards. It is only through a true partnership with Indigenous Australians that we will see the opportunities, address the challenges and understand their hopes for a better future.”

What happened to these Indigenous customers in some Telstra stores?

Between January 2016 and August 2018 five Telstra-branded stores across three states and territories signed up more than 100 Indigenous customers to multiple post-paid mobile contracts.

According to the ACCC, these were plans that the customers did not understand and could not afford.

“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,” the ACCC said in a statement back in November.

The ACCC also revealed at the time that its investigation found that in some cases the staff didn’t explain the contracts or the data charges properly and told customers they were getting products for free.

It was also found that credit assessments were manipulated to allow customers to enter into contracts, even if they were unemployed.

In one case the federal court heard a Telstra staff member listed a customer’s employer as Centrelink when in reality they were receiving Centrelink benefits.

While Telstra’s chief risk officer (CRO) was first made aware of these sales tactics in December 2017, it came out in court that similar instances happened a further 12 times.

According to the ABC, the federal court also heard that Telstra had to “claw back” thousands in incentives that were paid to team members across the five stores in question. These were paid out as commissions for hitting sales targets.

Telstra has since taken responsibility for the incidents.

“Being a responsible business and doing what is right  for customers  and the community is a non-negotiable for Telstra, but we do not always get it right,” a Telstra spokesperson said in an email to Gizmodo Australia following the proposed $50 million fine.

“We have been working hard to ensure that our actions, processes and practices properly reflect our purpose and our values. We look forward to the Court’s decision on this matter.”

Many impacted customers ended up in serious debt

The court heard from 108 customers who were impacted by these stores. Many of them ended up in thousands of dollars in debt.

According to the ACCC, the average debt of impacted customers was more than $7,400.

One customer ended up owing $19,000, while another withdrew from their superannuation to pay part of their debt.

According to the ABC, The Federal Court heard from one customer who was on a disability pension and cared for multiple children. She spoke English as a second language and was sold three different contracts simultaneously. This came to $450 a month and within five months she was $12,500 in debt to Telstra.

As Telstra became aware of the issue, it reportedly took over a year for debt waivers to be considered for some impacted customers.

“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,” ACCC Chair, Rod Sims, said in November.

Reconciliation Australia cuts ties with Telstra for now

Another consequence of the investigation has seen Reconciliation Australia revoking Telstra’s status as a partner of the Reconciliation Action Plan (RAP). The program helps businesses support the Australian reconciliation movement.

According to Reconciliation Australia, Telstra didn’t communicate “appropriately or effectively” with the organisation during the course of the ACCC’s 18-month investigation.

“At no time did Telstra alert us to the complaints covered by the ACCC investigation (1 January, 2016 – 27 August, 2018). They were also aware of the ACCC investigation from March 2019 and did not notify Reconciliation Australia in advance of the public announcement of the proposed settlement on 26 November 2020,” Reconciliation Australia said in a statement in April.

“Our investigation concluded that Telstra has not met its own aspirations to be a leader in the reconciliation movement nor the expectations of an Elevate RAP partner.”

The organisation went onto refer to Telstra’s response to the ACCC’s investigation as promising first steps to rebuilding the relationship.

“Taking this into account, we have invited Telstra to discuss the development of a new RAP that addresses the concerns raised by the ACCC investigation. This will not be an Elevate RAP,” Reconciliation Australia said.

Telstra did take responsibility

Telstra admitted to the unconscionable conduct in its stores back in November, 2020.

“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,” Telstra CEO Andrew Penn said in a statement at the time.

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

At the time, Telstra announced it had appointed a customer advocate to “help us better identify and respond to such issues” and it opened a call centre in the Northern Territory to assist Indigenous customers.

Penn also visited impacted communities sometime in 2020 to apologise personally.

Telstra’s barrister also told the federal court that the company implemented a dedicated hotline to help remote customers, ran staff training sessions and appointed two Indigenous officers.

“In a responsible way we have cooperated to put the agreed facts in front of the court,” Telstra’s barrister said in court.

“Our cooperation has extended to the fact we have already implemented full remediation.”

In addition to accepting the $50 million fine (if the federal court allows this amount), Andrew Penn has since made further statements about the case.

Penn took to social media in April to acknowledge the relationship breakdown with Reconciliation Australia.

“Today, Reconciliation Australia announced that they will remove Telstra’s Reconciliation Action Plan Elevate status as a result of the investigation into sales practices to Indigenous communities by the ACCC. Frankly, I can’t blame them,” Penn said in a Twitter post.

The post was accompanied by a video where Penn addressed the issue further, reiterating the facts of the ACCC investigation.

“I know first hand and have experience the positive difference that bringing communication and connectivity to these communities can have,” Penn said.

“However, these communities need to know that they can trust us. And it’s heartbreaking to learn that when you think you’re helping in fact the exact opposite is happening.”

In the video, Penn states that while things can go wrong in large organisations, Telstra should have “been more attuned” and “listened harder” to what was happening, admitting that the company could have picked it up earlier.

“Telstra and myself personally are 100 per cent committed to reconciliation… because it acknowledges and begins to redress profound historical wrongs,” he said.

“We’re committed to reconciliation because it goes right to the heart of diversity and inclusion in Australia. And we’re committed to reconciliation because it is the right thing to do.”

Penn said that the actions of Reconciliation Australia are understandable.

“What’s important now is to rebuild the trust of the Indigenous community. That means spending time listening to communities, learning, realising that words are easy but living up to them is a daily test,” he said in the video.

“We need to take meaningful actions to change. That is what I am doing. That is what we are doing.”