An investigation by Thomson Reuters has found that the cards are being sent out unsolicited to all Qantas frequent flyer members who are Australian residents aged 18 or older, despite federal laws that make it an offence to send debit cards to customers without first seeking their consent. The Qantas Cash cards are also being made available to 16 year olds.

Lawyers and consumer groups have expressed their dismay over Qantas and Virgin Australia's decision to ride roughshod over the unsolicited card provisions in the ASIC Act. They also said it was incomprehensible that ASIC would give the airlines a "no-action letter" over their Qantas Cash and Global Wallet products when the regulator has a federal mandate to protect consumers.

The campaigns will be the most extensive mail-out of unsolicited debit cards in the country's history.............."


............" Lawyers said the card mail-outs were likely to breach the law, yet ASIC's no-action letter meant the matter was unlikely to ever go before the courts..."

.........." Thomson Reuters understands that ASIC provided the no-action letters to the airlines in the second half of 2013. An ASIC report on its relief decisions did not identify Qantas or Virgin as the recipient but said there had been a "no-action letter for unsolicited distribution of cards".

"There was some doubt about whether the stored-value card was a 'debit card' for the purposes of s12DL," an ASIC report said.

The regulator said it provided a no-action letter because "compliance with the requirements of s12DL of the ASIC Act would have been disproportionately burdensome in the circumstances, including the uncertainty around the application of s12DL to stored-value cards.

Prepaid versus debit cards

While ASIC would not comment specifically on the Qantas and Virgin products, an ASIC spokesman said the regulator had looked closely at the application of s12DL in relation to the distribution of "prepaid" cards more generally. According to ASIC it is not entirely clear how the law applies to prepaid cards as these products did not exist when the relevant legislation was drafted.

"It is arguable that these kinds of cards technically come within the broad definition of 'debit card' used in s12DL; however, that is not entirely clear," ASIC told Thomson Reuters.

Jon Denovan, partner at Gadens, said his law firm was often asked to advise companies on the application of s12DL. While he could not comment on the specific products offered by Qantas and Virgin, Denovan said it was widely accepted that s12DL covered all debit card products — including "prepaid" cards. Denovan said the distinction between a prepaid card and a debit card was "a very fine one"

"It seems to us that a prepaid card falls within s12DL of the ASIC Act and, therefore, you can't send an unsolicited card to customers," Denovan said

In terms of s12DL's consumer protection function, Denovan said: "The suggestion that a prepaid card doesn't have some of the dangers that a debit card has in the traditional meaning is a pretty fine distinction really."

Risky business

Investigations have shown that unactivated debit cards can expose members to significant risks in the event that their wallet is lost or stolen. Ironically, the risks are greater for those who have not activated their card as it would be possible for another individual to activate the card in minutes using a driver's licence — which would often be found in the same wallet that holds the frequent flyer card. Until the cards are reported as lost, industry experts say that a criminal could use prepaid cards to launder money or even finance terrorism in the cardholder's name.

John Schmidt, chief of AUSTRAC, the country's anti-money laundering and counter-terrorist finance regulator, said prepaid cards had come to the attention of law enforcement agencies worldwide in recent years due to the unique risks that they pose. While he declined to comment on the airlines' specific products, he said there were broad risks involved that card issuers needed to manage.

"The money laundering and terrorism financing (ML/TF) risks associated with stored-value cards can be managed and mitigated by appropriate features and controls," Schmidt said. "It is the [issuer's] responsibility to identify and mitigate any ML/TF risk arising from the provision of its products," Schmidt said......................."


..........." Criminologist Denise Brailey, who runs the Banking and Finance Consumers' Support Association (BCFSA), said the airlines were using their loyalty schemes as a sort of "trojan horse" to push unwanted and potentially illegal financial products out to consumers.

“People should be writing to ASIC and letting them know their utter horror that these companies would be able to issue unsolicited products while the regulator gives them a green light,” she said.


Nathan Lynch is the head regulatory analyst for Thomson Reuters in the Australasian region. The Compliance Complete service of Thomson Reuters Accelus provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. 

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