Regulators may come to the rescue.
Of all the stories to emerge from the Kaye scam, the saddest are those involving loans to low income earners. Battlers with barely enough money to make their next rent payments were tricked into taking out huge loans, often for more than $15,000. Today, they are struggling to make crippling repayments. In many homes, children are going without presents this Christmas. It’s far from a pretty picture.
The NII loan scam was utterly convincing. Some of the most naïve and trusting folk in the country were caught. Training documents obtained from inside Henry Kaye’s now defunct company, the National Investment Institute (NII), reveal that his salespeople were taught to use psychologically manipulative methods to deceive battlers into signing up for high interest loans.
Kaye’s salespeople were taught to say such things as, “What you need is education. Our course will show you how to achieve financial wealth. If you have no money, don’t worry, you can pay weekly. And, best of all, you have nothing to lose. The payments will be more than covered by the returns you make on the course. And it’s totally guaranteed. If you don’t like it or you don’t succeed, we always insist on giving you a total refund.” But, it was almost always a lie.
Of course, many salespeople said much more to persuade people to sign up for a loan. The mantra in the corridors of NII was “do whatever it takes” to enrol people in the course. Although some salespeople acknowledged that the sales methods were manipulative and misleading, they believed so strongly in what they were doing that – in their words – “the end justified the means”. Some salespeople really did believe that the NII courses would help battlers overcome the poverty trap.
To outsiders, looking back today at the ruinous effect of NII, it seems hard to believe that such levels of deception could occur on such a grand scale. Thankfully, it seems that some of the country’s regulators do believe that consumers were tricked into signing up for high interest loans. And, to their credit, they appear to be doing something about helping the many victims.
In Victoria, Consumer Affairs has already launched an action against one of the major finance companies linked to NII. Australian Finance Direct (AFD) is alleged to have failed to disclose to borrowers the true amount of the interest payable. If the allegation is proven, AFD face civil penalties of up to $500,000 per offence. This case, however, does not involve compensation for victims of NII. That may happen early next year.
So proactive are Consumer Affairs Victoria that they apparently intend to lodge advertisements in January next year urging consumers to come forward if they feel they have been misled by AFD and NII. And, Peter Kell, the director of consumer protection from the Australian Securities and Investments Commission (ASIC), is also involved. Mr Kell is reported to be looking “very closely” at the opportunity to obtain compensation for battlers who may have been misled or deceived.
Consumers are also receiving excellent advice from the Consumer Credit Legal Service in Victoria where a number of guidelines and suggestions have been prepared to help borrowers who feel they have been misled.
Unfortunately, at this stage, the news is not so good in New South Wales. According to a report by John Garnaut in yesterday’s Sydney Morning Herald, “the Carr Government is likely to continue to sit on the sidelines”. The reason, according to a spokesperson for the Minister for Fair Trading, is that there have only been “a very small number of complaints”.
Well, unlike Henry Kaye’s salespeople, the people responsible for protecting consumers rarely go looking for consumers to protect.
Consumer Affairs Victoria seem to be the current exception to the common regulatory apathy. They are to be commended for their proactive stance on behalf of consumers.