Since its first review of term deposits by large banks
and mutuals in 2010 there have been improved disclosure and fewer
default rollovers from high to low interest rates, but more work
needs to be done, says ASIC.
In July 2013, ASIC released its further report of term deposits
which highlighted a number of improvements in the term deposit
market in Australia since its last review in 2009 (which produced
Report 185 Review of term deposits). The key findings of the
Australian banks and mutuals still use dual pricing for term
deposits (ie. high and low interest rates);
disclosure of the existence and risk of dual pricing and
interest rates has improved;
default rollovers from high to low interest rates have
the number of investors using grace periods to change their
term deposit has increased; and
most Australian banks and mutuals have adopted changes to
Dual pricing was defined in ASIC's 2010 Report as the
circumstances where term deposits are actively promoted with
reference to a high interest rate offered by the financial
institution for term deposits when the rates offered for other
deposits were lower than the rate advertised. Many of the 2010
recommendations related to default rollovers from high to low
interest rates (that is, upon the expiry of a term deposit the
invested funds rollover by default to a new term deposit at a
lesser interest rate). In 2010, ASIC found that a total of $1.9
billion of investors' funds rolled over from high to low
interest rates by default.
Advertising and promotion
ASIC has found in its further review that the major Australian
banks and mutuals have implemented its previous recommendations
from 2010 by no longer making representations in advertising
materials about interest rates being consistently high. ASIC has
however identified a number of new issues in advertising for term
deposits which it will monitor and take action where necessary,
some banks were identified as conducting targeted mail out
campaigns to existing customers advertising term deposits at
"special" or "exclusive" rates when the rates
were otherwise generally available. ASIC has recommended in
its Report that only genuine "special" or
"exclusive" offers are advertised in this manner and that
interest rate schedules are attached to these types of
one major bank published an advertisement making unqualified
representations about guaranteed returns which was found to be
inconsistent with the Government deposit guarantee scheme; and
another major bank published an advertisement which gave the
overall impression that term deposits were more likely to provide
better returns than other savings accounts when this was not
Disclosure of interest rates
ASIC also found that most major Australian banks and mutuals
have generally improved their disclosure regarding dual pricing and
implemented the recommendation to disclose in their pre-maturity
letter the actual or indicative interest rate that will apply to
investors' rolled over term deposits.
In the current report though, ASIC highlighted that in addition
to its previous recommendations, it considers it is best
practice for investors to receive information about the applicable
interest rates both before and after the term deposit rolls over so
that they have ample opportunity to consider alternative investment
ASIC again highlighted its concerns about the timing of the
disclosure of the risk of dual pricing and suggested it considers
it best practice to disclose information about any grace
periods in both the pre- and post-maturity letters sent to
Next steps for implementing new recommendations
ASIC has indicated that it will approach individual banks and
mutuals with the view of implementing the new recommendations
contained in its recent report by consent.
Our Banking and Financial Services department and Governance and
Compliance group are experienced in advising further on the
recommendations arising out of ASIC's recent Report, including
how they will affect advertising campaigns and promotions relating
to term deposits. Please contact us if you require any further
assistance or information.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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