Telco practices driving consumer debt

The telecommunications industry is engaging in four common practices that are driving financial overcommitment and contributing to consumer debt, according to the Telecommunications Industry Ombudsman (TIO).

The latest report in the TIO’s Systemic Insight series notes that complaints to the Ombudsman about managing their telecommunications debt represented over 10% of complaints received during the first half of 2018, with a total of 7411 complaints registered.

Analysis of these complaints demonstrates that common practices driving financial overcommitment include the commission-based income and rewards based on high sales figures that staff selling post-paid plans are provided, which creates an incentive to engage in high-pressure sales practices.

Another common practice includes tailoring credit assessment based on a provider’s risk appetite rather than a customer’s ability to pay over the term of their post-paid plan.

The report also highlights the relatively low barriers to obtaining additional post-paid plans, as well as the practice of allowing representatives appointed on an account to sign up to additional post-paid plans without the account holder’s knowledge.

Ombudsman Judi Jones noted that with the proliferation of connected devices, telecommunications providers are increasingly offering credit to consumers, and should ensure they offer this credit responsibly.

“Consumers can now use their telco plan to pay off accessories such as drones, headphones and smartwatches. If a consumer went to a bank and asked for a $3000 loan, the bank checks the consumer’s capacity to repay that loan,” she said.

“Our recommendations in this report call on providers to consider how they can improve selling and credit assessment practices to ensure fair outcomes for their customers.”

The TIO is recommending that telcos ensure they make reasonable enquiries about a customer’s financial situation before agreeing to sell a post-paid plan.

To ensure this, companies should deliver regular staff training in recognising vulnerable and disadvantaged customers, that also emphasises ethical selling, as well as extra safeguards when customers are purchasing multiple post-paid plans. Secondary account representatives should also be prohibited from signing up for post-paid plans without the account holder’s knowledge.

Communications Alliance CEO John Stanton said the findings of the report highlight the importance of the industry’s decision to introduce stricter rules around credit assessment and selling practices in the latest version of the enforceable Telecommunications Consumer Protection code.

The revised code, which has been submitted to industry regulator ACMA for registration, introduces new requirements including stricter rules around responsible selling practices, as well as upgraded arrangements to assist consumers facing financial hardship.

Stanton said the code was developed in consultation with the TIO. “Active engagement by the Ombudsman and responsive action by suppliers are hallmarks of an effective co-regulatory system, which is bearing positive results in the telecommunications sector,” he said.

Image credit: ©stock.adobe.com/au/Karen Roach

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