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Harvey Norman’s (ASX: HVN) 60-month interest-free sales program is firmly in the sights of of the corporate regulator which this week launched legal action against the retail goliath and its credit-card partner Latitude Finance Australia - part of Latitude Finance Group (ASX: LFS) - claiming misleading conduct.
ASIC, which filed its claim in the Federal Court yesterday, is targeting Harvey Norman’s ‘no deposit’ and ‘interest-free’ payment offer to customers on purchases between January 2020 and August 2021 – a period when the retailer saw earnings surge on the back of the pandemic-led work-from-home boom.
The regulator is alleging that advertisements promoting the offer were misleading as they didn’t disclose that interest-free payments were only possible if customers applied for a Latitude GO Mastercard.
ASIC says Harvey Norman also failed to reveal the hidden costs of the agreements, namely establishment fees and monthly service fees.
Establishment fees of $25 were accompanied by monthly fees of $5.95 prior to 16 March 2021 and $8.95 after this date, which ASIC says were substantial and make up a big portion of overall repayments on lower-cost goods.
“ASIC is concerned the advertising did not provide consumers with the full picture, that they could only use the interest-free payment method by applying for and using certain Latitude credit cards,” says ASIC deputy chair Sarah Court.
“These credit cards, ASIC alleges, attracted substantial fees over the course of the 60-month payment term, and exposed consumers to the risks of incurring further debts and charges, as well as potentially affecting their credit rating.”
ASIC is alleging that consumers who signed up for a GO Mastercard on or after 16 March 2021 and before 11 August 2021, and who bought goods at Harvey Norman with the interest-free offer, were liable for at least $537 in additional fees if they paid off their purchase over the full interest-free period.
It says the advertising campaign for interest-free payments ‘tended to lure consumers into taking on a GO Mastercard, without having made an informed choice to do so, and thereby exposed them to the risks of incurring further debts and charges and experiencing related ramifications for their credit ratings’.
“Consumers have a right to make informed choices,” says Court. “Credit providers and retail partners such as Latitude and Harvey Norman should ensure that their advertising clearly discloses all important information about payment methods and any fees.”
ASIC says Latitude and Harvey Norman ‘earned significant revenues’ from the GO Mastercard scheme, which was rebranded the Latitude GO Mastercard in July 2020.
In FY21, Harvey Norman posted EBITDA of $1.457 billion, up 54.2 per cent from the previous year, while profit after tax was 75 per cent higher at $841.41 million. The record results were driven by higher customer demand from the group’s global retail network.
A court date for the action against Harvey Norman and Latitude Finance has yet to be set. ASIC is seeking declarations, pecuniary penalties, injunctions and other orders against the companies.
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