The corporate regulator will argue at the high court that ‘book-up’ system leave remote communities open to predatory lending

This article is more than 1 year old

This article is more than 1 year old

Remote Indigenous communities face weaker protections against predatory and exploitative businesses if a court ruling on an illegal credit scheme operating in South Australia is allowed to stand, the corporate regulator has warned.

The Australian Securities and Investments Commission (Asic) will appear in the high court on Tuesday in an attempt to overturn a recent decision in the case of Lindsay Kobelt, who owned the “Nobby’s” general store in Mintabie, a town in the APY Lands.

Kobelt ran a “book-up” credit scheme allowing customers to take goods – mostly second-hand cars – if they handed over their bank card and pin number.

Kobelt used the cards to withdraw the vast majority of his customers’ wages or welfare payments soon after they were deposited.

Most of the money went to servicing the debt, although Kobelt also allowed customers to use a smaller portion to buy groceries or other necessities from his store.

Hopes and fears: which way forward for an Indigenous voice to Australia's parliament? Read more

The scheme effectively tied the customers to Kobelt’s store and gave him significant control over their finances.

He took almost $1m from the accounts of 85 book-up customers between mid-2010 and November 2012. Most of his customers were Anangu people from APY lands, and many were vulnerable with a low level of financial literacy.

Notes from Kobelt’s diary – tendered to the high court – show he referred to some customers as “slut”, “bitch”, or other obscenities.

Kobelt was initially found to have breached Australia’s credit laws and engaged in “unconscionable” conduct.

But an appeal to the full bench of the federal court prompted one of those findings – that he had engaged in “unconscionable” conduct” – to be overturned. The court noted “book-up” credit schemes were common in remote Australia and were frequently used by Indigenous communities, including the Anangu people. The court relied on an expert report finding such schemes were often the only way for remote communities to access credit, and pointed to evidence that many in the community supported the scheme and some had said Kobelt treated them well.

“At first blush, the terms, nature and circumstances of Mr Kobelt’s book-up system would appear to bespeak unconscionability,” the federal court found. “Many, if not most, members of the broader Australian community would probably find some aspects of the system to be surprising, if not extraordinary.”

“It is, however, necessary to consider Mr Kobelt’s book-up system in its proper historical and cultural context. In particular, it is necessary to consider the system in the context of the evidence concerning the values, norms and practices of the Anangu people who comprised Mr Kobelt’s book-up customers.”

Asic took the case to the high court and argued the findings risk permanently weakening the consumer protections available to remote communities.

“The very factors that made Kobelt’s customers vulnerable were used to excuse what would be patently unacceptable conduct elsewhere in modem Australian society,” Asic argued in its written submission to the high court.

“The end result, unless corrected, will set a lower standard of consumer protection in the case of remote indigenous consumers than for others in Australian society, notwithstanding that such consumers are a group who fall squarely within those the ASIC Act is designed to protect.”

Kobelt’s lawyers said book-up credit schemes were so prevalent that they were regarded as an “institution” in remote Indigenous communities.

“It has a long history, and is a result of the demand for it (in the economic sense) by Indigenous communities where it is provided; which, in turn, is caused by certain aspects of Indigenous culture, and the socioeconomics of those Indigenous communities,” Kobelt’s lawyers said in their written submission.

Kobelt’s lawyers said he was rarely the subject of complaints, and said the Anangu people understood the system and exercised free will to use it. The credit was interest-free.

Kobelt’s lawyers argued the Anangu community “tend to dissipate money as soon as it comes into their possession, often by the purchase of immediately consumable items, which leaves families short of money at the end of a payment cycle”.

“Anangu society is a shared society, and key cards and other resources are shared amongst family members; indeed a key card is viewed as a resource to be shared and pledged.”

The high court will hear the case in Canberra on Tuesday. Asic is represented by solicitor-general, Stephen Donaghue.