Westpac scheme debit rollout fine by Federal Court

The Federal Court ruled yesterday that Westpac did not contravene the ASIC Act when it issued MasterCard debit cards to customers as a replacement for the bank's proprietary Handycard. The Australian Securities and Investments Commission had notified the bank that it was acting illegally because the two cards were different.

Section 12DL of the ASIC Act prohibits an issuer from sending out a card to a current card holder unless it is "a card of the same kind".

In its ruling the court rejected what it described as ASIC's narrow construction of the section. Justice Freres said: "I am of the opinion that the defining characteristic of each 'kind' of card is the ability to use it for one particular purpose, whatever other functions or purposes it may have.

"The defining characteristic is either to obtain credit from the issuer or to obtain access to the customer's funds from the issuer."

According to court documents, early this year Westpac had 2.5 million Handycard debit cards on issue. The bank identified 900,000 Handycard customers who had high levels of Eftpos usage and decided to issue MasterCard debit to those customers. The issue of new cards started in February.

The new cards allowed customers to carry out their usual debit and ATM transactions, and had some additional features such as allowing for telephone and internet debit transactions.

ASIC took the view that because the MasterCard had additional functions it was not "a card of the same kind" as the old Handycard and by issuing the cards Westpac could be in breach of section 12DL of the ASIC Act.

ASIC notified Westpac of its concern in May, when 424,000 debit MasterCards had been issued. A breach of Section 12DL is a criminal office.

In August ASIC wrote to Westpac again, saying the distribution of the new cards "is a clear breach of section 12DL".

Westpac started proceedings in the Federal Court, seeking a declaration that it had not contravened the Act.

The court considered the differences between the two cards, which include different interchange fee structures, different levels of merchant access and the ability to use scheme debit for card not present transactions.

Justice Freres said: "The extra functionality permitting use by mail, telephone and on the internet, and the wider range of places at which the new card may be used, whether considered individually or together, does not change or deny the nature of the new card as a debit card."

Freres concluded: "There is no lessening of the protection of consumers intended by the Parliament provided by this construction. The Parliament sought to guard against them being sent a credit card or a debit card that they had never sought.

"But it was not the intention of the Act to constrain the relationship between an issuer of a card and its customer by preventing the issuer updating the particular kind of card with the latest version of that kind of card."