By David Crowe
Australians will gain more protection from financial scams under new laws that will impose fines of up to $50 million on banks, mobile networks and social media companies that fail to act on fraudulent schemes that fleece their customers.
The reforms will force the companies to submit to an expanded federal authority that can compel them to refund customers who lose money, amid growing anger at scams that cost households at least $2.7 billion a year, according to the Australian Competition and Consumer Commission (ACCC).
Scam texts cost Australians at least $2.6 billion a year. Credit: Istock
But the new regime will not follow controversial changes in Britain that put the greatest requirements on banks to pay the refunds, seeking instead to share the responsibility with tech platforms such as Facebook if they spread the scams.
In the first step of its kind against the tech giants, the government will force social media companies to answer to the same authority, the Australian Financial Complaints Authority, that oversees the banks and can order refunds for customers who fall victim to fraud.
“There clearly needs to be a significant uplift in standards and protections,” said Assistant Treasurer Stephen Jones, the minister in charge of the new regime.
The rules will put a new obligation on social media platforms, banks and telecommunications carriers to report scams as soon as they are detected. They will expose them to fines of up to $50 million if they make a systemic failure to act on the problems.
Consumers are bombarded with scams including text messages aiming to trick them into clicking on fraudulent websites, fake investment schemes on social media and phone calls from criminals who pretend to be from government agencies or major companies.
The government is releasing the new regime after months of frustration with companies over the speed of their responses to scams. When the “Hi Mum” scam spread last year, and people received texts from people pretending to be children who lost their phones, it took more than six months for the industry to clamp down on the problem.
A new law, the Scam Code Act, will amend existing consumer protections to give the government broad scope to set minimum expectations for companies under mandatory codes.
If passed, the new laws would empower the ACCC to draft mandatory codes for each industry and to set codes for individual companies.
Jones likened the current rules to the lax treatment of a pub that allowed criminals to sell drugs in the venue and then denied any knowledge or responsibility for the crime.
“We put obligations on them to ensure that the people who are using their venues, or attending their functions, are provided with a level of safety,” he said.
Jones said the new rules would require phone companies to screen out known numbers and content they should know is criminal, while forcing social media platforms to stop a scam being distributed.
Assistant Treasurer Stephen Jones says banks, telcos and social media companies are behaving like pubs that take no responsibility for criminal behaviour on their premises. Credit: Alex Ellinghausen
Australians reported 601,000 scams over the year. The new regime will place new obligations on banks, telcos and social media platforms to tell the ACCC of a scam as soon as they know of one.
Tech companies have pushed back against the federal agenda by releasing their Australian Online Scams Code to impose voluntary rules on companies including Meta, Google, Snap, TikTok and Yahoo.
The government says this is not enough.
“I don’t believe they are in line with community expectations or government expectations,” Jones said of the social media platforms.
“A newspaper can’t publish an ad which is criminal in its content. We would hold the newspaper liable if they did that.
“Social media platforms put their hands up and say ‘this isn’t us, we can’t be responsible for this stuff’ but that is not good enough.
“Social media platforms are publishing anything from puppy scams to used car scams to high-end investment scams.
“They take money from advertisers to publish this content. They take no responsibility for the content of that material, and yet Australians are losing millions and millions of dollars because of it.
“So a bare minimum, I think, for the platform providers, is that they’ve got to be able to verify their advertisers and verify that the content that they are publishing is lawful.”
The obligation under the proposed law is that social media platforms must verify their advertisers – for instance, by checking their financial services licence – to prevent scams being distributed. If something gets through that check, the platforms must move immediately to have it removed.
In one example of the new regime, the mandatory code for the banking industry will require all banks to make sure their customers are warned if they try to make a financial transfer to an account that raises a red alert for a potential scam.
The feature, currently voluntary, would also prevent “fat-finger transactions” when customers inadvertently send money to the wrong destination.
In the phone industry, the mandatory code would set the terms for how mobile phone companies have to stop scams being spread by text message once they become aware of a new fraud.
The three-step regime will begin with legislation and will be followed by a step called designation, in which the ACCC will name the sector or companies that must be subject to the new rules. The third step will be the drafting of the different codes.
In another first, all companies that are subject to the designation will have to set up internal dispute resolution processes to hear complaints from customers and consider refunds.
All companies under the new regime will have to prove they have a scams defence plan to help their customers.
As well as their internal dispute resolution units, companies will be subject to the expanded complaints authority, provisionally known as scams external dispute resolution. This will require staff and some federal funding, but will be mostly funded by the industry.
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.