Aboriginal credit policy: High Court ruling sets new tone

A recent High Court case has ruled that a ‘book up’ credit scheme run from a general store in remote Australia was lawful, revealing the importance of considering communities’ needs individually rather than by generalisation, Maree Sainsbury writes.

Undoubtedly, Aboriginal Australians face considerable disadvantage when entering financial contracts, and naturally, the law strives to protect individuals that are at a higher risk of being exploited.

One way in which this occurs is through the various laws prohibiting unconscionable dealings. However, a recent High Court decision, in a case between ASIC and a Mr Kobelt of South Australia, highlights the difficult legal and policy considerations involved in determining when the law should intervene in a contract for financial services.

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While the decision does not establish a clear legal principle, it does illustrate that cultural practices must play a part in assessing Aboriginal people’s financial behaviour.

It also shows the difficulty in ensuring that there is adequate protection against exploitation, while still ensuring the individual’s right to freely enter into transactions. While it is easy to generalise, every case needs to be considered individually and carefully.

The case involved the practice of ‘book up’ credit arrangements. Book up credit practices for Indigenous communities developed after the extension of social security entitlements to Aboriginal Australians in the late 1950s. Initially, customers’ social security cheques would be delivered to a store, and then be cashed at the store, with the proceeds added to customers’ accounts.

Now, customers hand over a key card and PIN, as well as giving stores the authority to withdraw funds from their accounts once social security payments have been received. The funds are then applied to a store credit account.

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Book up credit has previously been evaluated by the Australian Securities and Investments Commission. In doing so, the Commission highlighted the problems and advantages of the system, but no regulatory action was taken.

The specifics of the case are crucial. Mr Kobelt operated a general store and a used car yard in the town of Mintabie in South Australia – an opal mining community 1100 kilometres north of Adelaide in the Anangu Pitjantjatjara Yankunytjatjara Lands. There are no banks, credit unions, or similar services in the vicinity.

The Australian Securities and Investments Commission brought action against Mr Kobelt concerning his supply of book up credit to Aboriginal customers on the basis that it was unconscionable and in breach of section 12CA of the Australian Securities and Investments Commission Act 2001.

There was much evidence that the use of this credit arrangement worked in the customers’ favour. It was a convenient way to manage their money over a fortnightly cycle, and they would have been unlikely to be eligible to receive credit under other arrangements. Interestingly, the court also considered the impact of cultural practices.

First of these was a preference for face-to-face transactions. While the Anangu people have adapted their values and practices to accommodate the market economy, there remains a desire for the personalisation of financial transactions. Maintaining a personal relationship with Mr Kobelt was an important advantage of the book up credit system.

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Secondly, there was anthropological evidence that book up credit was used by some customers as a way of avoiding the cultural obligation of demand sharing – the requirement that the Anangu people share their resources with specific categories of kin.

The court heard that this practice had led to bullying and exploitation, often by younger members of a family group placing pressure on older members. When resources were effectively controlled by Mr Kobelt through the book up credit scheme, this became impossible.

The scheme, however, was not without its difficulties. Customers were impoverished and often illiterate, and ASIC argued this made them particularly vulnerable to exploitation. Further, his record-keeping practices were poor, and it was found that customers who used credit to buy a second-hand car were paying considerably more than those paying cash.

Despite these difficulties, the High Court found the arrangements to be lawful. There was no evidence that the customers were unhappy with the arrangements, nor that Mr Kobelt had acted in bad faith.

The case highlights some key issues that need to be addressed outside of the legal system. Literacy and numeracy levels of Aboriginal people in remote Australia and the lack of access to financial services were central to these circumstances. Improvement in these areas would mean that Aboriginal people in remote communities can make autonomous and informed decisions about their transactions.

Most importantly, it shows that these arrangements should be taken case-by-case, rather than being based on generalisations. That way, due consideration can be given to the specifics of a community and its needs, including understanding relevant cultural practices.