Qantas and Virgin Australia have embarked on the biggest mail-out of unsolicited debit cards in the country’s history, sending MasterCards and Visa cards to up to 12 million frequent flyer program members.
There is more than one catch to this unique event however. Not only are the cards unsolicited – a tactic which appears to breach federal payment card laws – but, in the case of Qantas, they are being sent to teenagers. Frequent flyers between the ages of 16 and 18 are required to ‘opt in’ to receive the products.
Both cards are pre-paid cards or debit cards – rather than credit cards – a fact both Qantas and Virgin’s Velocity loyalty program were at pains to point out. Consumers charge the cards with their own money and the cards are not linked to any bank or conventional credit account.
Nevertheless, according to an investigation by Nathan Lynch, Thomson Reuters’ head regulatory analyst, lawyers and consumer groups have expressed alarm over the mail-out, saying it is likely to contravene consumer protection laws.
But there is another catch: the Australian Securities & Investments Commission (ASIC) has provided the airlines with a “no action” letter, effectively shielding them from legal action under Section 12DL of the ASIC Act.
The purpose of this legislation is to protect consumers from purveyors of unsolicited credit and debit cards.
The Qantas Cash card and Virgin’s Global Wallet are what is known as hybrid cards.
One side features the frequent flyer function, and the other side a debit card function. The products are part of the new “chip and PIN”-enabled frequent flyer cards the airlines are launching in conjunction with their partners in the banking and payment card industries.
Both airlines have positioned their products as an “enhanced” loyalty card.
When consumers turn their frequent flyer membership card over, it looks like a traditional Visa or MasterCard, including a logo, card number, CVC, chip functionality and signature strip.
Both cards are pre-paid cards or debit cards – rather than credit cards – a fact both Qantas and Virgin’s Velocity loyalty program were at pains to point out.
However, the Reuters investigation found that both the Qantas and Virgin’s cards had a “technical glitch” which allowed the user to go into overdraft.
“One cardholder said she activated her card, loaded it with funds and then spent all the funds while travelling overseas in December,” says the story.
“The card then went into overdraft once the conversion fees and other charges associated with the product were applied to the transactions”.
Qantas and Virgin declined to respond to questions from Fairfax Media as to whether the cards had the capacity to provide credit.
In a pre-launch marketing campaign, Qantas found that only one out of every 20 frequent flyer members had “opted in” to receive the MasterCard. Despite this low uptake it went ahead and began sending the Qantas Cash cards to any of its 9.4 million members who were “eligible”.
Virgin will be sending its Visa cards to up to 3.7 million frequent flyer members, regardless of whether they have opted in.
The main concern with the products is that they are being sent out, unactivated, to frequent flyer scheme members – although those as young as 16 are required to provide their “opt-in” consent.
The airlines say that the cards can simply be used as a normal frequent flyer card if the member does not wish to activate the payments functionality.
When it first launched the Global Wallet product in July 2013, Virgin was only sending the Visa-enabled cards to members who had opted in. This was in line with the unsolicited debit card provisions in the in ASIC rules.
One month later, Qantas launched its hybrid MasterCard membership card, Qantas Cash. Unlike Virgin, Qantas said it would send the product to all eligible frequent flyers aged 16 and over — whether they had opted in or not.
Both Virgin and Qantas declined to reveal the proportion of members who had activated their debit card facilities.
Qantas did not respond to interview requests but issued this statement by email:
“Qantas has worked with the Australian Securities and Investments Commission to ensure that the product complied with all relevant laws and Qantas Cash is a pre-paid card with no credit card function”
Virgin did not respond to interview requests but issued this response by email:
“Last year we added new “Global Wallet” functionality to our frequent flyer program membership cards, which provides members with the option of using them as pre-paid travel money cards.
“In order to use the functionality, members must personally activate the “Global Wallet” through a secure process. They are then able to load their own money onto it, providing them with added security as the funds aren’t linked to their normal bank account. It also enables members to lock-in exchange rates in advance of travel, spend wherever Visa is accepted around the world and earn frequent flyer points on qualifying purchases.
Velocity initially required members to opt-in to receive a card with Global Wallet functionality as we were still in discussions with ASIC on this issue at the time of launch.
“Those discussions have concluded and Velocity membership cards with Global Wallet functionality are now progressively being sent to eligible Velocity members.
“Velocity is conscious of the requirements of s.12DL of the ASIC Act and has engaged with ASIC on this issue.
“Our discussions with ASIC are confidential and we are not in a position to comment further.”