Big banks in denial over telco scam

We reported in November 2008 that there’s increasing evidence that big name banks will be embroiled in the telco equipment financing scam that ripped through Australian SMEs in 2007/8.

The scam relied on major financiers being gullible and greedy enough to allow shysters they barely knew to sign up new business for them.  With a source of funds secured, two-bit companies flogged outrageously dodgy finance deals to unsuspecting businesses.

Many of these operators broke the law to get deals done.  We’ve heard from two unrelated victims who assure us that their signatures were forged on key documents.  That wouldn’t impress us so much if one of them hadn’t produced a statement from a former salesman at one of the shyster finance companies, confirming that there was a practice of ‘completing’ signatures for customers.

The characters in the scam

First, there’s a normally reputable bank or finance company.  It funds the scam.  Let’s call it Royal Queensland MacBank.

It does a deal with a fifth rate finance company you never heard of, with an impressive name like SuperFin Equipment Finance.  SuperFin gets to write business as the bank’s agent.

SuperFin is in a dirty little relationship with a telephony reseller we’ll call ScamTel.  ScamTel will turn out to be the vehicle by which funds are channeled out of the bank at the expense of a small business.

Finally, there’s Joe Average & Co, an honest small business trying to earn a living.

Step One:  The bank gets behind a curtain

For whatever reason, the bank stays out of sight at the start.  Smart lawyers prepare small print loan documents that name SuperFin as the lender, but say that it’s acting as agent for an ‘undisclosed principal’.  That means that SuperFin is representing another party whose identity is a secret.

Step Two:  The pitch

Salesman Sid turns up at Joe Average & Co and has he got a deal for Joe !

‘What are you spending on calls each month, Joe ?’

‘About $1,200′ Joe reckons.

‘Well, what would you say if we got you as many calls, plus an iPod and a notebook PC, for just $1,000 a month ?  Wouldn’t that be great ?’

‘So I save $200 a month and I get an iPod and a computer ?  Fantastic.  OK.  I’ll sign up.’

Step Three:  Joe signs the paperwork

There’s several pages of small print, but Joe doesn’t want to let the opportunity go.  When he signs up for 48 months, he thinks he’s getting into a contract with ScamTel for four years’ phone services at $1,000 a month. 

If he could read and understand the paperwork, he’d realise the deal is quite different.  He’s actually signing a finance agreement to rent an iPod and a computer from SuperFin for $1,000 a month.  $48,000 total for electrical goods worth just $1,200.

Step Four:  The iPod and computer arrive, and the phone services start

All good.  The iPod is cool and the new laptop is handy, and the phones are working.  At end of month, a $1,000 bill arrives as expected.  The calls seems a bit pricier than Joe thought, but it’s OK.

What really happened

When Joe signed the contract, Royal Queensland MacBank paid $35,000 to ScamTel.  $1,200 was used to supply the iPod and computer and ScamTel kept the rest.  In effect, ScamTel has been paid $33,800 in advance for promising to keep Joe’s phones alive for four years.

Each month, when Joe pays his $1,000 ‘phone’ bill, it’s really a payment to SuperFin, and then Royal Queensland MacBank, on the mega-debt on the iPod and computer.

Now, as long as ScamTel survives and keeps providing phone services, everything is more or less fine.  But if ScamTel goes bust, or its backers do a runner with all the up-front cash Royal Queensland MacBank has stuffed in their pockets, Joe’s in for a nightmare.

Joe stops paying the phone bills

Of course he does !  The phones aren’t working any more.  ScamTel has vanished.

Out from behind the curtain steps Royal Queensland MacBank

Then Joe gets the really bad news.  ‘You know that crappy notebook and bottom of the line iPod you scored ?  Well, you’re really renting them from us at Royal Queensland MacBank.  Please pay the $26,000 balance on those items immediately.’

So Joe has no phones, a huge debt, nothing to show for it and a big bank on his back.

There are several variations on the scam

The story above explains the typical key elements.  But we’re hearing plenty of variations, many of which are even worse. 

In some sad tales, customers insist that their signatures on important documents were forged.  One customer contacted the sales rep that sold him the deal, who’s now got nothing to lose since he’s left the company.  Yes, said the rep, signatures mysteriously appeared on documents while they were at our office.

In other cases, the equipment supposedly rented by SuperFin didn’t even exist. 

Commonly. we are told that all sorts of misrepresentations were shelled out to get the customer to sign.

Why would we be surprised at this ?  The whole thing is a scam, run by scammers for scammers, funded by ‘reputable’ banks with their eyes firmly shut.

And what are the banks and finance companies saying ?

We can’t speak about them all, but most we’ve heard about so far are just denying all knowledge of the wrongdoing by their agents, and demanding payment under the disgracefully dodgy contracts leeches like SuperFin tricked customers into signing.  ‘Not our problem.  Don’t know what you’re talking about.  Pay up or we’ll sue.’

And who are these reprehensible financial institutions ?

We’re tracking down documents before we name them, but we’re confident we can identify three major institutions who have – wittingly or just stupidly – made this scam possible. 

What can be done about it ?

Fortunately, ACCC has taken legal action against a bunch of companies it says are involved in these scams.  In time, that should get many innocent victims off the hook of these terrible contracts.

But other victims may have to help themselves.  Logie-Smith Lanyon has some low cost ideas about how to do that.  But it’s important not to wait until Royal Queensland MacBank sues you.  If you think you’re likely to be sued, call us fast.  We may be able to help.