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Released every month our debt collection blog contains news, stories and tips to keep you informed.

FOS Release AFCA Key Dates

Thursday, June 28, 2018 - Posted by Michael McCulloch

This month the Financial Ombudsman Service (FOS) has released an information sheet that outlines how the new External Dispute Resolution (EDR) scheme will be implemented over the coming months.

If you recall from our previous article, the Australian Financial Complaints Authority (AFCA) will operate from Thursday, 1 November 2018 and will replace FOS, CIO and the SCT so consumers have access to only 1 scheme for future disputes. The latest release from FOS provides more details regarding the transition including an announcement of the new AFCA Board and key dates to remember.

You can read the release on the FOS website.

AFCA Given Final Approval

Wednesday, May 30, 2018 - Posted by Michael McCulloch

Ministerial approval has now been given for the new Australian Financial Complaints Authority (AFCA) to begin accepting new complaints on Thursday, 1 November 2018.

As we've indicated in our previous article, AFCA Given Green Light, AFCA will replace both the Financial Services Ombudsman (FOS) and the Credit and Investments Ombudsman (COSL) as the sole External Dispute Resolution scheme in the financial services sector.

AFCA have recently indicated that financial firms required to join the new scheme will be required to do so no later than Friday, 21 September 2018 with FOS claiming that over 98% of their current members have already completed the transfer requirements.

With the first board recently being announced by Minister for Revenue and Financial Services, Kelly O'Dwyer MP, we can expect the public consultation process to commence regarding the new AFCA Terms of Reference and the scheme's interim funding model and will report on these developments as updates become available.

Source: Australian Broker - May 2018

Enforcement of Judgment While EDR Investigates

Thursday, March 29, 2018 - Posted by Michael McCulloch

As you may be aware once a debt has been referred to External Dispute Resolution ("EDR") all collection action should cease pending the complaint or dispute being resolved. What happens though when you have a Judgment and a dispute or complaint is lodged?

Both of the current EDRs in the Financial Ombudsman Service ("FOS") and the Credit and Investments Ombudsman ("COSL") have Terms of Service which clarify their position when it comes to a Judgment with both indicating that where Judgment has been entered they have no jurisdiction but how does this work in a practical sense?

In our quest for answers we reviewed some of the outcomes where Judgment was entered and a complaint or dispute was lodged with an EDR. In our search we came across a Review by COSL in August 2016. The original complaint related to:

  • a Security Certificate breach that appeared on the FSPs website on or around June 2012; and
  • a Default Judgment obtained by the FSP from the Local Court of NSW on or around October 2015 to recover $47,454.49 from the consumer.
The outcome of the review has been transcribed below:

The claim that the FSP committed a breach of the consumer’s privacy by not remedying the security certificate breach
The claim that the consumer’s privacy was breached as the FSP did not remedy the security certificate breach. We would not be the appropriate forum to consider complaints about security certificates. Based on the available information, we consider it more appropriate that the consumer
direct this claim with the Office of the Australian Information Commissioner. The OAIC can investigate privacy complaints covered by the Privacy Act 1988 (CTH) and also complaints relating to handling of the consumer’s personal information by the FSP.

The consumer’s claim that the Statement of Claim was issued to the wrong address despite the consumer updating the consumer’s new address on xx July 2015
The FSP has provided us a copy of the judgment by the Local Court of NSW against the consumer dated xx October 2015 and a copy of the notice dismissing the consumer’s motion to set aside the default judgment dated xx May 2016. A court has ordered that the consumer pay the judgment debt. We cannot deal with a complaint if the subject matter of the complaint has been determined by the court. This is because we are not able to make a decision that would be seen to conflict with a decision of the court. Furthermore, only a court is able to set aside a court’s judgment. If the consumer wishes to set aside the default judgment, the consumer’s claim would be better raised with the Local Court of NSW.

The consumer’s claim that the FSP attended the hearing on xx May 2016 despite being aware of the complaint being open with CIO
We received the consumer’s complaint against the FSP on xx May 2016. When we receive a complaint, the financial services provider is required to cease enforcement action for as long as we deal with the complaint. On or around the same time the consumer lodged the complaint with us, the consumer approached the Local Court of NSW to set aside the default judgment obtained by The FSP. Both the parties attended the hearing to set aside the default judgment on xx May 2016. The court dismissed the consumer’s motion to set aside the default judgment and upheld its original default judgment against the consumer dated xx October 2015. We do not consider that the FSP breached our Rules by attending the court hearing. This is because the FSP already obtained a judgment against the consumer on xx October 2015 and was attending the court to respond to the consumer’s notice to set aside the default judgment. We are unable to find that this amounted to a continuation of enforcement action as The FSP is entitled to defend itself to legal proceedings commenced by the consumer.

With the consumer being unhappy with the Review the matter was referred to the Ombudsman for Determination. The Ombdusman concluded in their Final Decision:

49. For the reasons set out in the Review and this Determination, I find that the consumer's claims have either not been made out or are outside our jurisdiction.

In summary it is now our opinion having read the Review, Determination and Decision that while enforcement of a Judgment Debt cannot continue while a complaint or dispute is before EDR that if a Defence or a Motion is filed by a consumer in the Court that the FSP has the right to respond to an action raised by a consumer.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.

AFCA Given Green Light

Tuesday, February 27, 2018 - Posted by Michael McCulloch

In our May 2017 edition of Debt Collection News we reported of the Consultation Paper Released On New EDR Scheme.

Earlier this month ASIC released confirmation that the Bill to establish the Australian Financial Complaints Authority ("AFCA") was passed through parliament with AFCA set to replace the Credit and Investments Ombudsman ("COSL"), the Financial Ombudsman Service ("FOS") and the Superannuation Complaints Tribunal ("SCT"). According to the ASIC media release, ASIC will work with the Government and new scheme stakeholders to ensure that the transition is as smooth as possible. In the interim ASIC has confirmed that they will retain direct oversight of both COSL and FOS with seperate arrangements being made for the ongoing operation of SCT.

According to the media release:

  • AFCA will start accepting complaints no later than 1 November 2018
  • The operator of the scheme will be authorised by the Minister, and the scheme will be subject to ongoing oversight by ASIC.
  • In order to maintain access to external dispute resolution for consumers in the lead up to commencement of AFCA, ASIC will monitor member compliance with existing EDR scheme requirements as well as the effectiveness of scheme operations.
  • Members of each of CIO and FOS - including licensees and credit representatives - must continue to maintain their EDR membership through this period, including paying membership and other scheme fees in full as required. ASIC has asked the two schemes to report any failure of members to do so.
  • A memorandum of understanding between CIO and FOS will prevent members inappropriately moving between the schemes in the transition period.
  • ASIC will be consulting soon on updated Regulatory Guide 139 (REG 139), which will set out details of ASIC's oversight of AFCA.  This will be finalised and published when AFCA commences operations.
  • ASIC will also publicly consult on new IDR standards and the mandatory IDR reporting requirements that are also contained in the AFCA Bill – but this consultation will not take place until afterAFCA commencement.
  • Current legislative IDR requirements for superannuation trustees and retirement savings account providers (including 90-day timeframes and requirements for written reasons) will continue to apply in their current form until ASIC consults on and then issues updated IDR policy (RG 165).

ASIC Depity Chair, Peter Kell, said, "Fair, timely and effective dispute resolution is a cornerstone of the financial services consumer protection framework. The combination of firms' internal dispute resolution procedures and access to a free independent external scheme currently provides redress for many tens of thousands of Australians each year. Strengthening these dispute resolution requirements will help deliver higher standards and better outcomes in the financial services market."

"The establishment of a single scheme for all financial services and superannuation complaints is a very positive development, building on the outcomes achieved over many years by the existing three schemes: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal."

We will continue to monitor these changes and will release our updated guide once the new IDR standards are made available.

FOS Approach to Financial Elder Abuse

Wednesday, November 29, 2017 - Posted by Michael McCulloch

Last month the Financial Ombudsman Service Australia ("FOS") released a new publication, "The FOS Approach to Financial Elder Abuse".

The publication is one of a series of documents released on a regular basis by FOS with this particular publication focusing on the challenges faced by identifying the warning signs of financial elder abuse, what is considered good industry practice and how they assess such disputes.

Philip Lead, Lead Ombudsman of Banking and Finance said, "As our society ages, FOS is seeing a greater number of disputes involving older Australians and their financial services providers. This abuse can involve the misuse of, or theft from, a bank account or other financial services product. Financial services employees need to be encouraged to trust their instincts when it comes to recognising this form of abuse."

Mr Field cited research indicating that between 2% and 10% of the older Australian population suffer such abuse every year with most abusers being relatives or caregivers or those who have gained the elderly persons trust and take an opportunistic approach.

You can download a copy of the publication from here.

Source: - October 2017
Source: FOS Publications - October 2017

FOS Annual Review 2016-17

Monday, October 30, 2017 - Posted by Michael McCulloch

New data released by FOS on 05/10/17 indicates that a record number of disputes were received in 2016-2017. The review shows that FOS received 39,479 disputes (a 16% increase from last year) with the increase predominantly driven by continued growth in insurance disputes. The number of insurance disputes increased approximately 38% during this period alone. FOS have said that this increase was due to a continuation of industry-specific issues including high claim numbers, organisational changes and the impact of Cyclone Debbie, all of which may have impacted upon the insurers' internal dispute resolution process.

Overall FOS claim that in 2016-2017 that the average time taken in which to resolve a dispute has reduced by 13% and a reduction of 43% from the previous year "without compromising the quality of outcomes". Chief Ombudsman, Shane Tregillis, said in a statement, "This means that people can have their cases resolved more quickly and get on with the rest of their lives."

Of the 39,479 disputes received by FOS 22,475 were accepted with 17,004 referred back to the Credit Provider as being outside of the FOS Terms of Reference. Of the 22,475 disputes received:

  • 10,973 credit disputes
  • 8,756 general insurance disputes
  • 1,861 deposit-taking disputes
  • 1,331 payment system disputes
  • 1,292 investments and advice disputes
  • 1,018 life insurance disputes
Of the credit disputes received 33% involved credit cards, 24% involved home loan and 20% related to personal loan products. Of all disputes received credit cards accounted for 14%, home loans 10% and personal loans 8%. Of all disputed involved 41% involved banks which was lower proportionally to 2015-2016 (46%)

According to the Financial Ombudsman Service ("FOS"), the Bank of Queensland ("BoQ") is the worst offender for disputes when it comes to home loans.

For every 100,000 mortgages across Australia, BoQ was involved in 79 disputes during the last financial year. 40% were resolved by agreement between the parties while a further 29% were found in BoQs favour according to FOS.

A BoQ spokesperson said, "BoQ is dedicated to ensuring our customers' needs are properly met and has some of the highest industry standards in place to ensure we meet responsible lending requirements. Importantly, FOS has either found in favour of BoQ or the action was discontinued in about 45% of cases."

EDR Transition to AFCA

Wednesday, August 30, 2017 - Posted by Michael McCulloch

In a speech to the Financial Services Council Leaders Summit held in Sydney on 26/07, Minister for Revenue and Financial Services, Kelly O'Dwyer, announced the transition team tasked with the role of combining the existing External Dispute Resolution ("EDR") schemes.

Ms O'Dwyer said in a statement that the transition team would be led by former Reserve Bank Assistant Governor Dr Malcolm Edey. Dr Edy will lead the team with a view to have the new Australian Financial Complaints Authority ("AFCA") in place from 1 July 2018.

The AFCA will replace the "overlapping, inconsistent and narrower" system that includes the Financial Ombudsman Service ("FOS"), the Credit and Investments Ombudsman ("CIO") and the Superannuation Complaints Tribunal ("SCT"). Ms O'Dwyer went on to say, "It will [the AFCA] provide access to justice in a timely manner, with an independent arbiter and compensation where appropriate. It will make a real difference for those caught up in disputes with financial services providers".

The establishment of the AFCA was recommended following The Ramsey Review, conducted by Paul Ramsay of Melbourne University, however attracted criticism within the industry as there was a preference to favour consumer advocates and may not deliver fast and effective resolutions.

Ms O'Dwyer stated that because the AFCA was a central body for EDR that there will no longer be uncertainty or confusion about which body has jurisdiction to hear a particular dispute and that the central body will have the power to deal with multiple issues.

You can read the Final Report - Review of the Financial System External Dispute Resolution and Complaints Framework here.

Source: Australian Broker - Transition Underway for One Stop EDR Shop

Source: Australian Government Reviews and Inquiries - Review Into Dispute Resolution & Complaints Framework

Consultation Paper Released On New EDR Scheme

Tuesday, May 30, 2017 - Posted by Michael McCulloch

Recently the Australian Government has released a consultation paper for Financial Service Providers ("FSPs") to submit responses to the proposed External Dispute Resolution ("EDR") framework.

As part of the proposed new scheme a single dispute resolution body will be established called the Australian Financial Complaints Authority ("AFCA") which will replace the Financial Ombudsman Service ("FOS"), Credit and Investments Ombudsman ("CIO") and the Superannuation Complains Tribunal ("SCT"). It is believed that AFCA will be operational from 1 July 2018 with all FSP's required to be members.

The new EDR sceme will give ASIC additional powers for oversight and monitoring while FSP's will need to adhere to enhanced transparency and accountability of Internal Dispute Resolution ("IDR") processes.

2 new bills will be introduced to parliament as a result of the proposed change. The Treasury laws Amendment (External Dispute Resolution) Bill 2017 and Treasury Laws Amendment (External Dispute Resolution) Regulations 2017.

The closing date for submissions on the scheme is 14 June 2017.

Source: Independent Financial Adviser - Government Introduces New EDR Scheme

What's the Difference Between Dissatisfaction or a Complaint?

Wednesday, April 26, 2017 - Posted by Michael McCulloch

As a holder of an Australian Financial Service Licence ("AFSL") you have many obligations including a responsibility to a commitment to improvement and to ensure that all staff are appropriately trained in all aspects of the business including complaint handling.

How do you, however, differentiate between customer dissatisfaction or a complaint?

What is Customer Dissatisfaction?
Generally speaking customer dissatisfaction is where a query or concern is raised. A customer may say that they are unhappy about something but this does not necessarily mean that they are wanting to make a complaint. They could merely be unsatisfied with the service they have received or a previous query they raised hasn't been addressed to their satisfaction. It would be at this point in time that steps are taken to resolve the customers dissatisfaction before their dissatisfaction escalates to a dispute status.

What is a Dispute?
ASIC RG165 provides the following definition:
"A complaint or dispute is an expression of dissatisfaction made to an organisation, related to its products or services, or the complaints handling profess itself, where a response is resolution is explicitly or implicitly expected."

Knowing the difference between dissatisfaction and a dispute can in the long run save the relationship with the customer, avoid what could potentially be a long, costly and drawn out EDR process and ensures that you are meeting your conditions of an AFSL.

You can download a copy of ASIC Regulatory Guide 165 Licensing: Internal and External Dispute Resolution here.

FOS Approach to Early Release of Superannuation

Wednesday, April 26, 2017 - Posted by Michael McCulloch

As you may be aware the Financial Ombudsman Service ("FOS") periodically release and update documents to assist both consumers and Financial Service Providers ("FSPs") in how they come to the decisions that they do.

This month we have reviewed and re-produced an extract from the FOS Approach to Early Release of Superannuation which you can read below:

2.1 Grounds for Early Release of Superannuation
There are limited circumstances in which a person may apply for their superannuation to be released early to help meet their loan obligations. These are:

Severe Financial Hardship
A person who has received an eligible government support payment continuously for 26 weeks may be entitled to an early release of superannuation on the grounds of several financial hardship. On this basis, a person may access up to $10,000 once a year. To do so, they must obtain a supporting letter from DHS and then apply directly to their superannuation fund. The payment can be used for any purpose and the FSP's support is not required.

Compassionate Grounds for Mortgage Assistance
A person can apply for early release of superannuation on specific compassionate grounds. One of these is mortgage assistance to prevent the foreclosure of a mortgage, or the exercise of a mortgagee's power of sale over the person's principle place of residence. This process is administered by DHS. Foreclosure is rate, so this article focuses on the power of sale.
DHS may approve the release only if the borrower provides a written statement from the mortgagee that:

  • A payment of an amount is overdue; and
  • If the person fails to pay the amount, the mortgagee will:
    Foreclose the mortgage on the person's principle place of residence or
    Exercise its power of sale of the person's principle place of residence.

A limit applies such that in each 12 month period, DHS may approve the release of an amount of a person's preserved benefits in a superannuation entity only where that amount does not exceed 3 months of repayments plus 12 months' interest on the outstanding loan balance.
An amount released on the compassion grounds of mortgage assistance is taxed as a normal superannuation lump sum, which means there will often be tax implications for the borrower.

2.2 What FOS Expects of FSPs
We expect FSPs to genuinely consider requests for financial difficulty assistance. Wven where a borrower is asking only that the FSP support the request for release, the FSP must be willing to consider alternatives. This is because supporting a release is an option of last resort - in many cases more appropriate options may be available if the parties work together.
To meet its financial difficulty obligations, we expect an FSP to:
  • Take appropriate steps to understand the borrower's financial position, and how their position may change in the future
  • Consider the borrower's request as well as any reasonable alternatives that may help the borrower
  • Decide what assistance it will provide to help the borrower (this decision should be reasonable and based on legitimate considerations)
  • Communicate its decision to the borrower and, if it declines the borrower's request, provide reasons.

An FSP following the above guidance should consistently meet its obligations.

2.3 Factors for FSPs to Consider
When considering whether to support a borrower's request for early release of superannuation:
  • FSPs cannot insist that a borrower apply for early release of superannuation to repay outstanding arrears (for example, clause 28.9(a) of the Code of Banking Practice states: We will not require you to apply for early release of your superannuation benefits to repay the whole or any part of your credit facility with us).
  • FSPs should explore alternative options with the borrower.
  • If it is apparent that the borrower can afford ongoing repayments but cannot clear the arrears on the loan, it may be more appropriate for FSPs to capitalise the arrears. This will resolve the arrears on the loan as well as preserve the borrower's superannuation balance.
  • Where it is uncertain whether a borrower may be able to meet their loan obligations, it may be more appropriate for FSPs to offer a serviceability test or a reasonable repayment moratorium to allow time for the borrower's situation to improve.
  • If it is clear that the borrower cannot meet their long-term obligations, support a superannuation release is unlikely to be appropriate. This is because the release will merely delay inevitable default. The borrower is still likely to lose their home, and will also have lost part of their superannuation. In these cases, FSPs should consider alternatives such as offering time to sell the security property.
  • Where superannuation releases have been tried and not helped to relieve the borrower's financial difficulty, FSPs should exercise greater diligence before supporting further applications for release.

It is never certain that a borrower will be successful in their application to DHS. This means that even when an FSP decides to support a superannuation release, it needs to consider what assistance it can provide if the borrower's application is unsuccessful. This might include offering time to sell the security property.

2.4 Where an FSP Does Not Meet Its Obligations
Where we consider that an FSP has not met it's obligations, the usual remedies apply for a failure to meet financial difficulty obligations under the FOS Terms of Reference. This often includes compensation for non-financial loss. The borrower may also have suffered financial loss for which we would award compensation.
If an FSP has supported a release of superannuation that we considered inappropriate, we will generally not require an FSP to refund the superannuation amounts received, or reimburse any tax paid by the borrower as a result of the withdrawal of those funds. This is because, in most cases, the borrower will have obtained the benefit of the funds and will have saved interest and fees on the loan.

Our Experience
In our experience in dealing with mortgagee sales at LCollect we have found that it was not appropriate for the FSP to support an early release of superannuation because better alternatives were available or it was unlikely that any such release would assist the borrower in overcoming their financial difficulty. In almost all instances, where a FSP declined to support a release, we found that decision was appropriate.

Source: The FOS Approach to Early Release of Superannuation

Note: Please note that this article does not constitute legal advice. If in doubt you should seek your own proper, independent legal advice.

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