Released every month our debt collection blog contains news, stories and tips to keep you informed.
Mirage News is reporting that the Australian Financial Complaints Authority (AFCA) has welcomed the news from the Australian Securities and Investments Commission (ASIC) that financial service providers will be required to supply standardised data on their internal processes for handling customer complaints.
The proposed standard, which is pending public consultation, will include new mandatory data reporting with FSPs required to meet new standards when a complaint goes through the Internal Dispute Resolution (IDR) process with a view to make complaints handling performance transparent. In making the announcement, ASIC Deputy Chair Karen Chester, said, "It is widely acknowledged there is room for much improvement when it comes to handling consumer complaints in our financial system. The Ramsay Panel Review, recent ASIC research, case studies before the Financial Services Royal Commission (FSRC) and our own supervisory work have all identified shortcomings in consumer complaints handling. Consumers expect and need a fair, timely and effective way to have their complaints dealt with, and to be provided redress where appropriate. The absence of such effective redress, and the failure of firms to identify and look into systemic complaints, were key findings of the FSRC and the Prudential Inquiry into the CBA. With the benefit of broad consultation, ASIC’s new standards will lift complaints handling performance of firms and ultimately consumer outcomes and fairness of the financial system. And transparently so. These standards will also apply in their entirety to all APRA regulated superannuation funds".
In response to the news, AFCA Chief Ombudsman and CEO David Locke said, "Increased transparency is good news. It will help firms to continuously improve, and that will be good for the firms and their customers alike. We also welcome the idea of requiring firms to provide a standard set of data – this will help companies know how they compare to their competitors and help to inform consumers about the companies they’re dealing with. In this digital age, the move by ASIC to require firms to include complaints made on social media platforms, is entirely appropriate".
ASIC has sought public input on the consultation documents by 9 August 2019 and aims to release the new standards in a new Regulatory Guide by the end of 2019. You can find out more and read the media release by ASIC at ASIC Media Release 19-115MR
Following on from last month where we looked at the AFCA Approach to Mortgagee Sales this month we look at the Australian Financial Complaints Authority (AFCA) approach to Financial Difficulty - Early Release of Superannuation.
The purpose of this article is to summarise the approach AFCA have regarding the early release of superannuation and what lenders obligations are when considering a request from a consumer to support the early release of superannuation.
Grounds for Release
There are 2 primary circumstances where a consumer may apply for the early release of superannuation. These are due to several financial hardship or compassionate grounds (mortgage arrears). A consumer that has been in receipt of a Government support payment, such as Newstart Allowance, continuously for 26 weeks may be entitled to the early release of superannuation on the grounds of financial hardship. A consumer may access between $1,000 to $10,000 once a year and the application must be made directly to their superannuation fund. The payment can be utilised for any purpose and does not require the support of the FSP.
Where the application is being made on compassionate grounds (mortgage arrears) the process is administered by the Australian Taxation Office (ATO). A consumers application to the ATO for payment of mortgage arrears will need a letter from their FSP stating that the amount is overdue and if the overdue amount is not paid by the due date the mortgagee will foreclose or force the sale of the consumers principal place of residence. More information is available from Access on Compassionate Grounds on the ATO website.
There is an expectation from AFCA that FSPs will consider alternatives rather than simply supporting a request for the release of superannuation as the release of superannuation is a last resort. AFCA expects FSPs to take appropriate steps to understand the consumers financial position, decide what assistance it can provide the consumer and communicate its decision to the consumer.
Factors to Consider
When considering if support should be given for the early release of superannuation the FSP, , should explore all alternative options -
Where it is apparent that the consumer can afford to continue with the contractual repayments but unable to clear the arrears the FSP may consider it more appropriate to capitalise the arrears.
Where the FSP is unable to determine if the consumer can meet their ongoing contractual obligations it may be more appropriate for the FSP to provide a reasonable moratorium period to allow the consumer time for their situation to improve.
Where it is clear that the consumer will be unable to meet their ongoing contractual obligations supporting a release for superannuation may not be appropriate as any release will only delay the inevitable. In certain situations it may be beneficial for the FSP to allow the consumer time to sell the security property which will preserve their superannuation and may offer some financial relief.
Failing to Meet Obligations
Where AFCA believe that the FSP has failed to meet their obligations AFCA may rule that the FSP has failed to meet financial difficulty obligations under the AFCA Rules. Where the consumer has suffered a financial loss AFCA may award compensation.
Where the FSP has supported an early release for superannuation that AFCA believe inappropriate they will generally not require the FSP to refund the superannuation monies or reimburse any tax paid as a result of the withdrawal of the funds as in most cases the consumer will have obtained the benefit of the funds and will have potentially saved on interest, fees and charges.
To learn more or to read this article in its entirety visit AFCA Approaches - Early Release of Super.
Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relief on in any way.
Case Study - Unfair Financial Difficulty Policies
Issue: There were concerns that a bank's financial difficulty policies and procedures for its home loans were not compliant with section 72 of the National Credit Code (NCC), clause 28 of the Code of Banking Practice (CBP), and the AFCA Approach to Financial Difficulty.
The financial firm’s hardship policies prevented it from offering hardship solutions if a customer had been in long term financial difficulty and had previously failed to adhere to hardship agreements, or where the period of delinquency was significant. This means the financial firm refused to consider options such as a serviceability test followed by a capping arrangement, and instead focused on alternative repayment options which were unaffordable in light of the circumstances.
Outcome: Following our identification of the issue, the financial firm updated its hardship policy to offer more sustainable solutions. This included having practical discussions with customers experiencing financial difficulty to assist them to overcome their hardship.
The firm also offered capping arrangements for investment properties on a case by case basis. Training was provided to the firm’s hardship team to ensure that the updated policies were implemented correctly.
Application: Policies should not automatically exclude a customer from receiving hardship solutions due to long term hardship and issues such as high arrears or long periods of delinquency. Instead, financial firms should assess each request for assistance on an individual basis, and place an emphasis on the customer demonstrating their ability to service the loan.
If a customer has a positive change in circumstances that allows them to restart payments on a loan, they could be offered a repayment trial followed by capitalisation of arrears – the repayment trial could be the usual minimum monthly payment (MMP), interest only payments or loan term extension with reduced MMP.
Alternatively, if the customer has received hardship assistance over an extended period and they are still unable to meet the repayment schedule, then it may be appropriate to decline further hardship assistance, but instead consider other options such as a timeframe to permit the asset to be sold to repay the debt.
With the Government set to adopt all 76 changes recommended by the Royal Commission into Misconduct in Banking, including amending the Australian Financial Complaints Authority (AFCA) Rules to accept disputes dating back to January 2008, it appears as though farmers will also benefit with the Commissioner calling for a national farm debt mediation scheme.
Both The Weekly Times and Beef Central are reporting that the Federal Treasurer, Josh Frydenberg, has indicated that the Government would look at introducing a new farm debt mediation scheme which would require financiers not to charge default interest on agricultural loans in areas considered in drought or impacted by a declared natural disaster. Financiers would also be required to ensure that only those experienced in agriculture would manage distressed farm loans.
In the original interim report released by Commissioner Hayne he commented, "Properly used, however, mediation may allow the lender and the borrower to agree upon practical measures that will, or may, lead to the borrower working out of the financial difficulties that have caused the lender to treat the loan as distressed. Ordinarily, then, I consider that lenders should offer farm debt mediation as soon as the loan is classified as distressed. If used in conjunction with rural financial counselling services, early farm debt mediation should allow wider and better choices for the lender and borrower about servicing, and ultimately repaying the loan."
Fiona Simson, President of the National Farmers' Federation said, "The Royal Commission shone a bright light on Australia's banking sector, on which Australian farmers are heavily dependent. Justice Hayne's recommendations and the Government's affirmative response, has recognised the unique situations farm businesses often face and the always unequal playing field when negotiating with the big banks."
Minister for Agriculture and Water Resources, David Littleproud, released a statement on his website which you can read here.
Following the final report from the Royal Commission into Misconduct in Banking it has been revealed that the Government is proposing a change to the Australian Financial Complaints Authority (AFCA) Rules which will allow them to deal with disputes dating back to January 2008.
The proposed change would see AFCA being able to investigate disputes about misconduct that have not been dealt with previously by the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) or by the Courts. AFCA has indicated in a media release that consumers and small businesses will soon be provided with information as to the complaints procedure however confirmed that until such as time as the Rules are changed that they cannot consider such disputes.
In a statement to the media AFCA Chief Executive and Chief Ombudsman, David Locke, said, "The announcement from the Government today that AFCA will now be able to consider some of the legacy disputes excluded by the predecessor schemes going back to 1 January 2008, means that many more people will be able to get access to justice and have their matters properly considered. This is a really positive step for consumers and we will be issuing guidance shortly to assist people to bring these disputes to us."
AFCA has also publicly welcomed the Commissioner's recommendation in relation to s912A of the Corporations Act 2001 which will see AFSL holders being required to take reasonable steps to cooperate with AFCA to resolve disputes and release documents.
Newly appointed Chief Ombudsman, David Locke, has recently announced in an article in the Financial Review that Financial Service Providers (FSPs) that fail to respond quickly to matters brought to the attention of the Australian Financial Complaints Authority (AFCA) may face bigger compensation bills.
Since its inception in November 2018 AFCA claim to have received 11,500 complaints of which 4,000 have been about FSPs. By direct comparison the Financial Ombudsman Service, at its peak, received 2,100 complaints per month.
Mr Locke indicated that responsible lending and misleading sales were among the issues most frequently complained about by consumers and said in a statement, "The volumes of matters coming to us are very high. A lot of people have been treated very poorly by financial institutions over a number of years. The royal commission has shone a bright and forensic light on some issues but most people still feel they haven't been heard or had their matters addressed."
While Mr Locke was unable to provide an actual dollar figure for compensation ordered to date he did indicate that the AFCA cost model is structured so FSPs pay more the longer a dispute goes on so there is an incentive to resolve disputes as quickly as possible.
Of the 11,500 complaints since AFCA came into power 32% of cases have been resolved.
The Australian Securities & Investments Commission (ASIC), in conjunction with Nature Research, has recently compiled a report "The Consumer Journey Through the Internal Dispute Resolution Process of Financial Service Providers" which has looked at the consumer experience of the Internal Dispute Resolution (IDR) process.
The research found that:
The Australian Financial Complaints Authority (AFCA) has announced on their website that a new small business Lead Ombudsman will be appointed to resolve financial disputes that small businesses have with their financial service providers (FSPs).
Under AFCA the small business is now defined as an organisation with less than 100 employees and can consider complaints from small businesses with their FSP up to the value of $5 million. AFCA also announced an increase in the available compensation to small businesses from $323,500 to $1 million.
In a statement to the media AFCA Chief Ombudsman and CEO David Locke, said, "With the arrival of AFCA, and the increase in monetary limits, many small business complaints will now be covered by an external dispute resolution scheme for the very first time. This will be a big help and provides small businesses with a fair, free and independent way of resolving their disputes."
The Australian Small Business and Family Enterprises Ombudsman (ASBFEO) has applauded the decision with Kate Carnell saying, "We welcome the announcement of a dedicated small business lead ombudsman,” Ms Carnell said. “We envisage a small business expert will be appointed, which will significantly improve small businesses’ access to justice and save them time and money."
The announcement comes on top of AFCA releasing information that in their 1st week of operation that they received 2,500 calls with a subsequent 1,500 complaints being made.