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.
With many consumers facing financial difficulty we are seeing more enquiries regarding the collection of rental arrears. With investment properties sometimes forming a large part of a families income and many pensioners relying on this income to fund their retirement it is important to take early action to minimise any potential loss.
The Reason for Rental Arrears
Like most referrals to our office the reasons vary however typically rental arrears is primarily due to the tenant losing his or her employment, an increase in the cost of living, a reduction in work hours or a change from full-time to part-time employment or some other unforeseen event.
The law varies from State to State however a tenant must usually be more than 7 days in arrears before any kind of demand for payment can be made. The correct documentation must also be issued which advises the tenant of the arrears outstanding and asking when payment can be expected.
Can I Help The Tenant?
Yes and this is often the ideal solution.
Agreeing to a tenant making increased repayments to clear the arrears can sometimes work out better for both parties in the long term as you do not need to find a new tenant and there is every possibility the arrears will be paid without the tenant vacating the property and owing you money. There are also a number of organisations that a tenant may seek assistance from if they need support. These include:
- Tenants NSW
- Tenants QLD
- Tenants Union of Victoria
- Tenants' Advice Service (ACT)
- Tenancy WA
- Office of Consumer & Business Services (SA)
- The Tenants' Union of Tasmania
- Consumers Affairs NT
Issuing a Breach Notice
Any Breach Notice must be issued in accordance with the relevant State legislation. You should make enquiries with your relevant tenancy tribunal as this varies around Australia.
Terminating the Tenancy
Termination of the tenancy should be the very last resort. If you have been unsuccessful in coming to an agreeable resolution a process must be followed which again varies from State to State. Locking tenants out of the property however without an Order from a Court or Tribunal is illegal.
Generally speaking the issue of a non-payment termination notice in writing does not officially end a tenancy. The tenancy is only officially ended once the tenants have vacated the property and the keys returned. If the tenant refuses you may have to look at commencing proceedings in the Court or through your relevant Tribunal.
Avoiding Future Issues
Clear communication and screening your tenants is the best way to avoid rental arrears and eviction. Ensure that any potential tenants are reference checked carefully, previous rental payment history is considered and enquiries made with employers to verify a tenants employment status and income. Where possible we also recommend that rental payments are made by direct debit on the tenants designated pay day to ensure prompt payment.
Legislation has been passed which gives the Australian Securities & Investments Commission (ASIC) new powers to regulate this emerging sector. The laws provides ASIC with the power to protect at-risk consumers with James Shipton, ASIC Chair, stating, "These new powers will enable ASIC to take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector. This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system for all Australians."
The reforms will be phased in over a period of 2 years and will require companies to identify in advance if a product is appropriate for a consumer. Read the ASIC media release at 19-079MR ASIC Welcomes Approval of New Laws to Protect Financial Service Consumers
A Queensland based casino has allegedly commenced proceedings in the High Court in Singapore to recover an AUD$43.2 million debt according to mygc.com.au
The Star Entertainment Group ("The Star") invited Dr Yew Choy Wong to play at their Broadbeach, QLD casino located on the Gold Coast to play as a VIP in July 2018. Dr Wong accepted the invite and it is alleged lost AUD$43.2 million over 5 days playing baccarat. It is alleged that Dr Wong supplied The Star with a blank cheque to cover any of his losses however once he left the casino the cheque was dishonoured with Mr Wong claiming that his bank would not honour the cheque due to alleged mistakes made by the dealer throughout the length of his stay.
In a letter from The Star to Dr Wong it is alleged that the casino acknowledged that mistakes had been made however claimed that these mistakes did not have a direct financial impact upon Dr Wong, however Dr Wong claims that the letter from the casino waived the debt as a result of the mistakes made.
In a statement to the media Dr Wong's solicitor said, "Dr Wong will contest the Singapore case as a matter of principle and intends to vindicate his decision to stop payment."
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.
It is being reported by Equifax that the Office of the Australian Information Commissioner (OAIC) has provided a view that all defaults will now be recorded as a paid status regardless of whether the debt is paid or settled.
Previously Creditors had the opportunity to record a debt as being settled where a reduced amount was accepted however the OAIC has advised Equifax that by 15/02/2019 all existing accounts listed with an "S" code (settled) must be converted to a "P" code (paid). Default informaiton also being submitted by IQ Connect, XML or Data Enrichment Systems by Creditors will also need need to follow the new definition of a paid default.
It's a question that is often asked and something that we have covered before in our article Recording Payment Defaults however is there a time-limit on when a credit provider can list a payment default?
The Office of the Australian Information Commissioner (OAIC) states in their Privacy Fact Sheet 35: When Can a Default Be Included in Your Credit Report -
Yes, a credit provider cannot wait more than 90 days after issuing you with the second notice to list the default.
If the credit provider does not disclose the default to a CRB within that 90 day period, it must send you another notice informing you of its intention to list the default. The credit provider must then wait at least another 14 days before disclosing the default to a CRB for inclusion in your consumer credit report.
You can find the answer to this question and more by visting the OAIC fact sheets page here.