New Rules for Consumer Complaints in the Financial Services Industry

A Guide for Financial Firms and Providers of Financial Services

The start date for the Australian Financial Complaints Authority (AFCA) to receive complaints from consumers of financial services commenced on 1 November 2018.

The AFCA is an external complaint resolution scheme established to resolve complaints by ‘Complainants’ about Financial Firms.

The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) authorises AFCA and outlines how its jurisdiction and powers are determined.

The AFCA replaces three previous dispute resolution agencies responsible for dispute resolution services in the financial services industry:

  • the Financial Ombudsman Service (FOS)
  • the Credit and Investments Ombudsman (CIO)
  • the Superannuation Complaints Tribunal (SCT)

The AFCA’s complaint resolution scheme is free of charge for Complainants. Complainants do not generally need legal or other paid representation to submit or pursue a complaint through the AFCA.

The AFCA Rules set out the rules and processes that apply to all complaints submitted to the AFCA scheme, including superannuation complaints.

We provide a quick ‘snapshot’ of features of the new dispute framework under the Complaint Resolution Scheme Rules.

Who qualifies as a Complainant?

A Complainant must be an Eligible Person which may include:

  • an individual
  • a partnership comprising of individuals
  • a Small Business (whether a sole trader or constituted as a company, partnership, trust or otherwise)
  • corporate trustee of a self -managed superannuation fund or a family trust
  • a not-for-profit organisation or club
  • a body corporate of a strata title or company title building
  • policy holder of a group life or group general insurance policy.

In essence, consumers and small businesses with less than 100 employees will be able to make complaints to the AFCA.

Which Financial Firms are Affected?

A Financial Firm may include:

  • an AFS Licensee providing financial services to retail clients
  • an Australian Credit Licensee and most credit representatives
  • a trustee of a regulated superannuation fund or life policy fund
  • an approved deposit fund
  • a retirements savings account provider
  • an annuity provider.

Other firms operating under a licensing exemption may also be required to join the AFCA scheme and be subject to the Complaint Resolution Scheme Rules.

What Financial Services are Covered?

Financial Services may include a custodial service or a product or service that is financial in nature, including a product or service which is or is in connection with:

  • a loan or any other kind of credit transaction (including a credit card used overseas) and guarantees or charges to secure any moneys owing
  • a deposit including a term depositor a fund management deposit
  • credit reporting
  • equity release product
  • debt administration and credit repair
  • non-monetary default of a credit facility
  • an insurance policy
  • a financial investment (such as life insurance, a security, an Annuity Policy, a RSA, an interest in a registered managed investment scheme or a superannuation fund)
  • a facility under which a person seeks to manage financial risk such as a derivatives contract or a foreign currency contract
  • a facility under which a person may make, or cause to be made, a non-cash payment (such as a direct debit arrangement or a facility relating to cheques, bills of exchange, travellers’ cheques or a stored value card)
  • leasing and hire purchase arrangements
  • financial or investment advice
  • traditional trustee company services.

What Type of Complaints are Covered?

A complaint must be about a Financial Firm that is an AFCA Member at the time that the complaint is submitted to AFCA (even if not an AFCA Member at the time of the events giving rise to the complaint).

A Complaint (other than a superannuation complaint) involving a Complainant must arise from or relate to:

  • the provision of a Financial Service by the Financial Firm to the Complainant
  • a guarantee or security for, or repayment of, financial accommodation provided by the Financial Firm
  • an entitlement or benefit under a Life Insurance Policy
  • an entitlement or benefit under a General Insurance Policy a breach of obligations arising from the operation of the:
  • Privacy Act; or
  • the Consumer Data Framework
  • a legal or beneficial interest arising out of:
  • a financial investment (such as life insurance, a security or an interest in a managed investment scheme or a superannuation fund); or
  • a facility to manage financial risk such as a derivatives contract
  • a claim under another person’s Motor Vehicle Insurance Product for property damage to an Uninsured Motor Vehicle caused by a driver of the insured motor vehicle or non-financial loss as a result of a claim
  • an investment made by the Complainant that was offered by a Financial Firm under a foreign recognition scheme to Australian resident investors, unless expressly excluded from access to AFCA or a Predecessor Scheme by the investment offer document.

What Conditions Apply to a Complaint?

There are some additional requirements that must be met in order for the AFCA to be able to consider a complaint.

In summary:

  • the complaint must arise from a customer relationship or other circumstance that brings the complaint within AFCA’s jurisdiction
  • there must be a sufficient connection with Australia
  • generally, there is a time limit within which the complaint must be submitted to the AFCA
  • if the complaint is about a Traditional Trustee Company Service that involves Other Affected Parties, the Complainant must obtain the consent of all Other Affected Parties.

What are the Powers of an AFCA decision maker?

The AFCA will first try to resolve complaints via informal methods such as mediation and conciliation. However, if this does not succeed, the authority has the ability to make binding rulings on financial firms and force them to take certain courses of action.

An AFCA Decision Maker may decide that the Financial Firm or the Complainant must undertake a course of action to resolve the complaint including:

  • the payment of a sum of money
  • the forgiveness or variation of a debt
  • the release of security for debt
  • the repayment, waiver or variation of a fee or other amount paid to or owing to the Financial Firm or to its representative or agent, including the variation in the applicable interest rate on a loan
  • the reinstatement, variation, rectification, or setting aside of a contract
  • the meeting of a claim under an insurance policy by, for example, repairing, reinstating or replacing items of property
  • for a privacy issue with an individual – that the Financial Firm should not repeat conduct on the basis that it constitutes an interference with the privacy of an individual or that the Financial Firm should correct, add to or delete information pertaining to the Complainant
  • not enforcing a default judgment
  • for privacy-related complaints, to make an order that is generally consistent with the declarations available to the Information Commissioner when he or she makes a decision under section 52 of the Privacy Act
  • an apology.

ASIC has regulatory oversight of the AFCA and has been given a range of specific powers in relation to the AFCA under the Corporations Act 2001 (Cth). These include powers to issue regulatory requirements by legislative instrument, give directions and approve material changes to the AFCA scheme.

The AFCA will also have obligations to refer certain matters to ASIC, APRA and/or the ATO, including contraventions and breaches, settled complaints and systemic issues.

Limits – Compensation and Time

There are limits which apply to:

  • orders or awards of compensation by the AFCA; and
  • the time within which a complaint must be lodged with the AFCA.

The time limit within which an AFCA complaint must be submitted and the compensation amount limit per claim and monetary restriction on AFCA’s jurisdiction is set out in a series of tables in the Rules which can be found on the AFCA’s here.

Generally, aside from specific limits, the AFCA can hear complaints regarding matters of up to a $1 million in value and order compensation of up to $500,000.

In other situations, AFCA will generally not consider a complaint unless it was submitted to AFCA before the earlier of the following time limits:

  • within six years of the date when the Complainant first became aware (or should reasonably have become aware) that they suffered the loss; and
  • where, prior to submitting the complaint to AFCA, the Complainant was given an IDR Response in relation to the complaint from the Financial Firm – within two years of the date of that IDR Response.

The jurisdiction for superannuation complaints is unlimited. Other points of interest for jurisdictional limits include:

  • no monetary limits and compensation caps for disputes concerning whether a guarantee should be set aside where it has been supported by a mortgage or other security over the guarantors’ primary place of residence; and
  • a monetary limit of $5 million and a compensation cap of $1 million for small business credit facility disputes.

The Complaint Resolution Scheme Rules also prescribe a list of complaints which are subject to mandatory exclusion and therefore cannot be considered by AFCA.

Complaint checklist

If you are a Financial Firm or a Provider of Financial Services and you receive a Complaint you should assess if it falls within the jurisdiction of AFCA’s powers and parameters of the Complaint Resolution Scheme Rules.

A quick checklist to assist in this process is:

  • Is the Complainant an Eligible Person?
  • Is the Financial Service covered?
  • Is the type of Complaint covered?
  • Does the Complaint satisfy the additional requirements for qualification to be heard by AFCA?
  • Does the Complaint meet the prescribed claim value limits?
  • Has the Complaint been made within the prescribed time limits?
  • Is the Complaint an Excluded Complaint?

The above summary is an extract of the Complaint Resolution Scheme Rules only. It is recommended that you read the Rules in the event of a specific complaint. If you require advice or assistance in relation to financial services, responding to AFCA or a financial services complaint or in relation to the scope or navigation of the Complaint Resolution Scheme Rules and its requirements or implementing governance processes to address regulatory risk, please contact our Corporate Advisory and Financial Services Principal – Michael Bracken or Consultant – Catherine Osborne.

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