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Consumer alert over complaints body membership

Consumers should check whether their financial services provider has registered as a member of the Australian Financial Complaints Authority, with the complaints body reporting that it is chasing up a significant number of business that have failed to register as members.

The new financial ombudsman service, which opened for business on November 1, has published a list of 231 businesses that it believes may need to be members.

AFCA says it is not able to deal with complaints from consumers and small businesses about a financial services provider if the business is not an AFCA member.

It is a condition of an Australian Financial Services Licence and an Australian Credit Licence that the licensee is a member of an external dispute resolution body.

AFCA chief ombudsman David Locke says the organisation has been working with ASIC to contact the businesses and remind them of their obligations.

All 231 businesses were previously members of the Credit & Investments Ombudsman. Not all currently hold an AFSL or ACL, and AFCA says it is attempting to clarify their situation.

AFCA replaces the Financial Ombudsman Service, the Credit & Investments Ombudsman and the Superannuation Complaints Tribunal.

Last week AFCA reported that it had received 13,000 phone inquiries in its first month and 6522 complaints. At a rate of about 310 complaints a day, AFCA says it has experienced a 47 per cent increase in complaints received, compared with its three predecessor schemes.

The new service includes higher monetary limits on disputes and higher compensation payments.

Monetary limits. The old dispute resolution schemes were generally limited to dealing with disputes on loans up to $500,000, with a compensation cap around $320,000. Under AFCA’s rules:

  • For small business loans, a credit facility must not exceed $5 million and the compensation limit is $1 million;
  • If the business is a primary producer, the credit facility limit is the same ($5 million) but the compensation limit is $2 million;
  • For credit facilities provided to “someone other than a small business or primary producer” the loan limit is $1 million and the compensation cap is $500,000.
  • If the disputes involves a guarantor’s principal place of residence there is limit on the loan amount or the compensation cap.
  • Disputes involving superannuation accounts are unlimited.

Jurisdiction. The old dispute services were limited to dealing with small businesses that had 20 or fewer employees. That limit has been increased to 100.

Locke, says this change to the definition of a small business and the increased small business limits are a “game changer” for small business owners.

Transition. Complaints lodged prior to 1 November under the CIO or FOS schemes will be handled by AFCA under the old terms of reference for those schemes.

Complaints lodged with the SCT before 1 November will not be transferred. The SCT will continue to operate beyond AFCA’s commencement to resolve existing disputes. It is expected to run for another couple of years to wind up all its disputes.

Locke says there are also some important changes in the way AFCA will deal with the Australian Securities and Investment Commission, which has regulatory oversight of AFCA.

The changes are mainly to do with information sharing. In the past when an ombudsman service identified a “systemic issue” (a problem that has an impact on more consumers than just the complainant) it would inform ASIC of the issue. But it did not get much information back from the regulator.

“ASIC was limited in what it could share with the ombudsman. What we will have now is more of a two-way sharing of information,” Locke says.

He says AFCA will have more focus on community outreach than its predecessors and it will do more work on remediation – setting up programs with financial institutions.

In a note to clients on AFCA, law firm Piper Alderman says it expects the new body will be more accountable, with the appointment of an independent assessor whose role will be to consider whether AFCA provides an appropriate level of service.

Restrictions of the action that financial institutions can take to recover debts while a dispute is in progress are largely unchanged. While AFCA is handling a complaint, the financial institution must not begin legal proceedings against the complainant, anyone else joined as a party to the complaint or other affected parties. It must not take other action to pursue debt recovery.