Joint consumer submission to Financial Ombudsman Service s Issues Paper Developing New Terms of Reference for the Financial Ombudsman Service

Transcription

1 Joint consumer submission to Financial Ombudsman Service s Issues Paper Developing New Terms of Reference for the Financial Ombudsman Service Authored by Consumer Action Law Centre October

2 Contents 1. Background About this submission Consultation with consumer advocates Comment on guiding principles and constraints Priority issues Terminology and definitions Access to the scheme Definitions of consumer and small business Internal dispute resolution Time limits for IDR Assistance with lodging disputes Other access issues Types of complaints that FOS can consider Nexus with Australia Non-customer complaints i. Complaints by tenants ii. Lender s mortgage insurance iii. Group insurance policies iv. Mistaken payments in internet banking transactions v. Complaints about FSP practices vi. Motor vehicle third party property claims vii. Complaints about privacy and confidentiality viii. Complaints by a non-customer who is asked for a payment Time limits for EDR Exclusions from jurisdiction i. Hardship variations ii. Maladministration in lending iii. Fees and charges iv. Decisions about allocating competing beneficial interests v. Decision to reject insurance proposal Proceedings in alternate forums i. Proceedings underway in a court or tribunal ii. Proceedings underway in an EDR scheme iii. Proceedings subject of arbitration or decision iv. Parties have agreed to settlement v. FOS discretion to refer to more appropriate forum Agreement to jurisdiction Monetary limits Awarding compensation Complaint resolution Principles Mediation and conciliation Decision-making model Complaints alleging fraud Criteria for decision making

3 5.4 Appeals Extensions of time Reporting externally Reporting to ASIC Reporting publicly Other matters Relationship with Industry Code Monitoring and Compliance Scheme reviews

4 1. Background 1.1 About this submission This submission has been prepared on behalf of Australian consumer advocates by Consumer Action Law Centre. Consumer Action has been engaged by the Financial Ombudsman Service (FOS) to consult with consumer advocates across Australia in order to prepare a detailed submission to FOS s Developing New Terms of Reference for the Financial Ombudsman Service (the Issues Paper). Details of the consultation process are set out below. This submission has been endorsed by the following organisations: Consumers Federation of Australia Consumer Action Law Centre Consumer Credit Legal Centre NSW CHOICE Financial and Consumer Rights Council Financial Counsellors Association of Queensland Throughout this submission, the following abbreviations are used: ASIC BFSO CBP CTTT CCMC COSL EDR EWOV FSP IDR IOS FICS FOS RG ToR TIO UCCC VCAT Australian Securities and Investments Commission Banking and Financial Services Ombudsman Code of Banking Practice Consumer, Trader and Tenancy Tribunal Code Compliance Monitoring Committee Credit Ombudsman Scheme Limited External Dispute Resolution Energy and Water Ombudsman Victoria Financial services provider Internal Dispute Resolution Insurance Ombudsman Service Financial Industry Complaints Service Financial Ombudsman Service Regulatory Guide Terms of Reference Telecommunications Industry Ombudsman Uniform Consumer Credit Code Victorian Civil and Administrative Tribunal 1.2 Consultation with consumer advocates This submission has prepared following consultation with consumer advocates. This consultation included: Interviews with the following consumer advocates in the preparation of the submission: 4

5 o David Coorey and Lauren Hrouda, Legal Aid NSW o Jenni Mack and Elissa Freeman, Choice o Jan Pentland, AFCCRA o Paul O Shea, University of Queensland o Elizabeth Lanyon o Catherine Uhr, Legal Aid Queensland o Fiona Guthrie, Queensland Consumer s Association o Brendan Pentony, Consumer representative on FOS panel o Nicola Howell, Queensland University of Technology o Katherine Lane and Karen Cox, Consumer Credit Legal Centre NSW & the Insurance Law Service o John Berrill, Maurice Blackburn o Denis Nelthorpe, West Heidelberg Community Legal Service o Peter Gartlan, Incolink o Justin Malbon, Monash University o Banking Issues Group, Financial and Consumer Rights Council o Consumer Action staff The completion of questionnaires and the provision of other information from the following people: o David Tenant, Consumer Law Centre of ACT o David Lawson, Financial Counsellors Association of Queensland o Fiona Hawkins, Relationships Australia Queensland o Bronny Kernaghan, Kilmany UnitingCare o Donna Letchford, Camcare Camberwell o Joel Townsend, Victoria Legal Aid o John Mumford, Bass Coast Regional Health A roundtable discussion attended by 20 consumer advocates. In addition to consultations with consumer advocates, the comments and recommendations in this submission has been informed by: Issues discussed at the consumer directors meeting at the 2008 EDR conference; Submissions by consumer advocates to other related consultations, including the periodic reviews of the BFSO, IOS and FICS; The periodic independent reviews of BFSO, IOS and FICS; and Terms of reference and rules of other ombudsman schemes. 1.3 Comment on guiding principles and constraints Consumer advocates acknowledge and are generally supportive of the Issues Paper s comments relating guiding principles and constraints for the development of the new ToR. However, the following comments should be considered. First, consumer advocates are aware of, and are participating in, ASIC s concurrent review of RG 139 (Approval of external dispute resolution schemes) and RG165 (Licensing: Internal 5

6 and external dispute resolution). 1 We are also aware that this process may impact upon the finalisation of the ToR and the operations of FOS in the future. Noting that ASIC s aims to refine and harmonise the approaches taken by EDR schemes, rather than to review the underlying policy as it relates to EDR schemes, consumer advocates do not think that the ASIC review should necessarily have a large bearing on the ToR. Nevertheless, we will comment on issues raised in ASIC s consultation paper throughout the submission. Second, consumer advocates are very strongly supportive of the principle that consumers must not be disadvantaged by the merger. This is a key theme of this submission and where proposals have the risk of being disadvantageous to consumers, we will not support the proposal. We agree with the related principle that the ToR should aim for best practice and that the FOS Board should be open to new ideas or adopting practice from other schemes, including international schemes. We have referred to other schemes where we think they demonstrate best practice. Third, consumer advocates are also keenly aware that a central justification for the merger is that it will deliver efficiency for FOS itself and for participants in the dispute resolution process. However, consumer advocates are concerned that efficiency, particularly through consistency in approach, should not trump effectiveness as an objective or underlying principle of the scheme. There is a strong case, particularly in the short to medium term, to maintain some areas of difference in how disputes are resolved, to ensure effectiveness and consumer confidence in the scheme. Fourth, consumer advocates generally agree that the new ToR should be principles-based and avoid unnecessary specificity or detail. We agree that the ToR should be framed to allow for adaptation for future needs. However, a balance must be achieved so that a flexible principles-based approach does not have the effect of eliminating appropriate detail, particularly where detail is required to ensure confidence in procedure and process. It is noted that a principles-based approach is still likely to require the development of further guidance. 2 If this occurs, FOS must give an upfront commitment to developing this guidance in an equally transparent and robust manner. Further comments in this vein are discussed below in the section on dispute resolution. Fifthly, consumer advocates are strongly supportive of the proposal that the ToR be written in plain English. The majority of consumers who access EDR schemes do so without professional assistance from an advocate and it is imperative that the ToR be drafted in a way that can be understood by the lay reader. Finally, although this is not covered in the guiding principles and constraints, consumer advocates believe that the goal of the ToR should be to ensure that almost all complaints are considered by FOS in preference to, or before, any court or tribunal. This could be implemented by including a principle in the ToR that FOS is a forum of first choice for both 1 ASIC, Consultation Paper 102: Dispute Resolution review of RG 139 and RG 165, 8 September Julia Black, Principles based regulation: Risks, challenges and opportunities, presentation in the University of Sydney, Department of Business Law seminar series, March 2007, pp 14-15, at 6

7 FSPs and consumers. This principle should also inform the resolution of many of the questions raised in the Issues Paper. 1.4 Priority issues This submission canvasses a broad range of issues including almost all of those raised by the Issues paper, the issues identified in the consumer consultation document 3 and additional matters raised by consumer advocates in consultations and the roundtable workshop. The priority issues for the consumer movement are as follows: Improved access to the scheme, including: o the ability for FOS to take complaints by telephone (section 3.3); o better processes relating to IDR that ensure smooth referrals (section 3.2); o improved timeliness to complaint resolution (section 3.3) The complaints that can be considered by the scheme, including: o non-customer complaints (section 4.2); o complaints about hardship variations and fees and charges (section 4.4) The approach taken to monetary limits (section 4.7), including: o That the monetary limit become the compensation cap rather than a claims cap; o That the limits should be raised to $500,000 by 1 January 2012, with an initial increase to $350,000 on 1 January 2010 followed by a rise to $425,000 on 1 January The proposed dispute-resolution model, including: o ensuring that complaints are resolved in a transparent and accountable manner (sections ). 2. Terminology and definitions Consumer advocates are generally supportive of the proposed terminology and definitions. However, so as to ensure clarity as well as ease of access for consumers, we make the following comments. While the distinction between complaint and dispute in the Issues Paper is clear, consumer advocates are concerned that this distinction may create difficulties for consumers access to the scheme. Consumers generally perceive of their problems with FSPs as complaints, rather than disputes, which is a more formal or legalistic term. A complaint, as defined by the Australian Standard ISO , is: An expression of dissatisfaction made to an organization, related to its products and services, or the complaints handling process itself, where a response or resolution is explicitly or implicitly expected. Consumer advocates are very supportive of this definition and would suggest that this definition be adopted for the ToR. This definition removes the onus on consumers to 3 A consumer consultation document was prepared by Consumer Action as a summary of the Issues Paper and provided to consumer advocates. 7

8 explicitly state that something is a complaint, preventing complaints from falling through the cracks. There is a similar concern that if a consumer is required to phrase their complaint as a dispute before access to FOS is granted, many consumers will similarly fall through the cracks. Given the guiding principle that the ToR be drafted in plain English, consumer advocates recommend the use of complaint rather than dispute. Consumer advocates are strongly supportive of using the term financial services provider or FSP instead of member. There has been a longstanding concern that member implies that the scheme is set up for the industry s purposes rather than for fair and impartial dispute resolution. While it may be appropriate for member to be used in the context of running the organisation and the constitution (given that FSPs do own FOS), the term member is not useful in the resolution of disputes. Consumer advocates have raised concerns with the terms written decision, appeal and ombudsman. The use of these terms appears to pre-empt any consideration of views as to appropriate decision-making models. Further comments in relation to this are provided in section 5 below on decision-making. Consumer advocates recommend: That the ToR refer to complaints rather than disputes. That the ToR refer to financial services provider or FSP rather than member 3. Access to the scheme 3.1 Definitions of consumer and small business Consumer advocates are strongly supportive of FOS being able to consider all complaints brought by an individual. We agree that the term retail client is too restrictive and would amount to a lessening of access for many consumers. The term retail client has a legal definition which is complex and varies according to the financial product. As such, using such a term would be complex, costly and administratively burdensome to apply, significantly derogating from the objective of efficiency. Further comments about access for individuals who are not customers or clients of an FSP are detailed in part 4.2 of this submission. While consumer advocates have not considered the issue of access for small business in detail, some advocates have raised concerns about the arbitrary nature of the definition proposed that is based on the number of employees in a company or same group of companies. That said, we acknowledge that the definition is a well understood one that has its origin in the Corporations Act 2001 (Cth). Given that, and given it accords with the principle in Regulatory Guide 139 that an EDR scheme s coverage be sufficient to deal with the majority of consumer complaints (or different types of complaints in the relevant industry or industries 4 ), this definition does appear appropriate. 4 See proposal in CP 102: proposal E1. 8

9 Consumer advocates recommend: That the ToR not use the term retail client but make it clear that all individuals can make a complaint to FOS. 3.2 Internal dispute resolution One of the most pressing issues raised in consultation with consumer advocates was access to FOS in terms of the requirement for a consumer to have a complaint considered by an FSP s IDR process before access to FOS is granted. While advocates strongly support the principle that an FSP should have sufficient opportunity to resolve a complaint with a consumer, advocates have become increasingly concerned by consumers commonly get lost in an FSP s IDR processes, resulting in complaint fatigue and ineffective resolution of complaints. In some cases, consumers view the requirement to proceed through an FSP s IDR processes as a tactic to prevent resolution of a complaint, especially where that complaint has already been considered and/or handled by some other department or area of an FSP. Considering the above, consumer advocates strongly support the Issues Paper s preferred option that a consumer should be able to lodge a complaint with FOS if they have already made a complaint to any area or department of the FSP and the complaint remains unresolved. From a consumer s perspective, there is often little understanding of what area or department a complaint is made to rather, the complaint is made to the FSP. While it should be open to an FSP to structure their complaint handling services in a manner in which they see fit (including multi-tiered IDR), consumers should be entitled to a final response from an IDR within the maximum time period. If the matter remains unresolved at the expiration of the maximum time period allowed for IDR (in section 3.3 below, we submit that this period should be 30 days), the FSP should be obliged to provide a response that informs the consumer of their right to complain to EDR. Case Study 1 Knock. Knock, Knockin on EDR s door Source: Insurance Legal Service Mr & Mrs B s house was destroyed by a fire in early December A claim was made on their home and contents policy. After seven months of investigation the claim was finally formally rejected in late June 2008 as a result of factual inconsistencies in the claimants story. Throughout this period, Mr & Mrs B had been in contact with IOS on numerous occasions and were referred back to the insurer each time. In early July 2008 ILS wrote to FOS General Insurance seeking access to EDR on the basis that our clients were in severe financial hardship, that the claim had already been examined by a variety of internal sections of the insurer, that the dispute was entrenched and unlikely to be resolved, and that in the circumstances a referral back to IDR would only exacerbate the delay and resultant hardship. FOS responded by referring the matter back to IDR in mid July. In August ILS wrote again to FOS, and this time to ASIC also, pointing out that the matter had already been to the National Customer Dispute Resolution Manager and the Customer Advocacy Case Manager, the likelihood of an alternative resolution to the matter was very unlikely. FOS agreed to accept the dispute in mid-august

10 Consumer advocates with experience with insurance disputes have particularly raised this as an issue. The problem arises partly because of the operation of clauses 6, 7 and 8 of the IOS ToR as well as the General Insurance Code of Practice. While clause 6.2(b) of the IOS ToR requires IOS to consider a complaint where the member has failed to provide an IDR decision within 15 business days of receiving notification of the dispute, the requirement to refer a consumer to EDR does not arise until an IDR decision has been made. In practice, the IOS require an IDR decision before accepting a complaint. This means that consumers are generally not aware of their right to take a complaint to EDR. Case Study 2 Illusory access to dispute resolution Source: Insurance Legal Service Mr S had a car accident. Liability was in dispute. He lodged a claim with his insurer shortly thereafter. Nine months after the accident he contacted the ILS because the insurer had indicated they would probably reject the claim but had not officially done so in writing or given reasons for the rejection. Despite numerous conversations with the insurer in relation to his claim, he had no knowledge of the availability of IDR or EDR. Meanwhile, his car had not been repaired and he was being harassed by debt collectors for the insurer of the other driver s vehicle. Consumer advocates have raised concerns about some insurance companies taking advantage of this anomaly so that IDR decisions are not made (or are drawn out for an extremely long time). Consumers thus do not find out about their right to take a complaint to EDR and often experience complaint fatigue and pull out of the process. Allowing a consumer to lodge a dispute with FOS if they have made a complaint to any area or department of an FSP and it remains unresolved will go part way to preventing this from happening. However, for consumers not to get lost in IDR, consumers have to be told about their right to take their complaint to EDR upon lodging their dispute at IDR. While general awareness about a consumer s ability to take a complaint to FOS should increase with the merger, consumer advocates are concerned to ensure that a consumer becomes aware of the existence of FOS at points in time where that knowledge is necessary. As such, the ToR should require FSPs to inform consumers of their right to take a complaint to FOS at all relevant points of contact (that is, of their right to make the complaint to FOS upon expiration of the maximum time period), including: upon receipt of a complaint; at the time the FSP responds to a complaint; at the time the consumer is informed about any adverse decision or action (ie, decision to reject an insurance claim, serving of a default notice under a credit contract, decision to appoint an investigator in relation to an insurance claim); 5 and in any request regarding a payment of a debt, including correspondence from a debt collector or a letter of demand. Consumer advocates are strongly supportive of a lodgment type approach to complaints receipt by FOS, where complaints that are made directly to FOS (before being considered by the FSP) are registered by FOS staff who then facilitate the complaint being referred back to the FSP s IDR process. Consumers who make a complaint firstly to FOS should be 5 It is noted that FICS Rule 8.3 already includes a similar requirement. 10

11 provided with a reference number for their complaint and they should be given the direct contact details (phone number) for the FSP s IDR section. In some appropriate cases, FOS should actually direct the FSP to contact the consumer (if, for example, the consumer did not have an easy ability to make that contact). Consumer advocates acknowledge that FOS s resources should not be over-burdened by such a requirement. However, there are a number of benefits that arise from such a system: First, a registration system allows complaints made directly to FOS to be tracked. Consumer advocates are concerned about the significant drop off in the number of complaints that come back to EDR schemes where consumers have been referred back to an FSP at the first instance. While many of these can be explained by FSP s consideration of a complaint resulting in it being resolved effectively, a registration system would allow complaints first lodged with FOS (or a proportion of such complaints) to be tracked through follow-up satisfaction surveys. Second, a registration system is likely to provide impetus to improve IDR processes. Effective IDR processes have both business and consumers benefits, in that they will reduce the cost of complaint handling and make it more likely that a consumer will continue dealing with the particular FSP despite having a complaint with the organisation. Third, a registration system should provide confidence to a consumer that their complaint is being taken seriously by the EDR scheme. There is some concern that consumers who are referred back to an FSP when they make a complaint at FOS experience a disinclination to go back to FOS as they have already raised a complaint and it is not being considered, there may be a feeling that FOS isn t interested in my complaint. Consumer advocates note that a system similar to this operates currently at the BFSO, the Telecommunications Industry Ombudsman and the Financial Co-operative Disputes Resolution Service. It is noted that the ToR should be clear that an FSP cannot initiate legal proceedings after a consumer obtains a reference number from FOS, even if they have been referred back to the FSP and FOS has not taken on the substantive investigation of the complaint (see further discussion under 4.5). Consumer advocates also agree that FOS should have some flexibility to decide whether to refer the matter back to IDR or to start investigation immediately. As stated above, it is appropriate for the large majority of complaints to be referred back to an FSP if they have not had the opportunity to consider the complaint. However, there will be complaints that are of such significant and urgent importance that immediate investigation is warranted, even before the time frame has elapsed. This might be the case where the unresolved complaint is having a significant impact on a consumer s health or financial wellbeing (ie, the unresolved complaint means their home or other significant assets are at risk). Further, consumers should be able to access FOS directly without referral back to the FSP where they reasonably wish for no further dealings with the FSP (perhaps due to poor dealings previously). Case Study 3 Urgent and serious complaint Source: Insurance Legal Service Mr U became ill with a tumour while visiting relatives in Australia and a specialist 11

12 recommended immediate surgery. Immediate surgery was predicted to give Mr U a 90% chance of recovery, whereas a delay caused by returning to Mr U s home country and booking in for surgery would reduce Mr U chance of a full recovery to closer to 60% (or more depending on the length of the delay). A claim was made immediately on Mr U s travel insurance. The insurer responded via within 2 business days. The insurer indicated that it intended to reject the claim because the insurer s medical officer deemed the surgery not urgent. Clarification was sought via by Mr U s son-in-law and the insurer confirmed that Mr U should return to his country of origin and seek treatment there. Mr U s doctor strongly advised against travel in Mr U s condition and insisted that he should book in for surgery in Australia. There may also be cases where it is appropriate to refer the matter back to IDR even if the 30 day time limit has elapsed. As outlined below in section 3.3, consumer advocates believe that this would be rare and should only be invoked where there are circumstances that explain the delay in a dispute being dealt. The extension should be limited to 30 further days (that is, a total of 60 days). An FSP should be required to provide reasons to the consumer as to why the time limit for resolving a complaint should be extended. FSP s should not, as a rule, be entitled to have a complaint referred back to it when the time limit has elapsed. This is because the time limit operates to ensure disputes are dealt with in speedy fashion and if complaints were referred back regularly, there would be less of an incentive to resolve complaints quickly. FOS could consider developing guidance as to its exercise of this discretion. Consumer advocates recommend: That the existing BFSO model of access is the minimum best practice model and there must not be any diminution in this level of access. That the ToR make it clear that a consumer has a right to complain to FOS if they have already made a complaint to any area or department of the FSP and the complaint remains unresolved. That the ToR require FSPs to inform consumers of their right to take an complaint to FOS (that is, of their right to make a complaint to FOS upon expiration of the time period of 30 days): o upon receipt of the complaint; o at the time the FSP responds to a complaint; and o at the time the consumer is informed about any adverse decision or action; and o in any request regarding a payment of a debt, including correspondence from a debt collector or a letter of demand. That the ToR require FOS to lodge all complaints, providing the consumer with a reference number, even where an FSP has not yet considered the complaint. FOS should facilitate a referral of such a complaint to the FSP s IDR section by providing the consumer with the appropriate contact details of an FSP s IDR section. FOS should inform the consumer of their right to come back to FOS if the complaint isn t resolved within the time period. That the ToR allow FOS to consider a complaint even if the time period has not yet expired where the complaint is causing 12

13 significant consumer detriment or a consumer reasonably wishes for no further dealings with the FSP. 3.3 Time limits for IDR As suggested above, consumer advocates believe there is a strong case for reducing the time limit allowed for an FSP to provide a final response to complaints to 30 days (rather than 45 days, as allowed by RG 139). On the whole, there have been significant improvements in the ways in which Australian FSPs have resolved disputes over recent years, including the time taken to resolve disputes. According to ASIC s research, 56% of all complaints are resolved within a week and 81% of all complaints are resolved within a month. 6 This can be partly explained by the widespread adoption of AS ISO , which has arguably improved IDR processes. Research also suggests that the longer the time a complaint remains unresolved, the less satisfied a consumer is with the process. 7 These findings reinforce the value of an effective and timely IDR process. Consumer advocates acknowledge that in some sectors, extensions to time limits may be appropriate. For example, it is recognised that complaints about investment products or even guarantees can be complex and time-consuming to resolve. However, a shorter time frame to resolve complaints can operate so as to reward FSPs that have appropriate dispute-resolution processes in place. We recommend that a longer period be available where the FSP cannot reasonably expect to respond to the complaint within the shorter period. We also recommend that this extension of the initial 30 day period be available only for exceptional circumstances and that period be for no more than an additional 30 days, which would allow a total of 60 days at IDR for complex matters. This should only be done with the consent of the consumer and, as stated above, an FSP should be required to provide reasons should it wish to extend the time limit for resolution of a complaint. It is noted that ASIC proposes, in terms of RG 165, to maintain a requirement that FSPs provide a final response to complaints within a maximum of 45 days, but within 30 days if possible. 8 Consumer advocates do not believe that this additional requirement would add anything unless the requirement involved an actual obligation that could be enforced. An obligation to do something if possible is meaningless. Considering this, and the commentary above, consumer advocates think it is appropriate to require an FSP to provide a response to a consumer s compliant within 30 days. 6 See ASIC, above n 1, p As above, p As above, proposal D1, p

14 Consumer advocates recommend: That the ToR allow FOS to consider a complaint if an FSP has not resolved the complaint within 30 days of receiving notification of the complaint. That the ToR only allow the time limit to be extended where: 1) the consumer consents to the extension; 2) the FSP provides compelling reasons for an extension of time limit; and 3) there are exceptional circumstances which mean the FSP cannot reasonably expect to respond to the complaint within the shorter period Assistance with lodging disputes A major concern expressed by consumer caseworkers is that many consumers who are told to put their complaint in writing do not return to the scheme. Considering this, consumer advocates submit strongly that complaints should be able to be lodged with FOS by telephone. The ability to lodge a dispute by telephone would ensure that as many consumers as possible, especially vulnerable and disadvantaged consumers, are able to lodge disputes. Many consumers experience ongoing problems with onerous requirements to access an EDR scheme, including those with low levels of literacy and those from non-english speaking backgrounds. Of particular concern for consumer advocates are barriers to access such as the referral notice currently required by IOS. It is noted that many EDR schemes, such as the energy and water schemes in NSW and VIC as well as the TIO, allow complaints to be lodged by telephone. If FOS wants to achieve world s best practice in terms of dispute resolution, then it must provide effective means for telephone lodgment of disputes. Consumer advocates believe that FOS staff should be trained to take details of all relevant aspects of a complaint over the telephone and to type a written statement which is provided to the consumer for confirmation. This approach appears to be effective with other EDR schemes. It is also noted that BFSO has stated that, where the consumer is unable to lodge a written complaint, the BFSO will put the complaint in writing for the consumer and send it to the consumer to verify and sign. It is not clear how often this is occurring or how effective the process has been. Consumer advocates submit that this approach should be the default position for all complaints made by telephone. Consumer advocates believe that a different approach must be taken in relation to consumers from non-english speaking backgrounds. It is submitted that FOS should be required to determine whether a consumer is of a non-english speaking background and, if so, offer an alternative approach to the lodgment of complaints. In this circumstance, the complaint should be made over the telephone through an independent interpreter (not through a family member) and the complaint should be read back to the consumer with that interpreter for confirmation. The billing record of the interpreter should be kept on file as a 14

15 record of the use of an interpreter. Ongoing communication with the consumer should be in the language of their choice. Consumer advocates also strongly support the ability of consumers to lodge complaints via the FOS website. Consumer advocates recommend: That the ToR should allow a consumer to make a complaint to FOS by telephone. This procedure should require FOS to put a complaint in writing for the consumer and send it to the consumer to verify. For consumers of non-english speaking background, this should be done through use of an independent interpreter who will also verify the content of the complaint with the consumer. 3.5 Other access issues Consumer advocates continue to be concerned that many consumers are not aware of their right to take a complaint to FOS. One consumer advocate who presents financial information throughout regional Victoria to apprentices reports that, from speaking with a total of 800 apprentices, only 5 people have stated that they were aware that they could take an unresolved complaint to an ombudsman scheme. So as to ensure the scheme is accessible to all consumers, the issue of public awareness about the scheme must remain at the top of FOS s agenda. It is acknowledged that by having a larger, single scheme, consumers should benefit from a more widely Consumer advocates recommend that there could be requirements placed on FSPs as well as FOS itself about promotion of the scheme. For example, there should be requirements that: FSPs have details about the availability of FOS on their websites and in branches; FOS actively promote the scheme through community agencies and the community directly. It is noted that in ASIC s consultation paper on the review of RG 139 and 165, ASIC seeks feedback about whether communication by EDR schemes can be improved and should be addressed as part of ASIC s policy. 9 ASIC s research suggests that many consumers who access EDR schemes have misapprehensions about the scheme s processes, decisions and role. Consumer advocates agree that EDR schemes communications and promotions strategies can be improved. Consumer advocates recommend that, when the ToR comes into operation, FOS should undertake a wide-ranging brand awareness campaign. This should include, for example, billboard and radio advertising. Consumer advocates also note that the accessibility of an EDR scheme often depends on its front line call staff that is, those staff who initially take receipt of complaints, whether by 9 ASIC CP 102, Issue F6. 15

16 telephone, over the internet or in writing. Often consumers, particularly those that are vulnerable or disadvantaged, present in a way in which it might be difficult to identify the nature of their complaint. This may be through no fault of their own. Where a consumer has a complaint (that is, they make an expression of dissatisfaction), consumer advocates think it is incumbent upon the EDR scheme to determine the nature of that complaint and to assist the consumer frame their complaint appropriately. Consumer advocates believes this requires a degree of sophistication from an EDR schemes front line staff. Staff must be prepared to enter into a conversation with consumers, so that they can readily identify whether the consumer is raising an appropriate complaint. As outlined further below in section 5.3, it is submitted that FOS could employ a consumer advisor (in a similar fashion to which the BFSO has the banking advisor). This person could be seconded from a consumer organisation and could, inter alia, assist with staff training especially relating to the lodgment of disputes. 4. Types of complaints that FOS can consider 4.1 Nexus with Australia Consumer advocates broadly support the option proposed by the Issues Paper that the relevant financial service or product that is being complained about must originate from a contract formed or an obligation arising under Australian law. That said, consumer advocates believe that as many complaints about member FSPs should be within jurisdiction as possible, and that complaints should be considered even where the consumer is not (or is no longer) domiciled in Australia. Consumer advocates submit that a better approach would be for FOS to consider a complaint where there is a substantial connection with Australia. It is noted that many FSPs are large companies operating in a global market and, as such, should be prepared to refer unresolved disputes relating to all consumers to FOS, no matter where they live. If the FSP is a member of FOS, it should not object to FOS having jurisdiction to consider a complaint, even where the transaction or dealing entered into took place outside Australia. Concerns have been raised about migrants, 457 visa holders (sponsored temporary work permits) and their families and refugees that have left Australia and subsequently have complaints about FSPs, particularly in relation to accessing superannuation, invested compensation payments or other benefits. We believe that these sorts of complaints should be able to be considered by FOS, not least because FOS is probably the only dispute resolution forum that does not require the physical presence of the complainant. Consumer advocates recommend: That the ToR should require FOS to consider a complaint about an FSP that is a member of the scheme where there is a substantial connection with Australia. That the ToR should make it clear that consumers not domiciled in Australia can access FOS if they have a complaint with an FSP that is a member of the scheme. 16

17 4.2 Non-customer complaints Consumer advocates very much welcome the proposal that non-customers be able to make complaints to FOS. However, we have some concerns with the approach being proposed and whether it will encompass all disputes appropriate to be considered by FOS. The Issues Paper proposes that, in addition to a complaint arising in respect of the provision of a financial service directly to consumers, the following should be able to make a complaint to FOS: those that have provided security for a financial service (ie, guarantors); those with a beneficial or other special interest in the product or transaction; those making a motor vehicle insurance third party property claim; and those making a complaint relating to privacy or confidentiality. Our concern arises particularly from the interpretation of the term beneficial or other special interest, and whether this will be interpreted broadly enough to cover all appropriate complaints. While not an exhaustive list, we believe that this term should be broad enough to ensure complaints relating to the following are within FOS s jurisdiction. i. Complaints by tenants There have been a number of recent cases around Australia where tenants have been pursued by insurers, under rights of subrogation, after a payment of a claim for accidental damage on a landlord or building policy. In the context of increasing sales of landlord insurance policies these cases give rise to a number of concerns. The first concern is that tenants may not be liable for the damage but be unaware of their rights or lack the resources to defend court proceedings by the insurer the insurer must prove negligence against the tenant. Second, this type of dispute is currently outside the jurisdiction of the IOS because the landlord and not the tenant is the policyholder. While under the ToR of the IOS, the insurer could consent to jurisdiction allowing a tenant to have the dispute heard by IOS, to date no insurer has consented to jurisdiction. This means that this type of dispute will be pursued in the courts which will potentially expose a tenant to significant legal costs. Case study 4 Accidental damage, negligence and right of subrogation A young single mother in rented accommodation had two children under 2 years old. She was diagnosed with cancer, had had surgery and was undergoing chemotherapy. During an electrical blackout, her house was lit by candles, one of which was knocked over by one of the children. This caused some damage to the carpet. The landlord decided that the whole carpet needed replacing, and claimed on his insurance. The insurer then sought to recover the cost from the tenant. The tenant did not have the money to pay the insurance company, and received advice to file a petition for bankruptcy. Case Study 5 Accidental damage, negligence and right of subrogation Source: Qld Legal Aid 17

18 Tenant received a letter of demand and was sued for $1800 under right of subrogation. The issue was whether or not the tenant was liable for accidental damage or negligence. The tenant was not liable as damage was caused by an accident rather than negligence. The tenant was outside IOS jurisdiction. Insurer could agree to IDR and had the power to give consent to IOS jurisdiction, however insurer disagreed. An attempt was made to approach the ICA to pressure the insurer. Communication was made to senior management with suggestions of alternatives to court or protection against court costs. Furthermore, a suggestion was also made publicise the matter, which quickly resulted in the withdrawal of the summons and an agreement not to pursue the tenant. Case Study 6 Accidental damage, negligence and right of subrogation Source: Hobart Community Legal Centre Client was tenant who was threatened by insurer for costs of damages. The damage was accidental as a result of fire in bedroom. The client denied liability and was advised to request IDR from insurer, insurer refused when requested. The client was advised to seek insurer s consent to IOS jurisdiction; this was unsuccessful as insurer refused consent. The matter was referred to PILCH for pro bono assistance. Case Study 7 Accidental damage, negligence and right of subrogation Source: Tenants Union Legal Service Tenant was uninsured. The kitchen caught fire whilst cooking meal which resulted in a cost of $8000 in damages. The body corporate/landlord claimed on the insurance policy. Insurer/solicitor sued tenant for damages. Consent to IOS jurisdiction was unsuccessful. Tenant approached PILCH for assistance and discussed negligence and insurance law. The discussions suggested a defence and claim for contributory negligence and counterclaim for negligence against landlord for failure to provide safety measures including fire extinguisher and fire blanket. It was also alleged that there were multiple breaches of the General Insurance Code of Practice. A complaint was lodge to Code Compliance manager at IOS. The insurer withdrew claim. ii. Lender s mortgage insurance When a consumer buys a property and needs to borrow more than 80 per cent of its value, they are highly likely to be asked to pay a one-off insurance premium at the time of settlement. However, if the consumer defaults on the loan, it s not the consumer who benefits from the insurance, but the lender. The lender is the policyholder. If the property has to be sold as a result of default by the consumer, lender's mortgage insurance will cover the lender for any shortfall. The insurer will then pursue the consumer to recover the debt. If the consumer wants cover so they do not lose their home through inability to meet their mortgage repayments, they need to take out income and mortgage protection insurance. Some consumers misunderstand or are mislead into thinking that mortgage lenders insurance will provide these benefits. If a consumer wants to dispute the purpose of the policy or seek relief from hardship caused by the debt arising from the shortfall, the dispute is excluded from the IOS jurisdiction. 18

19 Case Study 8 Mortgage Lenders Insurance, misrepresentation and financial hardship Source: Consumer Credit Legal Centre NSW Client in default on mortgage allowed his property to be sold for significantly less than the outstanding loan balance in the belief that mortgage lenders insurance would cover the deficit and protect from further liability for the debt. Client had not understood that the insurer would pursue him for the $30,000 shortfall paid to the financier. Client wanted to dispute liability on grounds of misrepresentation and also wanted relief on grounds of financial hardship. iii. Group insurance policies Some insurance policies are sold as group policies, often with an employer or some other entity as the policy holder, although an employee (or another person) may be a beneficiary under the policy. The main example of concern to us is group income protection policies taken out by employers or offered through superannuation funds. These might also cover accidents away from the workplace, where Workers Compensation schemes dont operate. Generally group insurance offers lower cost premium rates and less stringent evidence of health requirements than individual insurance policies and can be used by employers to attract employees. Group policies are also common across a range of industries where an industry or professional association takes out a group policy in relation to negligence and indemnifies either individuals or employees through contract. However, disputes can arise where the policy holder (such as an employer) refuses or fails to claim on the policy, or where the policy holder refuses to dispute a claim that has been rejected. Currently, a beneficiary who wanted to raise a dispute with the insurer about this would be unable to go to FOS. Consumer advocates believe this to be inappropriate and that a beneficiary should have a right to make a complaint to FOS about their rights under such a policy. iv. Mistaken payments in internet banking transactions Internet banking facilities now allow consumers to use online banking to pay third parties. Disputes have arisen where a consumer accidentally pays the wrong person because, for example, they key in the wrong account number or they were provided with the wrong account number. A problem arises in resolving these disputes as the complaint is often not in relation to a consumer s own FSP who provides the internet banking service. Rather, the complaint is with a third party s FSP. Consumer advocates believe that a consumer should be able to make a complaint to FOS about the third party s FSP conduct in relation to mistaken payments. It is noted that this matter is also being considered in the context of the Review of the EFT Code of Conduct. While consumer advocates are contributing to that review, considering the fact that FSPs have encouraged consumers away from using paper based transaction methods (ie, cheques) and to instead use internet banking, we think it is 19

20 entirely appropriate for there to be fair and accessible dispute resolution processes in relation to complaints about mistaken payments. v. Complaints about FSP practices Consumer advocates raised concerns about some consumers having complaints about the practice of an FSP, although the consumer was not a customer of that FSP. For example, a consumer complaint about the behaviour of a particular FSP officer should be able to considered by FOS. Another example relates to direct marketing. Consumer advocates believe that a consumer should be able to complain about aggressive marketing, even where a consumer did not take up the services. This is especially relevant in relation to some consumer products that are sold door-to-door or via the telephone in conjunction with consumer credit. While hawking is generally prohibited by financial services regulation, it is appropriate for complaints about such conduct to be considered by FOS. If such a complaint was vexatious or had no substance, FOS should be able to determine this promptly. vi. Motor vehicle third party property claims It is noted that the Issues Paper proposes FOS to have jurisdiction in relation to motor vehicle third party property claims. This covers the situation where an uninsured driver is trying to recover money from another driver s insurer. Consumer advocates agree that it is entirely appropriate for FOS to have jurisdiction to consider such a complaint. It is noted that, currently, IOS can only consider such complaints where the amount in dispute is $3,000 or less, which is interpreted to include the cost of both vehicles not just the damage to the uninsured driver. Given the fact that it is extremely rare to get a quote from a vehicle repairer that is less than $3,000, this limit means that many potential disputes cannot be considered by IOS. Consumer advocates do not see any reason to place a monetary limit on such complaints. Consumer advocates have also raised the issue that third party claims are sometimes rejected in circumstances where the insurer has unreasonably refused to pay the insured driver s claim, but the insured (the customer) has not raised a complaint (often because there is no damage to the insured s vehicle). The most common example is where the insured party has not paid (or cannot pay) the excess on the claim. It is arguable that this is a breach of both the Insurance Code of Practice and the Insurance Contracts Act (sections 54 and 13) to refuse to pay a claim on the basis of non-payment of excess, and yet the noncustomer who has incurred the damage cannot access IOS under the current terms of reference to raise this complaint. The only option for the non-customer is to take the other driver to court to force them to raise a complaint with their insurance company, potentially adding to the cost of the complaint. Further, unlike a claims refusal on the basis of fraud, for example, where the participation of the insured would be essential to the resolution of the claims dispute, this is a complaint that could be easily resolved without the participation of the insured with no resultant prejudice to the insurer. Concerns have been also raised about situations where the complaint is not in relation to the amount owed by the insurer to the uninsured driver, but where the complaint is in relation to 20