The content of this submission addresses only sections 1, 2, 3, 7, 9, and 11 of the FOS Proposed Terms of Reference Changes consultation paper.

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1 Introduction As a high user of the dispute resolution services offered by the Financial Ombudsman Service (FOS), both in terms of representing vulnerable consumers and referring consumers directly to FOS to make complaints, Legal Aid Queensland (LAQ) welcomes the opportunity to comment on the proposed changes to FOS s terms of reference. The content of this submission addresses only sections 1, 2, 3, 7, 9, and 11 of the FOS Proposed Terms of Reference Changes consultation paper. LAQ welcomes the proposal to implement a streamlined process for simpler, low value disputes and the appointment of adjudicators to hear these disputes. It is important that as part of a new streamlined process, FOS puts in place procedures which ensure access for consumers to relevant documents to allow them to put their best case forward and to give FOS a complete understanding of the dispute. LAQ does not support the proposal providing for the FOS to refer complaints back to the Financial Services Provider who will be given a final opportunity to resolve the dispute through its internal dispute resolution process. The proposal does not simplify the dispute process but adds an extra layer to it by creating multi-tiered internal dispute resolution and will impose a greater burden on organisations that assist consumers, such as LAQ. We have some concerns about the proposal to alter the 30 day timeframe an applicant has to object to FOS assessing a dispute as being outside its terms of reference, on the basis that any reduction in the timeframe would reduce the opportunity for consumers to seek advice about their current circumstances. We support the recommendation that FOS expand its jurisdiction to allow it to consider disputes in relation to uninsured third party motor vehicle disputes where the insured driver who has caused the damage has failed to pay their excess to their insurer. In relation to disputes lodged by agents charging a fee for service, LAQ recommends FOS ensure that any approach and guidance it provides on this issue does not have unintended consequences or impacts on the work of agencies, such as LAQ. We would also urge caution in relation to the proposal to provide FOS with the discretion to allow a financial services provider to sell an asset the subject of a dispute. Background LAQ provides input into State and Commonwealth policy development and law reform processes to advance its organisational objectives. Under the Legal Aid Queensland Act 1997, LAQ is established for the purpose of giving legal assistance to financially disadvantaged persons in the most effective, efficient and economical way and giving legal assistance at a reasonable cost to the community and on an equitable basis throughout the State. In pursuance of these statutory objects, LAQ contributes to government policy processes about any proposals that will impact on the cost -effectiveness of LAQ s services, either directly, or consequentially through impacts on the efficient functioning of the justice system.

2 Under LAQ s Strategic Plan , which has been endorsed by the Queensland and Commonwealth governments, LAQ s purpose is to provide quality legal services to financially disadvantaged people, and our vision is to be a leader in a fair justice system where people are able to understand and protect their legal rights. In pursuit of our purpose, LAQ offers policy feedback on proposals that will impact on the quality of services that LAQ is able to provide to our client groups. In pursuit of our vision, LAQ also provides feedback on proposals that may impact on our clients ability to understand or protect their legal rights. LAQ s Consumer Protection Unit lawyers have extensive experience providing specialist advice and representation to vulnerable clients in consumer law matters. The unit provides advice to clients as well as lawyers and financial counsellors throughout Queensland in relation to: mortgage stress housing repossession debt loans (including small amount loans and car loans) telecommunications and unsolicited consumer agreements (including door to door selling). This submission is informed by that knowledge and experience. 1. Streamlined process for simpler, low value disputes Proposal: That FOS implement a streamlined and less document dependent process for simpler, low value disputes, which includes the appointment of Adjudicators to resolve disputes. LAQ welcomes the proposal to implement a streamlined process for simpler, low value disputes and the appointment of adjudicators to hear these disputes. In our experience in dealing with vulnerable consumers, many are dealing with a wide range of legal and non-legal issues, both financial and non-financial. The stress they face in dealing with these issues is enormous and can often affect their physical and mental wellbeing. A process that deals with the simpler legal and financial issues in a quick and efficient manner, without requiring consumers to find and then produce large numbers of documents, would go a long way to reducing some of that stress. In our submission disputes that would be suitable for resolution using the simplified process are single issue disputes such as: Credit reporting disputes disputes about whether a default has been correctly listed on a credit report. Responsible lending disputes concerning credit card limit increases. However, for the streamlined process to be successful it relies on prompt access to all relevant documents. Consumers, in particular unrepresented consumers, often struggle to access the relevant documents from third parties needed to adequately argue their case in a

3 quick and efficient manner. For example, an up to date credit report is vital to a case concerning the correctness of a credit default listing. As a consequence, it is important that as part of a new streamlined process, FOS puts in place procedures which ensure access for consumers to relevant documents to allow them to put their best case forward and to give FOS a complete understanding of the dispute. 2. One-step lodgement and referral process Proposal: That when an Applicant lodges a dispute, the matter will be referred back to the Financial Services Provider (FSP) who will be given a final opportunity to resolve the dispute through its internal dispute resolution (IDR) process. LAQ does not support this proposed change to FOS terms of reference. The proposal does not simplify the dispute process but rather adds an extra layer to it by creating multi-tiered IDR and will impose a greater burden on organisations that assist consumers, such as LAQ. The clients LAQ assist in relation to FOS matters fall broadly into four categories: 1. consumers who are confident in dealing with FOS and the FSP s IDR department directly; 2. consumers who have some vulnerability that means they struggle to deal with the FSP s IDR department but would be able to successfully tell their story to FOS with minor assistance and guidance; 3. consumers who are highly vulnerable (eg: disability, CALD, indigenous) and cannot deal with FOS or the FSP s IDR department without the assistance of LAQ; 4. consumers, who feel intimidated, bullied or harassed by the FSP and as a consequence find it difficult to deal with the FSP again. For all of these groups before they come to seek advice and assistance from LAQ, the consumer usually will already have attempted to speak to the FSP, been told there was nothing that could be done, asked the FSP to reconsider and again been told there was nothing that could be done. In other words, the majority of consumers that come to LAQ have already undertaken IDR with their FSP and have often dealt with them on multiple occasions. In one study conducted by the Telecommunications Industry Ombudsman (TIO) about dealing with providers some consumers had spent more than 10 hours on the phone trying to resolve their complaint. In LAQ s submission, a consumer will often have spent a similar time dealing with their FSP before accessing FOS. As LAQ understands the proposed one-step process, on lodging a complaint with FOS, even if a consumer has already been through the FSP s IDR process, the matter will be referred back to the FSP s IDR department, thus creating a multi-tiered IDR process. LAQ does not support the creation of a multi-tiered IDR process for the following reasons: It does not simplify the process for consumers. Currently the process for consumers is complaint, rejection, IDR, rejection, EDR. Under the proposed process, the consumer would need to go through complaint, rejection, IDR, rejection, EDR, rejection, IDR, rejection, EDR, before FOS will look at the complaint in detail.

4 Adding a second IDR process is likely to cause consumers in the categories 2, 3 and 4 (above) to stop making a complaint about the FSP s conduct. The primary reason the consumer is coming to FOS is that they have attempted to have their complaint dealt with by the FSP and they feel their issues have not been heard or addressed. If consumers are told they have to go back to the organisation they feel is not listening to them, many people in groups 2, 3 and 4 will question the value of proceeding with the complaint, and will come to the conclusion that they will not proceed as they are suffering from complaint fatigue. In LAQ s submission it is important for FOS to undertake research into the average time that people have attempted to negotiate with their FSP before coming to FOS in order to assess the extent of the problem of complaint fatigue. A consequence of a multi-tiered IDR process is that LAQ will make fewer unassisted referrals to FOS of people who fall into categories 2 and 4. In LAQ s view, consumers in these groups are not capable of dealing with the IDR department of the FSP again. The reasons for this are varied but can include difficulties in communicating with the organisation they see as causing the problem and/or an unwillingness of the FSP to listen to the issues being raised. Sometimes the communication breakdown is the fault of neither party. The result of LAQ being required to remain involved in disputes for longer is that LAQ will be able to help fewer consumers with these problems. IDR is unlikely to be any more successful the second time around LAQ understands one of the primary reasons that this process is being considered is that figures highlighted by the review suggest that many disputes are resolved not long after they are lodged with FOS. The theory being that if IDR has a second chance, the complaint might resolve and the FSP can spend its resources elsewhere. In LAQ s view there are two problems with this analysis: Ensuring that IDR has a second chance is unlikely to improve the IDR processes within FSPs because the IDR department knows that if the consumer takes the complaint to FOS, it will be send straight back to IDR, resulting in a proportion of consumers dropping out, rather than deal with the IDR department again. It underestimates the value that FOS starting to examine a case has on encouraging both parties to re-examine their position. A third party circuit breaker forces both parties to critically analyse both their own position and the other party s position in a way that would not be required if IDR is routinely occurring twice. FOS should help vulnerable consumers to communicate their complaint The very reason consumers come to FOS is that they have not had satisfaction in dealing with the FSP. Sending them straight back to IDR is unlikely to provide that satisfaction and will not leave them feeling that their complaint has been independently assessed. This concern could be addressed by FOS directly assisting in the referral back to the IDR department by helping the consumer to better communicate their complaint. There are no processes or guidelines articulated to show that FOS will identify vulnerable consumers who would find it difficult to go back to the FSP s IDR department. In LAQ s

5 submission, if a consumer is identified as vulnerable, their complaint should not be referred back to IDR. Instead, a vulnerable consumer s complaint should immediately be examined by FOS because a referral back is unlikely to assist a consumer. If the proposed process is adopted by FOS it should clearly state what consumers will need to do, if anything, to re-engage in the complaint process at FOS following the second round of IDR. In addition there should be an obligation on the IDR provider to advise FOS of the outcome of the second IDR process and an obligation on FOS to check with the complainant that the outcome reached was satisfactory, not just by letter, but also by phone. 3. Outside Terms of Reference (OTR) objection timeframes This proposal seeks to alter the 30 day timeframe an applicant has to object to FOS assessing a dispute as being outside its terms of reference, by giving FOS discretion to reduce or increase the timeframe under clause 7.4 of the terms of reference. While the amendment to clause 7.4 acknowledges the possibility of increasing the timeframe to object to disputes, LAQ notes that the examples in the consultation paper all focus on reducing the timeframe available to consumers. LAQ has concerns that reducing the timeframe, for even what FOS considers the most obviously OTR disputes, prevents consumers from having an adequate opportunity to seek advice about their current circumstances and then argue that the dispute should still be considered. For example, FOS has identified court judgments as an area where they might reduce the OTR objection timeframes. The extended timeframe for these disputes has been helpful for consumers who are looking for time to either seek legal advice about their rights, take court action to set aside the judgment, find alternative finance sources or seek alternative accommodation. While FOS remains opposed to looking at post-judgment disputes (except for undervalue sales), this extended timeframe is important in allowing consumers time to be certain about their rights and options. For example, the requirement that consumers vacate properties in a very short space of time (often less than two weeks) places enormous stress on a consumer. In our experience a significant number of consumers seek advice for the first time postjudgment, often in circumstances where had they sought advice prior to a judgment they would have had a legitimate complaint to raise both at IDR and EDR. This advice and assistance is unlikely to be sought, or obtained, under a reduced timeframe. LAQ recently assisted a client who had had their jurisdiction excluded by FOS and had only two days left of their thirty days to object to FOS s jurisdictional decision. With LAQ s assistance, FOS agreed to reopen the dispute and its decision saw the client being successful in having a large debt written off by the FSP. 7. Uninsured third party motor vehicle disputes LAQ supports the recommendation that FOS expand its jurisdiction to allow it to consider disputes in relation to uninsured third party motor vehicle disputes where the insured driver who has caused the damage has failed to pay their excess to their insurer.

6 This expanded jurisdiction will improve access to justice for vulnerable consumers who for financial reasons are often unable to meet the financial burden imposed upon them of having to pay an excess. In our view, FOS should examine the average value of motor vehicle claims in determining whether the new financial limit will deal with the majority of claims. 9. Disputes lodged by agents charging a fee for service LAQ is pleased the FOS recognises the value that legal aid commissions, CLCs and financial counsellors add by representing applicants requiring special assistance before the FOS in disputes. LAQ understands the concerns expressed by FOS about the growth of paid dispute agents. As LAQ and CLCs already provide the relevant information required by FOS in a timely manner, LAQ does not anticipate being affected by FOS s new approach which is directed at other organisations. However, LAQ recommends FOS ensure that any approach and guidance it provides on this issue does not have any unintended consequences or impact on organisations like LAQ. The FOS needs to be careful how the guidelines are framed to ensure that legal aid commissions are not excluded from FOS processes given that legal aid is not always a free service with some clients charged for the legal services they receive. LAQ submits that FOS should monitor the effect that this new process has on consumers accessing appropriate paid legal assistance. 11. Discretion to allow the sale of an asset LAQ notes FOS s proposal to extend its discretion under paragraph 13.1 beyond allowing a FSP to freeze or preserve assets the subject of a dispute, to also allowing the sale of those assets. We appreciate FOS s guidance that [I]t is highly unlikely FOS will allow the sale of a primary place of residence while a dispute is open with us. However, we struggle to identify when such exceptional circumstances would arise with respect to a primary place of residence. LAQ expresses concern about the proposal to provide FOS with the discretion to allow an FSP to sell an asset such as a motor vehicle. LAQ submits that if such a discretion was granted, it would be inappropriate to exercise it to allow the sale of a motor vehicle/livestock/other assets where: the dispute involves an element of hardship the value of the complaint exceeds what is owing to the FSP the consumer has expressed the desire to retain the asset and has raised at lease a prima facie case for retaining the asset and any property is tenanted and rent paid is at market rates. In LAQ s submission, there should be clear guidelines as to when the discretion could be exercised to ensure that the consumer s interests are not adversely affected by the exercise of the discretion. Often the only way a consumer is able to show a way out of the hardship, as required by the National Consumer Credit Legislation or hardship more generally, is through the use of the asset. For example, if a person has been unable to work for three months and has fallen behind on a car loan, but needs a car to find another job and then get to work, it is inappropriate to allow the sale of the asset as it would mean the consumer s hardship application would be unsuccessful.