This year saw the Australian Financial Complaints Authority (AFCA) taking a very active role in addressing consumer complaints with regards to finance transactions and other areas the subject of its jurisdiction.
AFCA replaces the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal, to provide a new single dispute resolution service for banking, credit facilities, investments, financial advice and superannuation complaints.
AFCA was established in November 2018 and, over the past 12 months, has already heard a reported 73,000 complaints, with $185 million in compensation awarded.
Australian credit licensees and financial services licensees are required by law to be a member of AFCA and subscribe to its external resolution process. On conclusion of the process, AFCA decisions accepted by the complainant are final and binding, and cannot be appealed by the financial institution.
AFCA will accept complaints where the complainant is an individual, a small business (with less than 100 employees), a strata body corporate or registered charity. There are some time limits and monetary limits. For example, AFCA will not generally hear complaints for a claim exceeding $1m or a credit facility exceeding $5m.
The remedies that AFCA can grant include release of the complainant from the obligation to repay the facility, the invalidation of security, as well as monetary damages.
AFCA’s decision-making powers have received some criticism for being based on a loosely defined concept of fairness and good industry practice. AFCA does not strictly need to follow legal precedent or even its own prior decisions, which creates a lot of uncertainty for financial institutions.
Nadia is concerned that the non-appealable nature of the process raises a serious question of procedural fairness for credit licensees. It could see more non-bank business lenders abandoning their credit licence and further alienating themselves from the regulatory system, rather than being encouraged to become part of it.
Nadia and Charlie have the following recommendations for lenders seeking to avoid adverse findings by AFCA:
- Never proceed without a legal advice certificate by the borrower or guarantor.
- Simply following the letter of the law is not enough. Consider upgrading your documentation and procedures to meet customer expectations. Consider for example the standards expressed by the Consumer Code and the Banking Code of Practice.
- Do not dismiss a customer complaint, and seek legal advice immediately if you receive an AFCA notification of complaint.
- In responding to a complaint, don’t be limited to the law or the facts of the complaint, but consider any additional information and evidence, including that which is publicly available through searches and enquiries, that could support your claim. AFCA is not restricted by the rules of evidence so anything that is relevant should be submitted.
- Even if you are not a credit licensee or subject to AFCA’s external dispute resolution process, remember that the courts will still consider issues of misrepresentation and there are strict protocols for exercising security (particularly land mortgages) in each State and Territory that you will need to abide by.
Our finance directors Nadia Sabaini and Charlie Young gave a presentation on AFCA’s jurisdiction and its complaints process in relation to credit facility complaints as part of our Private Lenders Forum 2019 held in November this year. A full copy of the paper by Nadia and Charlie is available via the download link below this article.
If you are interested in knowing more about Bennett & Philp’s finance team or the next Private Lenders Forum, please contact us.
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