Financial Ombudsman Service Australia FOS Geoffrey Bant 2017

Financial Ombudsman Service Australia (FOS) Geoffrey Bant 2017

What is FOS? 4 FOS is an external dispute resolution (EDR) scheme approved by ASIC 4 Free to consumers – Fair, open, simple, accessible 4 FOS is not a regulator or advocate for either party 4 In Australia, financial services providers (FSP) (including credit providers) must hold a licence issued by ASIC. It is a condition of holding a licence that the licensee is a member of an ASIC approved EDR scheme. 4 There are two approved schemes – FOS and Credit & Investments Ombudsman 4 FOS handles up to 80% of banking, insurance and investment disputes in Australia 4 The basis for approval is set out in ASIC’s Regulatory Guide 139 and the FOS jurisdiction is governed by the Terms of Reference (TOR) 4 RG 139 provides that approved EDR schemes must also report “any systemic persistent or deliberate conduct” to ASIC. These matters include Systemic Issues and Serious Misconduct.

Who can lodge a dispute at FOS? 4 We can consider an allegation of an error or breach of obligation against a member FSP from individuals, partnerships, clubs, associations or a “small business” 4 Must relate to a financial service provided by the member to the applicant and arise by way of a contract or obligation under Australian law 4 We can consider disputes where “legal proceedings relating to debt recovery” are on foot at time the dispute is lodged 4 NOTE: Collection activity and legal proceedings must stop once dispute lodged 4 May also consider a privacy breach but only if part of a broader dispute or in relation to the banker / customer relationship

2015 – 2016 Financial Year Total disputes received 34, 095 (up 7%) Resolved by agreement Resolved by decision 61% 15% Time to resolve 75% within 60 days 85% within 90 days Financial difficulty only 2, 875 accepted Number of members 13, 576 Systemic issues resolved 64 Accepted 25, 338 Average 62 days Systemic issues refund $12. 75 million Page 4

What are the disputes about? The figures for 2015/2016 showed that the disputes accepted at FOS (25, 338) were about: Banking & Finance 4 The provision of credit or credit related 4 Payment systems or deposits 47% 12% General Insurance 4 General Insurance 31% Investments & Advice 4 Investments and advice 4 life insurance 5% 5% Page 5

Terms of Reference limits on jurisdiction 4 Monetary limits – claim for loss is less than $500, 000, but FOS can only award a maximum $309, 000 compensation per claim Ø Time limits - must lodge the dispute within 6 years of becoming aware of the elements of the claim, with the exception of a claim relating to an unjust transaction under the National Credit Code (time limit of 2 years from the date credit contract comes to an end) Ø Disputes against Members only Ø Not about FSP practice or policy Ø Not about the level of a fee or interest rate Ø Not about FSP’s assessment of credit risk of a borrower or security (declining a loan) but can review responsible lending obligations Ø Not if already dealt with by a Court or FOS or CIO Ø Not if company employs more than 20 people unless manufacturer (small business definition) Ø Not if it is more appropriate in Court (requires external evidence)

What does FOS take into account? 4 Case Law and legal principles 4 Industry Codes such as the Code of Banking Practice (CBP) represents good industry practice and forms part of the contract as between a signatory FSP and guarantor 4 ASIC Act, Corporations Act, National Consumer Credit Protection Act and National Credit Code (NCC), State legislation, Insurance Contracts Act 4 Paragraph 8. 2 TOR dispute resolution criteria “Subject to paragraph 8. 1, when deciding a Dispute and whether a remedy should be provided in accordance with paragraph 9, FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following: a) legal principles; b) applicable industry codes or guidance as to practice; c) good industry practice; and d) previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by these”

FOS Process 4 When a dispute is lodged the Registration Team will conduct an initial review to see if its about a member. If so, the dispute is referred back to the member to give the member a chance to resolve it within a specific time period 4 If the dispute is not resolved, then it is accepted and move into Case Management 4 Initial TOR review 4 Assigned to Case Analyst or Case Manager (low value claims to Fast Track) 4 Stays with that case worker through to final decision 4 Case worker gathers relevant information and identifies early opportunities to resolve by negotiation or telephone conciliation conference 4 If not resolved, case worker provides preliminary view (PV) 4 If PV accepted then the matter is resolved as per PV 4 If PV not accepted by both parties, the matter goes to a final decision (Determination) 4 Determination is binding on the FSP if accepted by the Applicant Page 8

Remedies available if Applicant’s claim is established 4 FOS may decide the FSP should undertake any course of action as part of the remedy (Para 9) 4 Remedy can include: • Payment of compensation up to $309, 000 • Forgiveness or variation of a debt • Release of security • Reinstatement or rectification of a contract • Variation of the terms of a contract • Payment of non-financial loss compensation for stress or inconvenience of up to $3, 000 per claim • Payment of compensation for consequential loss of up to $3, 300 per claim • As it’s a free accessible service, FOS will rarely reimburse legal or professional costs of conducting the dispute (limit of $3, 000) Page 9

Banking & Finance disputes The majority of Banking & Finance disputes are about: 4 Claim of irresponsible lending (business loan, home loan, credit card, car loan, personal loan etc). Remedies differ but general approach is that the applicant remains liable for the principal $ borrowed 4 Debt collection practices including repossession of assets 4 Misleading conduct or non-disclosure of terms 4 Mortgagee sales and FOS approach 4 Default listing on applicant’s credit file 4 Unauthorised transactions (lack of mandate, chargebacks or e. Payments Code) 4 Guarantees 4 Allegations of “Unconscionable conduct” or breach of “fiduciary duty” or “duty of care” Page 10

Need to know more? 4 FOS website 4 General enquiries 4 Our Approach to Issues www. fos. org. au info@fos. org. au www. fos. org. au/publications/our-approach

Questions? Page 12