Financial Ombudsman Service Australia (FOS) Geoffrey Bant 2017

What is FOS? FOS is an external dispute resolution (EDR) scheme approved by ASIC Free to consumers – Fair, open, simple, accessible FOS is not a regulator or advocate for either party 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. There are two approved schemes – FOS and Credit & Investments Ombudsman FOS handles up to 80% of banking, insurance and investment disputes in Australia 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) RG139 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? 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” 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 We can consider disputes where “legal proceedings relating to debt recovery” are on foot at time the dispute is lodged NOTE: Collection activity and legal proceedings must stop once dispute lodged 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 Resolved by agreement Resolved by decision Time to resolve 34,095 (up 7%) 61% 15% 75% within 60 days 85% within 90 days Accepted 25,338 Average 62 days Financial difficulty only 2,875 accepted Number of members 13,576 Systemic issues resolved 64 Systemic issues refund $12.75 million

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

Terms of Reference limits on jurisdiction Monetary limits – claim for loss is less than $500,000, but FOS can only award a maximum $309,000 compensation per claim 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) Disputes against Members only Not about FSP practice or policy Not about the level of a fee or interest rate Not about FSP’s assessment of credit risk of a borrower or security (declining a loan) but can review responsible lending obligations Not if already dealt with by a Court or FOS or CIO Not if company employs more than 20 people unless manufacturer (small business definition) Not if it is more appropriate in Court (requires external evidence)

What does FOS take into account? Case Law and legal principles 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 ASIC Act, Corporations Act, National Consumer Credit Protection Act and National Credit Code (NCC), State legislation, Insurance Contracts Act 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 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 If the dispute is not resolved, then it is accepted and move into Case Management Initial TOR review Assigned to Case Analyst or Case Manager (low value claims to Fast Track) Stays with that case worker through to final decision Case worker gathers relevant information and identifies early opportunities to resolve by negotiation or telephone conciliation conference If not resolved, case worker provides preliminary view (PV) If PV accepted then the matter is resolved as per PV If PV not accepted by both parties, the matter goes to a final decision (Determination) Determination is binding on the FSP if accepted by the Applicant

Remedies available if Applicant’s claim is established FOS may decide the FSP should undertake any course of action as part of the remedy (Para 9) 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)

Banking & Finance disputes The majority of Banking & Finance disputes are about: 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 Debt collection practices including repossession of assets Misleading conduct or non-disclosure of terms Mortgagee sales and FOS approach Default listing on applicant’s credit file Unauthorised transactions (lack of mandate, chargebacks or ePayments Code) Guarantees Allegations of “Unconscionable conduct” or breach of “fiduciary duty” or “duty of care”

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

Questions?