Welcome to the Financial Rights Legal Centre E-flyer.
In this edition:
- What we do at the Financial Rights Legal Centre: The credit repair company crunch and how to deal with a notice to vacate
- Guilty until proven innocent: Insurance investigations in Australia
- Pet Peeves: Problems with Pet Insurance
- Bankruptcy: the status of after-acquired assets and savings
- Financial Rights’ viewpoint
- Financial Rights in the media
Download Printable Version here:Financial Rights E-Flyer (June 2016)
1. What we do at the Financial Rights Legal Centre
Every E-flyer we like to give our colleagues and readers an insight into what we do and how we work at the centre. Last month we explained the limitations of what we can do. This month we provide two case studies that provide demonstrate the type of services we can provide clients faced with difficulties relating to credit repair companies and notices to vacate.
Craig and the credit repair company
After being declined for credit cards and a telephone contract, Craig obtained a copy of his credit report. He discovered that a telecommunications company had listed a default against his name a few years previously. The default had been updated as paid but remained on his credit report. He found a company on the internet offering credit repair services. He explained he wanted this default removed from his credit report and after a lengthy telephone conversation, agreed to pay for the services of the credit repair company.
It was only after Craig did some research, including speaking to a financial counsellor, that he realised default listings cannot be removed unless the default was unlawfully listed in the first place (which was not the case). He also found out that a default will stay on your credit report for 5 years, regardless of whether it has subsequently been paid. Craig clearly said to the credit repair company that he wanted to cancel the contract. They refused. He made two weekly payments, after which he stopped the direct debits. He was a university student on Centrelink benefits and could simply not afford to pay for a pointless service. Eventually, the company engaged lawyers, demanding immediate payment of approximately $4,500 – the value of the entire contract plus default fees.
Craig’s financial counsellor contacted Financial Rights and we lodged a dispute in the Credit Industry Ombudsman Service on the grounds that the client had been misled about the likely effectiveness of the service and had tried to cancel before any substantial work had been done. The company ultimately agreed to release the client from all liability.
This result cannot be guaranteed. If you have agreed to a contract for services, even over the phone, you may be legally bound and have no choice but to pay. If you feel you have been treated unfairly or a service provider has acted illegally, get legal advice.
Norah and the notice to vacate
Norah owned a home and an investment property in regional NSW, both mortgaged with a bank. Her partner had disappeared without a trace. She had just received a Notice to Vacate for her home, the final stage in the eviction process. She rang Financial Rights in a panic. After much questioning, we worked out that the value of the investment property would cover the loan attached to it. We also worked out, with the help of her local financial counsellor, that if the investment property loan was cleared she could afford to make repayments on her remaining modest home loan on her Centrelink payments.
The financial counsellor then approached a senior hardship person in the bank to make a proposal that Norah surrender the investment property immediately, the financial counsellor would do a money plan showing she can afford the repayments on the home loan, and the writ of possession would be stayed. The bank accepted the proposal. Norah commenced repayments and was able to save her home.
Many steps happen in the eviction process before a Notice to Vacate is issued. The borrower will usually receive a default notice, then a Statement of Claim. There are still options at this stage, including lodging a dispute with an external dispute resolution service (such as the Financial Ombudsman Service of Australia). If no dispute is lodged, and no defence lodged in the court, the mortgagee bank will get judgment from the court in the absence of the borrower, and the eviction process will commence. It is important for people to get advice as early as possible if they hope to avoid eviction.
2. Guilty until proven innocent: Insurance investigations in Australia
Since the Financial Rights Legal Centre established its Insurance Law Service in 2007 solicitors have felt that a large portion of their time has been dedicated to advising clients on how to deal with the experience of being investigated by insurers. Solicitors regularly hear stories of bullying, threats and intrusive surveillance, with clients often reporting they feel they are being treated like a criminal or racially profiled.
Financial Rights decided to take a closer look at the issue and has now published its findings in a report titled Guilty until proven innocent: Insurance investigations in Australia.
The report found that close to one in four calls to the Insurance Law Service are from policyholders with concerns relating to insurance investigations. While insurers are entitled to investigate to ensure claims are genuine Financial Rights found a distinct lack of rules and protections for consumers being investigated. There are no specific standards for the conduct of claims investigations in the General Insurance Code of Practice. There are no guidelines for the use of interpreters or independent support people, no right to have the interview held in a neutral location, no reminder or suggestion to seek legal advice and no interview time limits.
Consumers reported being subject to incredibly long interviews (sometimes over five hours in length) and long claims processes (on average 18 months, some taking three years). Consumers were asked to sign documents that were not explained and felt harassed and intimidated by investigators who they feel prejudge their guilt with little or no basis.
When disputes involving fraud actually reached the Financial Ombudsman though, fraud was established on the balance of probabilities in only 18 per cent of cases.
But that’s if they get there. A lot of consumers withdraw their claim because of the onerous demands placed on them by the investigation, not due to any admission of fraudulent behaviour but simply because the process is too burdensome or invasive for many consumers to bear.
While Financial Rights found that some internal insurer standards governing investigations do exist, there is a distinct lack of transparency since they are hidden from consumers and the public eye.
The absence of any guidelines for an insurer’s conduct during the process is particularly worrying. There is a distinct lack of any rules protecting the consumers being investigated and no specific standards for an insurer during a claims investigation in the General Insurance Code of Practice. There are no guidelines for the use of interpreters or independent support people, no right to have the interview held in a neutral location, no reminder or suggestion to seek legal advice and no interview time limits.
In order to support consumers faced with investigations, our report puts forward a series of reforms for the industry to consider including that the industry establish a set of best practice standards for investigations; that the Financial Ombudsman Service Australia develop an Approach document with respect to disputes involving fraud allegations and investigations generally to drive better practice; and that Federal and State Governments through the Council of Australian Governments develop uniform private investigator licensing regulations with an enforceable code of conduct.
Since the release of the Report the Financial Ombudsman Service has agreed to take a look at developing an Approach document and examine their data collection to better report on cases involving allegations of fraud. While the industry’s peak body the Insurance Council of Australia have yet to take any positive steps to address the issues brought up in the report, the two largest insurers IAG and Suncorp are currently examining developing their own codes.
For further information see our report Guilty until proven innocent: Insurance investigations in Australia.
Watch the Report be discussed on the ABC 7:30 program.
Read the Sydney Morning Herald article ‘Treated like a criminal’: Insurance industry’s fraud investigations hurting innocent claimants
3. Pet peeves: the problems of pet insurance
Your dog Spot and cat BooBoo are your best friends – a part of your family. You look after them just as much as you would yourself. If anything were to happen to Spot and BooBoo you would be devastated. You take them to the vets and there in the surgery are flyers for pet insurance. You’ve seen the flyers in your vet’s reminder letters and bills too. You’ve also seen the ads on TV. And you think to yourself: I insure myself with health insurance and my car with car insurance, so I should really insure Spot and BooBoo. It’s the right thing to do …isn’t it?
The answer is not so straightforward. It’s worth pausing and taking the time to understand what it is you are getting when you purchase pet insurance. You don’t want to find yourself disappointed later on when you discover your pet insurance is worthless or you have a difficult claims experience.
First up you need to understand that pet insurance is a contract of general insurance, and that when you take out a pet insurance policy you are only covered for the events set out in the contract of insurance for the stated period of insurance, generally 12 months.
At the renewal date each year, the insurer can then decide whether to offer to insure Spot and BooBoo for a further 12 months and on what terms. They could also decide not to reinsure you at all! If an insurer does decide to re-offer you insurance they may:
- change the cost of the premiums;
- change the wording of the policy in the Product Disclosure Statements and the terms of the cover by inserting exclusions or conditions;
- reduce the insured amount;
- change the excesses or your contribution to claims such as co-payments.
This can mean that your premium could increase significantly every year. Premiums may increase because of the age of your pet, its breed, the overall claims you have made, and the overall performance of the insurer. Some of these things will be out of your control and you won’t be able to predict them. A policy that started off at $36 per month could 5 years later be costing you $114 per month.
When this happens with other insurance products like car insurance, you usually can empower yourself by shopping around to find a better deal. But with pet insurance, you can find yourself trapped with the one provider because as Spot and BooBoo age they will accrue sicknesses, symptoms, injuries and illnesses. These conditions will form “pre existing conditions” which can mean that new insurers will exclude claims for the same problem going forward.
Unlike health insurance in humans, pet insurers can decide they just don’t want to insure Booboo for her chronic lower urinary tract infection or they may increase the premiums so much you can no longer afford to retain the cover. This can be particularly distressing if you wanted to maintain the insurance into the autumnal years of Booboo and Spot’s lives.
To add to the complexity of it all, some insurers may:
- guarantee continuous cover for some but not all conditions in some breeds but not others but only where there is no break in cover;
- ask for co-payments;
- apply higher excesses for some conditions and not others;
- set limits for some types of claims;
- cover accident only (not illness);
- not cover preventative or exploratory treatment;
- offer extra’s like emergency boarding or routine care;
- exclude bilateral conditions – so where your dog had a pre existing condition in one eye the other healthy eye is excluded completely;
- have waiting periods where if your dog shows a symptom in the waiting period the condition is excluded.
Every pet insurer is different. Some insurers provide better value for money than others and some are just expensive junk with limited cover. It’s important to shop around before entering into a contract. Read the product disclosure statements and understand how it might respond to different scenarios. Inform yourself before making a decision. CHOICE magazine has a buyers guide that may be of some use.
Be aware too that insurance contracts are not covered by the normal consumer protections regime. This can mean that contracts can be littered with terms that are unfair. In addition to those highlighted above, terms to watch out for include:
- Automatic renewals – where the premiums will just continue to be debited from your account until you take action to stop them;
- Cancellation terms where you get no refund of premiums for unused portions of cover or administrative fees;
- Cancellation terms requiring cancellation in writing only and not over the phone or by email; and
- notice requirement of claims.
As an example, ASIC has recently taken action against a leading pet insurer for misleading advertising, where fine print disclaimers qualified their representation of 100% rebate on claims.
Finally consider whether you really need pet insurance for Spot and BooBoo in the first place. You could simply deposit what you would’ve paid on pet insurance premiums into a high interest savings account you call “Spot and Booboo’s health fund.” Also take a look at your home and contents insurance – does it offer pet insurance as an optional extra for accident and liability?
In the end, your love for Spot and BooBoo should not blind you to the usual and unusual pitfalls of insurance. For their sake do your homework.
Case Study 1
Sandra is a disability support pension and she insured her dog Hunter 10 years ago when Hunter was 8 weeks old. Originally the premiums were $35 per month. Sandra continued to insure her pet every year as the policy guaranteed continued benefits for chronic conditions. Hunter had developed a skin condition and needed ointment prescribed by the vet. After 8 years the cost of the premium was now $106 per month or $1270 per annum. This increase was a 158% increase in cost. In addition to the premiums increasing steadily, the excess for each claim increased from $150 to $200 and when Hunter turns 9 she will also have to co-contribute 35% of each vet visit. Sandra is shocked her annual premium now represents 6% of her income.
Case Study 2
Jenny has 2 dogs, Ginny and TonTon. Ginny was having a seizure and was really unwell after playing out in the paddock. Jenny rushed Ginny to the vet, and the vet suggested that Ginny may have been bitten by a snake. The vet recommended that Ginny be given some anti-venom treatment. Jenny agreed as she knew she was insured. The bill came to $600. The dog recovered, but it turns out it wasn’t a snake bite; perhaps the dog just collapsed out of exhaustion, but the vet is not sure. Jenny claimed on her insurance and was advised it was not covered for prophylactic or preventative treatment. As it was not a snake bite, then the claim for $600 was not covered.
4. Bankruptcy: the status of after-acquired assets and savings
A recent bankruptcy case confirmed that assets purchased with income earned during bankruptcy would vest in the trustee, but also raised questions about whether a bankrupt could keep any savings accumulated from that same income.
The case (Di Cioccio v Official Trustee in Bankruptcy (as Trustee of the Bankrupt Estate of Di Cioccio)  FCAFC 30) considered the situation where a bankrupt, having bought shares with his earnings during bankruptcy, wanted to sell those shares and purchase a vehicle worth less than the relevant prescribed amount for protected property. The Official Trustee rejected the bankrupt’s application on the basis that the shares were after-acquired property and had already vested in the Official Trustee as the trustee in bankruptcy. The bankrupt applied to the court to challenge this analysis but the Official Trustee’s position was confirmed both in the original decision and on appeal to the full Federal Court. An application for special leave to appeal to the High Court was also unsuccessful.
It will be no surprise to financial counsellors that shares, or indeed any asset purchased with the earnings of a bankrupt except those assets listed as protected in section 116 of the Act, would be found to vest in the trustee and this case confirmed that proposition. However, other comments in the judgment may cause some concern.
The lawyers for the bankrupt argued that the Court’s interpretation of the Act would mean that even savings in a bank account accumulated from earnings received after the date of the bankruptcy, after any contributions were paid, could vest in the trustee, making the contribution system itself meaningless. This is because income below the threshold or after payment of contributions, could be taken to have vested in the trustee in any event if saved rather than spent. The court agreed that savings could potentially vest in the trustee but saw no anomaly, pointing out only that it was up to the trustee to “make such allowance out of the estate as he or she thinks just to the bankrupt, the spouse or de facto partner of the bankrupt or the family of the bankrupt” (section 134 (ma)) and that any decision of the trustee in this regard is reviewable (s 178).
It’s difficult to say what the ramifications of this judgment may be. The decision itself was about the shares, not savings, and there will no doubt be some debate about the extent to which the case is conclusive on the issue of savings. So can financial counsellors and community lawyers continue to reassure potential bankrupts that any savings they keep in a bank account from their earnings during bankruptcy will be safe from the trustee and their creditors, provided they pay any assessed contributions? Perhaps we need to be a little bit more careful about giving an absolute guarantee that savings will be protected. If trustees do start claiming savings as part of the bankrupt estate, Financial Rights would be interested in hearing about it.
In the meantime, we have included this issue in our submission to the recent Government consultation in relation to reducing the default bankruptcy period from 3 years to 1 year, arguing that the government should legislate to ensure that a bankrupt’s earnings above assessed income contributions are protected to encourage people to save for contingencies if they possibly can – this is after all much more consistent with financial rehabilitation than encouraging people to spend everything they earn.
For further information on this submission see our item below in Viewpoint.
5. Financial Rights’ viewpoint
We use our expertise gained from our work with clients to help give voice to clients’ experiences. In doing so we contribute to improving laws and legal processes to prevent many of the same problems from happening to others. Financial Rights is regularly called upon by Government and the financial service industry to assist in policy development and regulatory reviews. Recently, for example, Financial Rights has been invited onto the Financial Service Council Life Insurance Code of Practice Steering Committee in the wake of the CommInsure scandal and assisted ASIC with their investigations into life insurance practices. The following is a selection of our recent input into regulatory reform.
Improving bankruptcy and Insolvency Law
The Federal Government is currently proposing to reduce the default bankruptcy period from three years to one year and introduce a safe harbour for directors from personal liability for insolvent trading. Financial Rights supports the government’s proposal to reduce the default period for bankruptcy. This strikes an appropriate balance between the interests of creditors, and ensuring that bankruptcy enables a fresh start for debtors, and is not needlessly punitive. Reducing the bankruptcy period will significantly improve the bankrupt’s opportunities for early financial rehabilitation and participation in economic activity.
Intuitively it would seem that debt agreements would concurrently drop in popularity because debtors would clearly opt for one year of bankruptcy over 3-5 years or more of a debt agreement. However, Financial Rights has no confidence this will occur because people entering debt agreements are not getting proper independent, conflict free advice. Financial Rights is of the view that Part IX of the Bankruptcy Act should be repealed because it serves the interest of debt agreement administrators and associated entities far more than the debtors and creditors it was created to assist.
Download our submission here
Australian Consumer Law Review
The government is reviewing the national consumer law for the first time since its introduction give years ago. Financial Rights believes that, as it currently stands, the Australian Consumer Law does not make it easy for consumers both individually and collectively to assert or defend their rights and that regulators need to be empowered and resourced to deal with systemic issues more proactively. We recommend consideration of a general unfair trading provision that would enable regulators to before harm occurs; the application of unfair terms laws to insurance contracts, and support for an independent Consumer Advocacy Trust
Download our submission here
Pay day lending and consumer lease laws
The Federal Government established a panel to review the small amount credit contact laws, that is, the laws regulating pay day loans and consumer leases. The panel have made a number of positive recommendations to rein in the worst excesses of the pay day loan industry. While Financial Rights continues to believe that the simplest approach to dealing with the dangers of pay day loans and consumers leases is to ensure that they are all subject to a 48 per cent Annualised Percentage Rate (APR) cap we do support most of the recommendations made and seek their implementation by Government as soon as possible, including a proposed cap on the cost of consumer leases and limiting the amount of income that can be committed to a pay day loan or lease by any borrower to 10%. Acting quickly would limit the ongoing damage to financially vulnerable consumers wrought by the pay day loan and consumer lease sector.
Download our submission here
Financial advice and life insurance
Following the CommInsure scandal, the Federal Senate reopened its Scrutiny of Financial Advice Inquiry to focus on the life insurance sector. Financial Rights appeared before the inquiry and made a joint submission with CHOICE and the Consumer Action Law Centre. Consumer representatives have raised concerns about life insurance for decades. The submission details a litany of problems with the sale of life insurance and with the claims and investigations process. There are ongoing issues with the industry that mean consumers are sold complex, expensive and, far too often, dud products. Consumers face delays and difficulties when claiming on policies and the regulator responsible for keeping the industry accountable, the Australian Securities and Investment Commission (ASIC), is underfunded and needs additional powers. Our submission recommends the removal of all commissions in life insurance advice; applying unfair contract terms to life insurance products; developing a fair standard definition for common terms for use in all life insurance policies; and establishing an effective and registered Life Insurance Code is established as soon as possible. Our submission and concerns were reported on by Adele Ferguson in the Sydney Morning Herald.
Download our submission here
Draft Sustainable Payment Plans Framework in Energy
The Australian Energy Regulator is currently developing a Sustainable Payment Plans Framework to improve the quality of capacity to pay conversations, while still allowing flexibility and encouraging retailers to offer extra assistance to customers. Its aim is to achieve better outcomes by helping customers and retailers agree to payment plans that are affordable and sustainable. Financial Rights strongly supports the development of this draft Framework. It is important that retailers are guided to develop a practical model to analyse their customer’s capacity to pay.
Download our submission here
ASIC funding and EDR scheme review
In April, the Federal Government announced new funding for ASIC and new powers to protect consumers. It also announced that it will establish an expert panel to review the financial sector external dispute resolution schemes including the Financial Service Ombudsman, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. We welcome the additional funding and powers but believe that it will not fix the multitude of problems faced by financial service consumers. It won’t make unfair terms laws apply to insurance; it won’t ensure insurance policies are suitable for the needs of customers; it won’t improve claims handling in insurance; it won’t address poor service and conflicted behaviour in mortgage broking; it won’t regulate the proliferation of Debt Management Firms who are currently preying on consumers in financial difficulty, taking their cut and making problems worse; and it won’t address cultures which are technically legal but ethically repugnant.
Download our media release here
6. Financial Rights in the media
Financial Rights coordinator Karen Cox and principal solicitors Kat Lane and Alexandra Kelly regularly appear in the media to speak out on a range of systemic issues facing our clients. Below is a selection of recent coverage:
If a tree falls…
Following the intense flooding and storm damage caused by the east coast low to parts of NSW, Victoria and Tasmania in early June, principal solicitor Alex Kelly spoke to SBS’s The Feed online about what to do after the storm and dealing with insurance companies. Financial Rights has also developed a new Fact Sheet titled If a tree falls… providing insurance information and tips to those impacted by tree damage. Check out too our Fact Sheets on Storm Insurance and Flood.
The dangers of credit reporting
Australia’s biggest credit reporting agency Veda Advantage has been accused of providing incorrect credit information and refusing to fix errors. Financial Rights regularly speak with clients who say they’ve been denied credit because of mistakes on their credit reports. Financial Rights principal solicitor Kat Lane spoke to ABC’s 7:30 on the issue.
A new life insurance code of practice
Following recent government inquiries and industry initiated investigations into poor advice and conflicted remuneration in life insurance, the peak body for life insurers – Financial Services Council – has announced the development of a Code of Practice. Financial Rights has been asked to participate in the code steering committee and over recent months we have provided constructive input to help develop the code. Principal solicitor Alexandra Kelly has been closely involved in the process and spoke to Digital Actuaries recently on consumer expectations for a code.
Translator services faces cuts
Community services including financial counsellors and community legal centres around Australia face cuts to translation services that we rely on to engage effectively with our clients. The Federal Government decided not to continue a pilot which funded translating and interpreting services for emergency relief and financial counselling programs. Principal solicitor Alexandra Kelly and coordinator Karen Cox spoke to the Sydney Morning Herald on the cuts.
Threats to Financial Rights and community legal centre funding
The Financial Rights Insurance Law Service faces the prospect of closure because of government funding cuts to the community legal centre sector. This despite a 16 per cent spike in requests for insurance advice and assistance since the CommInsure scandal was exposed in March. Financial Rights coordinator Karen Cox spoke with Radio National Breakfast’s Fran Kelly and Insurance News. If you would like to support the CLC sector’s #fundequaljustice campaign email your local member of parliament
Financial Rights’ provides comment on a range of debt, credit and insurance related issues for print, radio, television or the internet. We can provide expert commentary on issues facing consumers of financial services, offer detailed background information and, where possible, supply case studies. For media enquiries email Drew MacRae at firstname.lastname@example.org and remember to follow us on Twitter @Fin_Rights_CLC