Contents
- Credit reporting review
- Flood insurance matters wreak havoc
- Family violence safeguards for energy customers
- Big wins for First Nations people ripped off by dodgy businesses
- Unfinished business 5 years on from the Hayne Royal Commission
- What would you like to hear about?
1. Credit reporting review
Financial Rights is leading the consumer advocates joint response to the Review of Australia’s Credit Reporting Framework. We need your views and your client stories to inform our work when we prepare the joint submission.
Please click on one of our short surveys if you have any information or stories to tell regarding credit reports which are always compelling in advocacy. Please let us know if we can use them or if you request that they are de-identified.
Consumer Survey (1min): https://www.surveymonkey.com/r/DGSG75W
Caseworker Survey (2min): https://www.surveymonkey.com/r/XS78R9Z
2. Flood insurance matters wreak havoc
The plight of consumers dealing with insurance companies in the wake of natural disasters has been under intense scrutiny in recent months. Our policy team, and clients, have been frequently speaking to media about the broad range of problems people have when trying to make a claim. You’ll find a selection of recent articles in the News and Media section of our website.
In January 2024, Financial Rights’ Policy and Communications Officer Julia Davis was called to give evidence at the House of Representatives Standing Committee on Economics Inquiry into insurers’ responses to 2022 major floods claims, chaired by Dr Daniel Mulino.
Reproduced here is the opening statement Julia gave to the Committee on behalf of Financial Rights, Choice, and Consumer Action Law Centre, who appeared as joint first witnesses to the Inquiry, and provides a good overview of the full submission which can be found on our website.
“Our organisations have spent the past year working with and advising thousands of insured Australians impacted by the 2022 floods. The repercussions of the floods extend beyond financial strain for consumers. The consequences have been deeply personal, with individuals facing enduring emotional stress, trauma and strained relationships in the aftermath of the floods and to this day. For many of the clients we have assisted, their experiences managing insurance claims was nothing short of re-traumatising.
This committee will hear from insurers and others about the multitude of complex and difficult problems that will require collaboration between government, industry, community and consumer representatives to address the so-called “protection gap” for Australians in a world of increasing extreme weather events.
You will hear about the need for more risk mitigation funding.
You will hear that there needs to be better data-sharing and better coordination between government agencies and insurers.
Addressing these issues will be critical to solving many of the problems that all Australians will need to confront with the expected increase in extreme weather events.
However, there are problems that our clients face today … that could be addressed by the insurance industry right now, with immediate, unilateral action.
Not in 6 months or 3 years.
Right now.
Insurers could today decide to
- better resource claims handling to communicate with consumers in a consistent, transparent and compassionate manner,
- to clearly inform them how their claim will be assessed and how it is progressing, and
- to provide appropriate support to customers that are vulnerable.
Insurers could today stop denying claims on spurious and vague assertions of “a lack of maintenance” or “wear and tear” without evidence or satisfactory explanation.
Insurers could invest in better oversight and management of their third party, consumer facing contractors to address the appalling behaviour we have seen.
Insurers could reflect risk mitigation work done to a property in the premium to incentivise it and ensure that the price signal works both ways – not just the one way as it does now.
Insurers could proactively warn their customers that they may be underinsured and work with them to ensure that there sum insured is appropriate.
Insurers could take steps to update their Code of Practice now to better serve their customers and meet community expectations.
Insurers could do all this and more today … without waiting for this inquiry to make its findings.
If they did:
- they’d reduce the record number of complaints that AFCA receive about insurers,
- they’d stop the drain on services like ours helping clients deal with issues that should never have been issues in the first place; and
- they’d stop compounding the trauma that those impacted by flooding have experienced.
We agree with insurers that Government needs to step in and address affordability issues and fund mitigation projects and better coordinate data and responses.
But insurers can and should clean up their own house now.
There are also actions that government and the regulator, ASIC, could take today to address the consumer harm our organisations keep seeing.
ASIC should produce Regulatory Guidance in relation to claims handling to clearly codify expectations of insurers.
The government should prioritise its long delayed standard definitions and standard cover review to ensure that people in high-risk areas can have access to insurance that is fair, transparent and comparable.
These two actions would go a long way to help Australian impacted by floods make informed choices and increase confidence in an insurance sector that is currently not meeting expectations.
Home and contents insurance is pivotal for post-flood recovery, but we know many affected people find themselves increasingly unable to access its benefits.
Flood insurance affordability is a complex and growing problem, and our submission makes a number of recommendations we believe will begin to address it – but while flood cover is at the very pointy end of the insurance affordability debate, this problem is much broader.
As a country we need to both improve access to affordable insurance and invest in initiatives which address safety and resilience through an equity lens”.
3. Family violence safeguards for energy customers
Rules are now in place that require energy retailers to support customers experiencing family violence across National Energy Customer Framework jurisdictions (which includes New South Wales).
The new obligations came into effect in May 2023, and apply to residential and small business customers. An ‘affected customer’ means a victim-survivor, and the protections apply to both open and closed accounts. The rules adopt a broad definition of family violence, to explicitly include carer relationships and cultural kinship arrangements.
The rules offer protection to customers experiencing family violence and put a range of specific obligations onto retailers. This includes that:
- Retailers have a separate family violence policy which:
- must be on their website
- takes precedence over its market retail contract, and
- neither the retailer nor the customer will be in breach of the retail contract for complying with these family violence rules.
- Retailer staff must understand the nature and consequences of family violence and be able to identify, engage appropriately, and effectively with and assist customers affected by family violence.
- Retailers must have processes to identify affected customers and to minimise the need for victim-survivors to repeatedly disclose their situation.
- Retailers must have regard firstly to the safety of an affected customer and must take into account their personal circumstances in any dealing that they have with that customer. A broad definition of ‘safety’ should be taken which includes physical, psychological and economic safety.
- Family violence must be considered a likely cause of payment difficulties and hardship.
- Before retailers take action to recover arrears of payment from an affected customer, or sell the debt to a third party, they must take into account:
- the impact of debt recovery action on an affected customer, and
- whether other people are jointly or severally liable for the energy usage that resulted in the accumulation of arrears.
- Retailers must waive late payment fees for affected customers.
- Retailers must not disclose confidential information about an affected customer to another person (such as a current or previous joint account holder) without the affected customer’s consent.
- Retailers must take reasonable steps to identify and use a safe method of communicating with affected customers. Once identified and agreed to, this preferred method takes precedence over all other communication requirements in the retail rules.
- Retailers cannot require affected customers to provide documentary evidence as a precondition for receiving family violence protections.
- Retailers are to refer affected customers to one or more external family violence support services, at a time and in a manner that is safe, respectful, and appropriate for affected customers’ circumstances.
- A retailer cannot arrange for the disconnection of an affected customer’s service for non-payment without taking into account the potential impact of the disconnection and whether other people are responsible for not paying.
The changes commenced in May 2023, meaning retailers should have had time to integrate the changes into their businesses. Caseworkers should be aware that these rules have not yet been extended to apply to people in embedded networks, although this process is underway. Embedded networks are private electricity networks that supply multiple homes or businesses. The operators of embedded networks, pay to receive energy from the grid and then on-sell the energy to people on that site.
While the rules as they are written offer sound protections, the practical implementation is always key. Mob Strong Debt Help recently spoke to a First Nations client whose story suggests her retailer’s practice was not up to scratch:
Kelly is currently living in temporary transitional housing while waiting for a social housing property. She has an old energy debt that was incurred when she escaped family violence.
Despite her energy provider having a family violence policy, Kelly contacted us earlier this year after she had difficulty setting up an energy account for the transitional property, as the old account was in arrears.
Mob Strong advised her in accordance with the policy to re-open the closed account, apply for EAPA vouchers to pay off part of the amount, and then request a debt waiver for the remaining amount on compassionate grounds. (Ref: 247797)
Caseworkers should consider, where appropriate, to discuss with clients whether they want to disclose a family violence situation to their retailer, rather than rely on retailers to pick up on clues that clients are victim-survivors. The protections may not occur where there is no disclosure or identification.
Improving outcomes for customers experiencing vulnerability, including by improving access to hardship and payment plan protections, is an AER compliance and enforcement priority. Several provisions attract a Tier 1 penalty (the highest) for breach, so we’d urge anyone seeing energy cases that suggest poor implementation or compliance to refer people to the AER. The AER has a ‘cheat sheet’ and template for compliance issues that can be used by advocates needing to bring potential non-compliance to their attention – please contact media@financialrights.org.au if you’d like a copy.
Thank you to the Public Interest Advocacy Centre for their assistance developing this article.
4. Big wins for First Nations people ripped off by dodgy business models
There have been some significant developments for First Nations consumers, with some big wins for community so far in 2024.
The Aboriginal Community Benefit Fund (ACBF – later known as Youpla) collapsed in March 2022, after causing decades of harm to First Nations communities. The collapse took millions of First Nations people’s monies that had been diligently paid though direct debits or through Services Australia’s facilitated payment system Centrepay. A First Nations led coalition of consumer advocates, the Save Sorry Business Coalition, has spent years seeking a fair outcome that provides dignity, choice, and the rightful return of people’s money.
As First Nations bodies were in morgues with no hope of paying for a culturally-appropriate funeral, the newly-elected Federal government listened to advocates and funded the Youpla Funeral Benefit Program. The interim program allowed people with an active policy as at 1/4/2020, who had passed, the ability to make a claim equivalent to the Youpla Funeral Benefit amount and bury then with dignity.
This February, almost 2 years since the collapse of ACBF/Youpla and over 18 months since the announcement of the interim program, an Enduring Resolution was announced. The new program, the “Youpla Funeral Support Program”, will begin in July 2024 and run to the end June 2026.
First Nations people who were making payments at or after 1 August 2015 will be entitled to a payment. For those eligible, the payment is 60% of the money they paid, capped at the value of their ACBF/Youpla certificate amount. They will have the option of an Australian Prudential Regulation Authority (APRA) regulated funeral bond (one guaranteed not to fail), or their money back as a lump sum now. A consumer can opt to be supported in that decision making by a free financial counsellor. The Save Sorry Business Coalition advocated fiercely to the Federal Government for an outcome to reduce the impact of financial harm on community this collapse caused, and the Enduring Resolution largely achieves this.
Later that same month, ASIC won an appeal in its case against ACBF Funeral Plans Pty Ltd (ACBF) and Youpla Group Pty Ltd (Youpla). The finding was that ACBF misrepresented to Aboriginal consumers that it was Aboriginal owned or managed between 1 January 2015 to 30 November 2018, when that was not the case. The Save Sorry Business Coalition was very supportive of ASIC appealing the original decision. We await whether this will result in any further penalty beyond the $1.2 million already imposed in the original decision.
This decision vindicates what many consumer advocates have been arguing – that ACBF lied to their customers about being First Nations owned. It also sets an important precedent on misrepresentation of First Nations ownership or ‘black-cladding’. In the future we hope it will be easier for regulators to identify and take action against black-cladding, so legitimate First Nations owned organisations are able to flourish and support their community.
While there is some relief in community about finally being able to heal after the trauma of ACBF/Youpla, it’s not over yet with the Youpla Funeral Support Program needing to be implemented thoughtfully and not in a way to cause any further harm.
It is also time to put our energies into stopping this from happening again. We believe the financial harm and abuse of ACBF was facilitated at times by the ease and access of ACBF to use Centrepay since 2001, until it was finally banned in 2017 from using the platform.
Advocates have already met with Service Australia staff to begin the urgent work to improve Centrepay. Together, we identified reform priorities and the need for urgent compliance and enforcement for the 15,000 businesses who benefit from using Centrepay – seemingly largely unpoliced – to ensure businesses are complying with the rules or to ensure no harm is occurring to vulnerable consumers.
Already, advocates have seen some success. At least one business Coral Coast Distributors (Cairns) Pty Ltd who trade as Urban Rampage, have been temporarily banned by ASIC from having customers at their retail stores enter agreements to pay for goods on credit through Centrepay deductions. Noting, this temporary ban is the result of ASIC enforcement, not through any Centrepay compliance processes. ASIC’s stop orders noted that the target market are low-income recipients of Centrelink benefits, residing in remote Indigenous communities, without access to other forms of credit. ASIC’s media release noted they are “concerned that these consumers are vulnerable, at risk of financial hardship and that many may currently be experiencing financial distress”.
2024 will continue to be busy for the Mob Strong Debt Help team as they continue to work with the National Indigenous Australian Agency (NIAA) to ensure the culturally appropriate and accessible rollout of the Youpla Funeral Support Program, while also being a central player in the reform of Centrepay.
5. Unfinished business 5 years on from the Hayne Royal Commission
It is hard to believe that five years have now passed since the Financial Services Royal Commission led by Commissioner Kenneth Hayne was held.
The Royal Commission was transformative in many ways. It placed a glaring spotlight on the worst behaviour of banks, insurers and advisors. Memories of fees for no service, junk insurance, poor insurer claims handling practices, inappropriate financial advice, and a culture of greed are not quickly forgotten
It also led to huge swathes of legislative reform to better protect consumers. It helped create the Australian Financial Complaints Authority, with a broader remit to apply fairness standards and better deal with vulnerability. ASIC was given stronger powers, and is now taking a more robust attitude to enforcement. Millions of dollars were paid out to consumers in remediation. Mortgage brokers became subject to a ‘best interests duty’. New laws were imposed such as unfair contract terms in insurance, and insurance disclosure laws were made fairer. And finally, the concept of a compensation scheme of last resort was created, to offer some recompense to those who have nowhere else to go.
There is no doubt Australian consumers are in a better position today as a result.
But with the Royal Commission firmly in the rearview mirror, the financial services sector is seeing an opportunity. They have started to complain loudly about regulation and are already lobbying to wind back so-called red tape, including proposing to step back from commitments made under their own codes of practice.
Vigilance is needed to ensure consumer gains are not whittled away.
Furthermore, new and developing issues such as climate change and extreme weather events, scams, and high interest rates, are all making life difficult for consumers, and require fresh responses from industry and government.
How do we prevent a slide back to the bad old days?
Ideally, we’d hold a regular Royal Commission-style inquiry into financial services at least every decade to shine that much needed spotlight on poor conduct, incentivise continuous self-improvement in the sector and produce better outcomes for customers. The market power, complexity of products and the opportunities to tap the gold mine of other people’s money, are such that this industry should be exposed to rigorous regular review.
There are some areas of pressing concern that would be best addressed sooner rather than later. The Royal Commission for example put a blowtorch to insurer sales and claims handling practices, resulting in improvements but not the systemic investment necessary to make this industry fit for the challenges ahead. As we’ve seen in the recent Flood Inquiry, these gains are being eroded away by the strains frequent catastrophic events place on insurers. The sheer number of claims stretches front line communications, pushes up premiums, chips away at coverage, and exposes the insurers’ failure to invest in the modernisation of systems they sorely need to serve consumers more effectively.
Critically there were reform opportunities overlooked by the Royal Commission, and reforms that were not progressed that remain relevant today. The Government opted to introduce a best interest duty for mortgage brokers, but stopped short of any serious reform of broker remuneration. Whether this has been sufficient to address the conflicts in the industry is worthy of close examination. Responsible lending laws – which we expect to be tested in this high interest rate, high cost of living environment – are more vital than ever and broker conduct is key to compliance.
The government has still not progressed the removal of the point-of-sale exemption as recommended by the Royal Commission, but we keep seeing poor sales and financing practices, especially in relation to lemon cars, in rural, remote and First Nations communities. The government has released draft legislation to address Buy Now Pay Later products, which emerged and spread like wildfire since the Royal Commission, yet it remains to be seen whether these reforms will address the harm these products are wreaking. Scams have become the scourge of our times, wiping people out financially and undermining their faith in our financial institutions and payment systems, and banks have been very slow to step up in a way that befits their social licence.
A regular, independent, well-resourced Royal Commission style inquiry or public review, with a broad remit and significant powers, would keep the sector in line and motivated to produce better outcomes for customers.
Whether the financial services sector is mature enough to support such a regular review will give us an insight into just how much we may need it.
6. What would you like to hear about?
We welcome your requests for articles and information to be included in our next E-Flyer. Please email media@financialrights.org.au with your ideas, and any other feedback on this E-Flyer.
