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Financial Rights E-flyer: August 2021
  1. Insurance Law Service cuts hours of operation due to inadequate funding
  2. Responsible lending: Update on the status of the bill and possible outcomes.
  3. Recent Changes to Credit Reporting: updated legal fact sheet
  4. New Report – Exposed: Insurance problems after extreme weather events
  5. Retailers providing credit cards: Irresponsible lending through department stores and retailers.
  6. Natural disasters and bushfires funding: Working with Welfare Rights to spread a message that we can help people.
  7. Family Violence and General Insurance: Desktop audit of family violence policies

1. Insurance Law Service cuts hours of operation due to inadequate funding.

Financial Right’s Insurance Law Service (“ILS”) is the only national, free and independent insurance advice service for consumers in Australia. Financial Rights has been operating the ILS and providing free legal advice about insurance to Australians since 2007. Whether affected by a motor vehicle accident, theft, illness, injury or natural disaster, consumers of insurance are doubly traumatised when their insurance claim does not run smoothly and benefit enormously from independent advice.

On 9 August 2021 the service had to cut it hours in half because there is not enough funding to keep all of its specialist solicitors. As the year progresses the ILS will be losing the majority of its funding and without further funding the ILS’s national advice line will struggle to remain viable. The small amount of funding currently provided by the Attorney-General’s Department is insufficient for this vital national service. Other sources of funding that have kept the service afloat are running out.

Use of the service has increased by more than 900% since it started and demand is significantly higher than can be met. Even before cutting the service on average our solicitors can only answer 40% of the calls each day. After this reduction only a small fraction of Australians needing legal assistance with their insurance claim will be able to get free help. Since 2007 the service has answered over 65,000 calls for legal advice and has represented over 1400 clients for free, successfully assisting clients in relation to disputed claims on income protection, travel insurance, car insurance and home and contents policies. Some people have scrimped and saved to pay for insurance premiums they can ill afford, only to have their claim denied when they really need it or to discover that the insurance product itself is a bit of a sham. The ILS gives people who can’t afford legal advice a fighting chance.

New ILS Operating Hours: Monday – Friday 10am-1pm

Supporters of our Insurance Law Service can sign our Petition to the Attorney General.

2. Responsible lending: Update on the status of the bill and possible outcomes.

Financial Rights along with other key consumer advocates like CHOICE, Consumer Action and Financial Counselling Australia are continuing our campaign to prevent Australia’s safe lending protections from being destroyed by the Government’s plans to repeal responsible lending laws.

After 9 months of campaigning to Save Safe Lending the Australian Government remains unable to schedule its bill for debate or vote in the Senate and in recent months there has been a loud call from consumers, economists and even industry members for the proposed reforms to be abandoned.

Could the repeal of responsible lending pass the Senate?

For the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 to pass the Senate, the government needs the support of three of five crossbenchers.

One Nation Senators Pauline Hanson and Malcom Roberts as well as Senator for Tasmania Jacqui Lambie have openly opposed the bill while independent Senator for South Australia Rex Patrick has pointed to the lending data as an indication the repeal of the laws may be unnecessary.

This suggests that the bill is unlikely to pass the Senate in its current state.

Recent developments to split the bills

However Financial Rights is concerned about the potential that amendments may be made to the bill to split the repeal of responsible lending obligations in Schedule 1 from proposals relating to small amount credit contracts and consumer leases in Schedules 2-6.

Financial Rights has strongly asserted that the repeal of responsible lending must be abandoned in its entirety, and while we support Schedule 1 being removed from the bill, we think the entire bill should be abandoned (not split up).

In its current form, the provisions relating to payday loans and consumer leases would leave vulnerable people worse off. Schedules 2-6 propose to remove rebuttable presumptions that are often used to assist vulnerable or disadvantaged people who have been caught up in a debt spiral.

Financial Rights has indicated that Schedules 2-6 must be significantly strengthened to align with the recommendations of the SACC Review for a 10% protected earnings amount to be introduced.

This would ensure no one would be required to commit more than 10% of their net income to repayments for payday loans or consumer leases, rather than the 20% threshold advocated by the government for people not relying heavily on Centrelink.

Regulators and economists raise concerns

The repeal of responsible lending has been opposed by industry participants such as mortgage brokers and prominent economists such as Saul Eslake and Alex Joiner who have questioned the need for consumer rights to be wound back in an environment in which house prices and mortgage lending are growing.

Reserve Bank of Australia governor Philip Lowe recently warned of the importance that lending standards remain sound in an environment of low interest rates and rising housing prices.

The Australian Securities and Investments Commissioner Sean Hughes also revealed at a recent Senate estimates hearing that there is no empirical evidence that responsible lending has impeded the flow of credit for consumers, bucking continued assertions by the Australian Government that responsible lending laws are “unnecessary barriers to accessing credit”.

Why we oppose the repeal of responsible lending

Repealing responsible lending will put individuals and families at risk of all the aggressive lending practices that were prevalent before the responsible lending regime was introduced in 2009.

The proposal flies in the face of recommendations by the Banking Royal Commission that these important consumer protections be left unchanged.

While hundreds of thousands of Australians will lose important protections and rights, banks and other lenders will be empowered to aggressively sell debt.

Unsustainable debt leads to stress, poor health, family breakdown and mental illness.

You can help to stop responsible lending protections being removed

The campaign has been so successful thanks to the support of financial counsellors and community workers who have shared their experiences, and those of their clients, with MPs and Senators.

If you haven’t already joined the campaign you can do so at debtdisaster.consumeraction.org.au.

Note: Campaign partners include, Choice, Financial Counselling Australia, Consumer Action Law Centre, Financial Rights Legal Centre, Consumer Credit Legal Service WA, Redfern Legal Centre, Indigenous Consumers Advisory Network (ICAN), Consumer Law Centre (ACT) and Care Inc; Consumer Credit Law Centre (SA).

3. Recent Changes to Credit Reporting

Financial Rights has updated it Credit Reporting legal information factsheet. You can find it here: https://financialrights.org.au/factsheets/your-credit-report-factsheet/

Introduction

In February 2021 the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Act 2021 became law.

  • There has been positive credit reporting in Australia since 2014, but not all lenders were actually participating (reporting Repayment History Information (RHI) and other account information)
  • This new law requires the major banks to supply comprehensive data about all of their accounts
  • This law also introduces a new type of information that has never been reported on Credit Reports in Australia before – Financial Hardship Information

What is happening now?

Some parts of the law are already in force:

  • Consumers can access a free credit report every 3 months (instead of every 12 months)
  • Free credit reports should include a free credit score
    • and information about how that score was calculated, and what it means.
  • Large banks should now all be providing positive data on their accounts
    • 50% of accounts by 2021, the rest by 2022
    • The same exact data should be given to all three CRBs (consistency!)
      • Experian, Equifax & Illion

How can financial counsellors and community workers help their clients now?

  • Our clients need to ask their banks how RHI will be reported during an arrangement and when hardship is ending
    • This is important for joint account holders too
  • We need to warn our clients that arrears build up in hardship, and they could be recorded in RHI after the arrangement ends
    • the original contract is still building up missed payments even if the credit report is showing they are up to date – if the loan is not recapitalised, those arrears will eventually be recorded on the report
  • People in hardship need to stay in touch with their lenders!

What is coming in 2022?

Financial Hardship Information (FHI) begins to be reported on 1 July 2022 (this reporting will not be retrospective, but only for hardship arrangements from 1 July onward)

  • FHI will appear underneath RHI on the credit report and last for 12 months
  • FHI is an umbrella term for 2 different indicators
    • “V” for permanent variations (appears once)
    • “A” for temporary hardship arrangements (appears each month arrangement is in place)
  • While a financial hardship arrangement is in place, RHI will reflect the terms of the arrangement, not the terms of the original contract
  • When the arrangement ends RHI will go back to reflecting the arrears according to the original contract
  • Lenders should only access FHI when they are accessing a new application for credit (and only lenders who participate in CCR, ie not energy providers, telcos or BNPL)
  • FHI cannot be incorporated into your credit score
  • Lenders cannot cancel continuing credit contracts just because a customer is in hardship with another lender (important for small business owners, farmers and credit cards)

4. Exposed: Insurance problems after extreme weather events

Financial Rights report shows insurance and the law are failing vulnerable Australians facing extreme weather events

A recent report by Financial Rights Exposed: Insurance problems after extreme weather events has shone a light on the adequacy of Australia’s insurance regime in the face of an increasing number of natural disasters and the severity of extreme weather events.

The report highlights the need for urgent reforms to ensure the nation can respond in the aftermath of extreme weather events.

The top five issues clients face

The report findings are based on the experiences of more than 700 clients who contacted Financial Rights’ Insurance Law Service between November 2019 and April 2021.

This was an unprecedented period for natural disasters from the “Black Summer bushfires” to Cyclone Seroja, and multiple extreme weather events in between. There were five key problems clients faced.

1. Poor claims handling

Poor claims handling was the most commonly cited problem, raised by almost one in five clients.

Many had claims that were subjected to unnecessary and unreasonable delays and experienced poor communications that added hardship to already difficult claims processes.

Some were drip fed information requests such as demands for fully itemised lists of contents destroyed in total loss situations. Insurers often refused to acknowledge errors or were inconsistent in their responses, back-tracking or reneging on earlier commitments about a claim.

There were clients who also felt coerced or bullied by claims managers, assessors or builders and others when making important decisions.

In other circumstances, insurers refused to take responsibility for damage caused by their own third-party assessors or builders or damage caused by the insurer’s delay;

Many of these circumstances boiled down to the failure of insurers to handle claims consistent with their duty of utmost good faith; to act with full and frank disclosure, clarity, candour and timeliness.

2. Cash settlement offers

Concerns about cash settlements were common for people affected by all extreme weather events and across all insurance brands. There were a number of people who were given very low offers to rebuild.

Whether to accept a cash settlement is a fraught decision. Clients often underestimated the cost of repairing or rebuilding their homes and many felt pressured and cash settle out of frustration with the claims and repair process.

Many were confused and distressed by cash settlement negotiations particularly where there were discrepancies in the reports of assessors.

There were also circumstances in which cash settlements were provided to vulnerable people who could not manage repairs themselves.

3. Overreliance on defects, maintenance and/or wear and tear clauses

Clients regularly complained about defects, maintenance and/or wear and tear being relied upon by insurers to deny, or reduce, home building and contents claims.

Clients often don’t understand these clauses and many are confounded by assertions from insurers that don’t fit the circumstances and become understandably cynical when insurers fish for ways to deny their claim.

Many obtained independent reports that were at odds with an insurer’s assertions about building defects or poor maintenance as the cause of damage.

Some clients were denied coverage on the basis of a lack of maintenance when the weather event was of such a magnitude that any amount of maintenance would have been insufficient to prevent the damage.

There is a grey area in defining what is “reasonable maintenance”. Practitioners are reminded that if an insurer seeks to deny a claim based on lack of maintenance, consumers should be notified in writing, the details of what the lack of maintenance was and the difference the maintenance would have made to the outcome.

Consumers should be encouraged to keep records concerning maintenance to their properties and to retain relevant receipts for materials and work done where tradespeople are employed.

4. Underinsurance

Underinsurance was identified as the most common problem by proportion for people affected by bushfires and was also a significant problem for people affected by floods, with the likelihood that incidents are more widespread than the data shows.
Many people had insufficient cover to rebuild, no cover at all, or no cover for the specific event such as a flood.
People with no insurance at all, or who have consciously underinsured due to an inability to afford the premiums for adequate insurance, are less likely to seek help because they do not identify as having an insurance dispute.

Working towards a better system

Financial Rights has put forwards several important recommendations and is liaising with industry, governments and consumer groups about how we can work together to improve the insurance sector.

With extreme weather events increasing in both frequency and intensity due to climate change, national leadership is required to address these pressing issues.

  • Insurers need to take a proactive approach to progressing delayed claims, and identifying vulnerable customers for appropriate care;
  • Insurers should better assist consumers to identify the appropriate sum insured, and basing cash settlement offers on the likely cost to the customer rather than the insurer;
  • Consumers should have greater control over how their insurance claim is settled including whether this is by a cash settlement or with a repair/rebuild managed by the insurer;
  • Insurers should empower consumers by providing them with appropriate information consumers should consider to help them make informed decisions;
  • If an insurer seeks to deny a claim based on lack of maintenance, consumers should be notified in writing, the details of what the lack of maintenance was and the difference the maintenance would have made to the outcome;
  • Governments should also introduce targeted subsidies for vulnerable residents in high-risk areas to pay their insurance or mitigate their risk;
  • Stable and increased funding for legal assistance services should be provided to support people affected by extreme weather events across Australia as part of our national resilience strategy.

5. Retailers providing credit cards: Irresponsible lending through department stores.

Consumer risks when using retailer credit cards and “no interest” deals

In store credit cards

It’s well known that credit cards and ‘no interest’ finance deals offered by department stores can be a risky way to purchase goods. While they often spruik an interest free period or may not require consumers to start making repayments until a later date to attract sales, consumers can fall into trouble if they are not aware of the specific terms of the product.

Usually if a consumer misses or is late making repayments, or makes additional purchases or cash advance withdrawals on a card which are not subject to an interest free promotion, onerous interest rates begin to apply, often in excess of 25%, which can be very costly.

More risks for consumers

Under the National Consumer Credit Protection Act, a lender who provides credit cards in store is required to carry out adequate checks to establish whether the credit contract is suitable. This includes making sure a consumer can afford to make the required repayments on a credit card without substantial hardship. This will usually involve requesting information from the consumer and verifying it to establish that the loan will be affordable.

In the case of credit cards obtained in stores, usually an employee of the store will ask the consumer about their income and expenses and provide this information to the actual credit provider for them to assess the application. Point of sale vendors have been able to assist consumers apply for credit and recommend certain credit products using the Point of Sale exemption (Regulation 23 of the National Consumer Credit Protection Regulations) which does not require them to hold a credit license or be appointed a credit representative .

A number of clients have contacted Financial Rights after entering into credit contracts in stores that were not suitable for them.

Financial Rights is concerned that the ultimate credit provider are undertaking limited verification of the information provided on application forms and that this is resulting in opportunities for misleading or at worst fraudulent applications, as well as enabling financial abuse. We have become aware that it is usual practice for the credit provider to rely on performing a credit report check and the income and expenses information provided on the application, without verifying it.

Vulnerable people at greater risk of financial abuse

Financial Rights recently assisted a female client who had been paying a store credit card debt for more than 8 years. The woman, a victim-survivor of domestic violence, attended a department store in with her ex-husband who obtained a credit card in her name to purchase goods. She had recently moved from overseas, and did not speak English. She was not aware that she was entering into a credit contract at that time. A couple of years later, the client left the abusive relationship and has since remained a single parent to her young children.

In reviewing the dispute it was clear that the client’s ex-husband had falsely provided information to the store employee claimed that the woman worked full-time when she was only receiving Centrelink payments, and he had understated her living costs significantly.

Coupled with the fact that the store employee relied on the ex-husband to speak for our client at all times, as she did not speak or understand English, the failure to verify any of the information on the application facilitated the financial abuse perpetrated by her ex-husband.

Unaffordable credit

Financial Rights also assisted a client who had applied for an in store credit card to purchase about $3000 worth of electrical goods. At that time, our client had recently lost his job due to COVID-19 and was relying on Centrelink jobseeker payments. Our client instructed that the store employee told him that he could use his most recent payslip (from 3 months earlier when he was still employed) as proof of income and to apply for the credit card.

Our client was encouraged by the employee to proceed with the application, and our client felt the repayments for the purchases would be affordable as they were only about $30 per week for the items he bought that day. He was provided a credit card with a limit of $12,000, and within one month had spent more than $8,000 due to his dire circumstances. When he received the first monthly statement he realised that the required repayments was not $30 but would be completely unaffordable on his Jobseeker income.
Our client was able to resolve the matter by negotiating an additional interest free period, and luckily was in a fortunate position to repay the principal at the end of that period. A luxury many of our clients don’t have.

Helping clients at risk

As these applications were made several years apart, in different geographical locations, and the credit provider has suggested that it does not routinely obtain bank statements when assessing what it deems to be ‘ low value’ credit cards, it appears that the application process for these credit cards is putting consumers at risk.

Failing to verify the information provided on the application form which is completed by the retail employee, particularly when the applicant themselves cannot understand the contract due to language or other barriers provides an opportunity for credit to be approved in circumstances where the consumer is unable to afford the product, does not understand the obligations of the product, does not get the benefit of the credit that is being provided or is being subject to financial abuse.

Commissioner Hayne recommended Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that the Point of Sale exemption be abolished. The Government agreed to remove the exemption (citation needs to be added) and to date the recommendation has not been acted upon. We urge the Government to abide by its commitment to abolish the exemption and prevent more harm.

6. Natural disasters and bushfires funding: Working with Welfare Rights to spread a message that we can help people.

Reaching out to people affected by natural disasters including floods, storms and bushfires

Financial Rights Legal Centre and Welfare Rights Centre are reaching out to offer free legal advice, financial counselling and help to people in NSW who are struggling in the aftermath of recent natural disasters.

We understand many people have been affected by events such as floods, storms, hail, drought and the 2019-20 bushfires and need professional help to resolve outstanding, protracted insurance claims and social security matters.

Financial Rights provides free legal advice about insurance claims (nationally) and credit and debt matters (in NSW) but is also able to offer legal advice on a limited range of business matters where the dispute involves a credit provider (bank or finance company) or insurer. This may range from insurance claims on farm or small business policies to advice about underinsurance and business interruption. Or from assistance with caveats placed on properties by small business creditors and supplier or creditor defaults on small business credit reports to legal advice about business loans, guarantees or overdrafts to hardship due to business failure or a notice to vacate following a business failure.

Caseworkers and clients may contact Financial Rights via:

  • Insurance Law Service 1300 663 464 (press 1 for Natural Disaster)
  • Credit and Debt Legal Advice Line 1800 844 949

How Welfare Rights Centre can help

The Welfare Rights Centre is a specialist community legal centre that provides free legal advice about Centrelink, social security and family assistance matters.

It can provide free legal information, advice and representation for people who have been adversely affected by Centrelink decisions.

Welfare Rights Centre can advise people about their social security rights, entitlements and obligations and assist people through the social security review and appeals system, including Centrelink internal review and the Administrative Appeals Tribunal.

It provides all initial advice by phone.

Caseworkers and clients may contact Welfare Rights on:

  • 02 9211 5300 or 1800 226 028 (toll-free from outside Sydney metro area)

Community Legal Education

  • Our organisations can also offer your professionals specialised training to enable them better understand how to identify problems and find the best pathway for resolution.

Contacts

If you have any questions, please don’t hesitate to get in contact:

Financial Rights Community Legal Education Officer
Annabel McConnachie annabel.mcconnachie@financialrights.org.au

7. Family Violence and General Insurance: Desktop audit of family violence policies

AssetInsure has the strongest family violence policy in the general insurance industry. This was the finding of a desktop audit undertaken by Financial Rights to evaluate the family violence policies of the 47 subscribers to the General Insurance Code of Practice.

The 2020 General Insurance Code of Practice introduced new provisions requiring subscribers to have family violence policies available online for their customers by July 1 2020. The desktop audit examined whether subscribers family violence policies met the 11 areas required to be addressed by the Insurance Council of Australia’s Guide to helping customers affected by family violence. Policies were judged as to whether they met the requirement, partly met the requirement or did not meet the requirement at all.

Only AssetInsure achieved an 11 out of 11 score. The policy was found to have definitive language and specific measures that detail how they will help those subject to family violence. One insurer (Tokio Marine) achieved 10 out 11, one insurer (Youi) achieved a 9.5 out of 11 and three insurers achieved 9 out of 11: Aioi Nissay Dowa, Great Lakes, and MunichRe.

For full details of the research go to the Financial Rights publications page: https://financialrights.org.au/publication/ The publication was also covered by Insurance News.