In this edition:
- What we do at the Financial Rights Legal Centre: assist with energy payment plans
- URGENT upcoming changes to insurance in superannuation
- Priorities for the new Morrison government as we see them
- What changes to the National Debt Helpline in NSW mean
- Financial Rights’ experience with post-judgment jurisdiction
- Progress update on Financial Rights’ RAP
1- What we do at the Financial Rights Legal Centre: assist with energy payment plans
In our E-flyers we like to give our colleagues and readers an insight into what we do and how we work at the centre. In previous editions we have outlined how we advocate for debt waivers and explained common pitfalls in travel insurance. This month we take a look at a recent case were we helped a mum whose power had been cut off by her provider.
Case study – Lily
Lily had a debt of $2000 and was paying $30 a fortnight. A Financial Rights financial counsellor called the energy provider with Lily on the line in a conference call.
Lily, who is on a Centrelink benefit and is a single mother raising three children, called us when her payment plan to a major energy provider was cancelled by the provider and her power disconnected.
One of the provider’s service officers confirmed the plan was cancelled but wasn’t sure why. On investigation of Lily’s energy consumption it was obvious that the amount in the payment plan wasn’t enough to cover her use. That meant her debt was increasing regardless of the fact she was meeting the plan payments.
The service officer agreed to re-instate the previous payment plan on the condition that Lily accepted an assessment of her usage from an energy inspector. She agreed and also committed to seeing a financial counsellor to look at her spending.
Lily’s electricity was cut off but our financial counsellor assisted in getting agreement from the energy provider to reconnect it without a reconnection fee.
The name of our client and the company involved have been changed to protect her identity.
- Important note: Most of the time Financial Rights financial counsellors will refer people to face-to-face financial counselling services to get help, especially if you have not yet been disconnected. We are unlikely to contact the energy provider for you. You may have to wait a few weeks to see the face-to-face counsellor, but if you have an appointment and let the energy provider know about it, they should not disconnect you in the meantime.
Calls about energy bills are among our most common enquiries. Of those people being referred to financial counsellors for help with payment plans to meet unpaid bills would be the most common issue. The cause of the build up of arrears can be varied.
Many people are referred to us by their energy provider because:
- the payment plan they are on does not meet their usage costs
- they have missed a payment on an agreed arrangement (sometimes several)
- the energy provider thinks the arrangement is not reflective of their circumstances
- they are at risk of disconnection.
So what does our experience of these calls – and negotiations on behalf of callers – tell us? What is the most useful advice we have for anyone in this situation?
A common mistake people make is to switch energy providers when they have incurred a large debt that they cannot manage and are at risk of being disconnected by not talking to their energy provider about the situation. The original debt is just sold to a debt collector, which is likely to start pestering the person for payment and may list the debt on his or her credit file .
Energy providers have obligations to provide hardship assistance but debt collectors tend to be more difficult to deal with.
When your debt is with the energy provider you may eligible for:
- an Energy Accounts Payment Assistance (EAPA) in NSW which can be applied to reduce the debt, or
- the provider may allow matched payments if you stick to a plan, or
- other benefits such as access to staying connected programs, energy audits or replacement appliance programs.
If you switch, you cannot access EAPA for the debt and debt collectors won’t provide matched payments and often require lump sums.
If you are struggling with energy affordability generally, you may then struggle with your new provider and you can find yourself facing another growing debt.
Probably the most important points are DO NOT:
- hastily switch;
- ignore your provider; or
- promise an unaffordable arrangement you may not be able to meet.
Payment plans work if they are arranged at a manageable rate in your circumstances and cover your usage as well as possible.
To work out a payment plan, a good first step is to work out how to cover your usage going forward. For example, if your bill is $900 per quarter and you are behind $500, you would want an arrangement to be paying $70 for your ongoing usage plus $40 to cover the arrears so a total of $110 per week.
If you are not able to meet usage, you should let the energy provider know and ask for:
- an energy audit
- if you are on the best deal
- to be put in their hardship program
Once a payment plan is agreed to, people should try to:
- Make the payments on the agreed dates for agreed amounts, and if something goes wrong contact the hardship team as soon as you can.
- Identify unnecessary energy consumption (the energy provider may help with an audit or information).
- If you are struggling to work out an affordable repayment arrangement, see a financial counsellor to help you with your provider and work out a plan moving forward.
2- Important changes to insurance in superannuation
The government’s ‘Protecting Your Super’ reforms, due to come into effect on July 1, are intended to address serious detriment to consumers caused by having multiple superannuation accounts and inactive accounts which are being depleted by insurance premiums and fees.
On balance the reforms are positive. The Productivity Commission inquiry into Superannuation: Assessing Efficiency and Competitiveness in 2018 found that unintended multiple accounts collectively erode members’ balances by $2.6 billion per year in unnecessary fees and insurance. In many cases insurance policies either cannot be claimed on, or are more difficult to claim on when a person is out of paid employment, due to employment eligibility requirements. Also, some types of insurance can only be claimed on one policy, regardless of how many policies you are paying for (e.g. income protection).
However, Financial Rights is concerned these reforms may have negative consequences for some consumers who have paid premiums for many years and may now lose access to important cover when they are likely to need it the most.
What are the changes?
The ‘Protecting Your Super’ reforms, which were introduced in the 2018-19 budget contain many changes but three are key in this context:
- Life insurance policies within superannuation accounts (a common feature) will be cancelled for so-called “inactive” accounts – that is, accounts which have not received any contributions or rollovers for 16 months (or other agreed indicators of ‘activity’).
- “Inactive” superannuation accounts with balances of less than $6000 would be closed and the balance transferred to the Australian Taxation Office (ATO). This will also result in insurance attached to those accounts being cancelled. The ATO will transfer these funds into an active account where one is available. These transfers are expected to take one month.
- Superannuation funds are required to send three notices to members after 9, 12 and 15 months of inactivity warning the member that insurance will cease after 16 months of inactivity unless they take steps to maintain the insurance.
Financial Rights is very concerned that:
- There has been insufficient publicity about the changes and many people are unaware that these changes are coming.
- While super funds are required to contact their members, research suggests that people are not very engaged with their superannuation and may not realise that, unlike regular statements and updates from their super fund, this correspondence requires urgent action on their part. These notices may be disregarded.
- People will not be well equipped to make the types of decisions these notices require, and that information supplied by the fund may be minimal to avoid the costs of a more tailored approach.
- Many funds do not have correct addresses for their members, reliable mail services, and some members do not have reliable mail services or email addresses, such as those living in remote areas. This is particularly likely for the very accounts that are targeted by this initiative – namely inactive accounts and multiple accounts.
Cancellation of affected insurance policies under a superannuation account will likely happen as a matter of course from July 1 (the exact date may be later depending on when required notices were sent), meaning that some people will be have no insurance cover for events such as loss of income, disability, or death.
What should people do?
The changes spark an urgent call to action for consumers who may have lost track of their super: track down your superannuation accounts urgently and speak to your fund.
If your clients are affected, urge or assist them to do so.
Not everyone needs to retain their insurance. Some people may already have insurance cover, or are young and healthy and have no dependents and want to maximise their superannuation to improve their retirement income. People with multiple accounts may want to decide which account to keep (remembering inactive accounts will be compulsorily combined into an active account after 1 July also). Not all policies are the same, and costs also vary considerably.
If people need more time to get advice, or compare their options, they should consider opting in before 1 July to retain their cover for now and opting out later, provided they remember to review their situation!
People who have at least one active account are less likely to end up with no insurance at all. It is people who have left the workforce entirely because of illness, disability, persistent problems securing employment or caring obligations that are particularly at risk. However, depending on the wording of the policy, people in these circumstances may already be excluded from making a claim for income protection or total and permanent disability because of their employment status. They may still have death cover.
If you are working in a community role where you have regular contact with people in these categories we urge you to spread the word and try to get people to engage with their super and insurance before it is too late.
Anyone who has an existing right to claim should still be able to claim after 1 July if the insured event occurred before that date. Where people die or become permanently disabled after 1 July, they should still seek information about any insurance attached to their super fund. Some policies may last many months beyond July because of premiums deducted before the deadline, or because the cancellation was delayed as a result of complying with relevant notice periods. Where people feel they have been rejected unfairly they can seek advice from the Insurance Law Service at Financial Rights by calling 1300 663 464 or sending a web enquiry via our website insurancelaw.org.au.
Disproportionate impact on remote indigenous communities
Financial counsellors in remote regions are particularly concerned about the impact on people living in remote Aboriginal and Torres Strait islander communities. As noted by Alan Gray, financial counsellor with the Broome Financial Counselling Service:
“Most indigenous who live remotely clients never hear from super funds. The lack of street delivery of mail in many parts of the Outback means letters from super funds rarely get seen. This is compounded by the fact that mail sent to addresses in Kimberley Aboriginal communities goes in an open box to sit on the counter at the community office where anyone can rifle through and choose what they want. Clients have long ago given up expecting important letters to reach them.”
When the above details about unreliable and unsecure postal arrangements are added to the transient nature of the population in many communities, it is almost inevitable that people in these remote areas will lose their insurance because they will not be given any real opportunity to opt in. It remains to be seen whether this lack of notice will be sufficient to get cover re-instated in the event of a claim.
Relatives who could potentially benefit after the loss of a family member will have even less hope, as without the member’s evidence they will have no idea of whether there was a relevant fund at the time and whether the relative was given any real opportunity to opt in.
“It is very common for me to have a middle aged Aboriginal lady visit me in a community and ask if I can help find out if her deceased husband has any superannuation. People don’t know the names of the super funds, and they have no idea how to track down the super. Often what I eventually discover is that the deceased member had maybe only $300 left in super, but they had been paying for death insurance or TPD insurance for years – and even decades – through their super. So I can end up getting anything from $50,000 to $250,000 in death insurance for the widow. This of course is the largest amount of money that ever goes to these families in their lifetimes.”
-Alan Gray, financial counsellor.
Of course the reason the deceased member may have only $300 left in super may be because of the insurance premiums that have already been paid, but this will be small comfort for people whose balances have already been eroded and their insurance is now also cancelled. We will be raising this problem with the government and the industry associations to try to develop strategies to address this issue.
There may be other communities who are more vulnerable in these circumstances, including migrants and refugees who have limited or no English language skills.
Case studies – Wayne and Joanne
In May 2018 Wayne and Joanne came into the Broome Financial Counselling Service drop in service. An appointment for Wayne and Joanne to come back and see the financial counsellor in two weeks about withdrawing the last of Wayne’s super. When the financial counsellor reviewed the situation later that day he saw that Wayne, who had been out of the workforce for an extended period due to illness, had only $170 left in Super but $220,000 in TPD/death insurance. His insurance premiums were $160/month, and in ten days he would be down to only $10 in his Super account.
The financial counsellor immediately got the couple back in that same day and started a TPD claim. Wayne was very sick with terminal cancer and Joanne was worried he would not live long. A will was prepared, the service visited Wayne at home that afternoon and witnessed him signing it. Wayne died the next morning.
The financial counsellor reapplied to his Super Fund for death instead of TPD and, after many months, Joanne received the full payout of $224,000 death insurance.
If similar circumstances occurred in 2020, it is quite probably Wayne’s insurance would have been cancelled due to inactivity on his account.
3- Priorities for the new Morrison government – as we see them
ONE: Full implementation of the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The extent of misconduct revealed by the Royal Commission was appalling. The recommendations in Commissioner Hayne’s Final Report were sensible, in some ways conservative, and in many cases long overdue. It is imperative the government fully implement those recommendations as soon as possible to address the serious harm people suffered and attempt to prevent such conduct in the future.
While several steps were taken prior to the election to get the ball rolling there is still much to be done and the government has already indicated that it will not be fully implementing the mortgage broking recommendations at this stage.
The industry catchcry of unintended consequences will always be trotted out in every reform process, and while these are sometimes legitimate concerns, they can usually be addressed without abandoning reform or watering it down to the point of being ineffective. The government needs to see industry self-interest for what it is. It should also not lose its nerve in the light of macro-economic conditions. Australians need a financial services industry that works for them – rather than exploiting them.
The consumer rights sector needs to hold government to account and not let the process of reform stall as memories of the Royal Commission fade and the spotlight shifts to other issues.
TWO: Pass the payday lending and consumer lease reforms
Every day financial counsellors and consumer advocates talk to people in severe financial hardship because of exploitative high cost, short term lending and consumer leases. In 2015 the government announced a review of problems in this area. In 2016 the government endorsed the majority of the recommendations of the review and in 2017 released an exposure draft of legislation to implement the recommendations. Nothing has happened since.
Financial Rights recently received a referral from the pay office of a young man’s employer because there were so many pay day loans being debited from his pay he had nothing left to live on. Another client with an intellectual disability paid over $7,000 for a lap top and TV on a consumer lease.
The proposed legislation would introduce simple and effective measures to address these issues including a cap on the percentage of a person’s income that can be deemed available to meet a pay day loan, and a cap on the cost of consumer leases. The government must act now to make these important changes law.
THREE: Funding for financial counselling and legal assistance services
In the final Royal Commission Report, Commissioner Hayne commented on the importance of both the legal assistance sector and financial counselling in holding the industry to account and adding “strength to customers who are otherwise disadvantaged in disputes with financial services entities.” He concluded by saying that “the desirability of predictable and stable funding for the legal assistance sector and financial counselling services is clear and how this may best be delivered is worthy of careful consideration.” Prior to the federal election the Commonwealth government conducted a review of the coordination and funding of financial counselling services across Australia, led by Louise Sylvan AM.
Financial Rights urges the government to release the results of the Sylvan Review as soon as possible and work with the sector to ensure that Australians in dispute with their financial services provider, or struggling under the burden of unmanageable debt are able to access the help they need to address these problems and restore their quality of life.
4- UPDATE: National Debt Helpline changes in NSW
From 1 April this year two different services were funded to answer calls to the National Debt Helpline (1800 007 007) in NSW.
Financial Rights Legal Centre (Financial Rights) continues to take 75 per cent of the calls, and Uniting, based in Dubbo, handles the remaining 25 per cent. Calls are diverted randomly between the services according to this ratio.
Both services are putting in place policies and procedures aimed at ensuring callers receive the same level of service regardless of who they ring. Referrals between the services are also a priority to ensure continuity of service when people are already receiving advice and assistance from one of the two available services.
Uniting will provide financial counselling only, not legal advice. Financial counselling includes lots of para-legal information and assistance.
Financial Rights Legal Centre continues to be funded provide legal advice and assistance to people from all over NSW for credit and debt matters. If you, or your client, need legal advice you can now call our dedicated Credit and Debt Legal Advice line on 1800 844 949.
Callers to the National Debt Helpline who need legal advice will also be referred back to Financial Rights by Uniting where necessary.
Financial Rights will continue running our two national services: Mob Strong Debt Help for Aboriginal and Torres Strait Islanders on 1800 808 488, and our Insurance Law Service advice line on 1300 663 464.
Financial counsellors from across NSW can still contact Financial Rights on our priority access line for financial counsellors. This number is not available to the public.
5- Financial Rights’ experiences with post-judgment jurisdiction
Financial Rights regularly hears from clients who have received a judgment and are looking for options when a notice to vacate is handed to them. To assist those of you who also hear from clients in similar situations – we provide the story of Dennis – and explain his options and the steps we go through to help someone in this situation*
Case study – Dennis
Dennis is 50 and living in outer Sydney. He called us before a public holiday, just 7 days before a Notice to Vacate was due to be executed to evict him from his home. He had a mortgage of $200,000 and arrears of about $20,000. Dennis’ hardship started a few years prior, with the death of his wife and an injury at work. His life got more complicated, when, in attempt to keep the mortgage up to date, he rented the property out – only for the tenant to cause substantial damage and not pay any rent. Dennis needed to repair the house, but had little money to do so. In early 2019, Dennis thought his life was getting back on track as he started a new job and had a regular income. Before contacting us, he had tried to negotiate with his lender to capitalise the arrears on his mortgage, but they refused and sent out the Notice to Vacate.
Dennis accepts he had a long bad patch and things had escalated to a judgment in the Supreme Court, NSW which limited his options. He had received the statement of claim, and agreed to the amounts owing; he had no defence – just a hardship claim.
Dennis was confident that he could finish the repairs, sell the house and have enough to start again. He just needed more time. A Financial Rights solicitor discussed his options, which were:
- continue to negotiate with the lender despite the possibility of eviction occurring if they did not agree
- move out – but Dennis would then be homeless and the lender may not sell his home for as much as he might get or
- apply for an urgent stay through the Supreme Court, which is expensive and will add to the mortgage debt
The solicitor also raised with him the possibility of lodging in the Australian Financial Complaints Authority (AFCA). AFCA had just commenced in November 2018 and does have a limited post-judgment jurisdiction. However since it was new, we hadn’t lodged with AFCA and didn’t know if it would work. AFCA was receiving lots of complaints and this was very urgent.
The solicitor looked at the applicable AFCA Rules:
- One rule says that the lender mustn’t take any action to recover a debt including a default judgment without AFCA agreeing: Rule A1.7.1(c).
- Another says that AFCA can decide that the lender must take a particular course of action on a default judgement, specifically not enforcing it: Rule D.2.1(h).
- Yet another says that AFCA must exclude a dispute already dealt with by another court unless the person had requested a stay of execution for financial hardship reasons and the lender had refused the hardship request: Rule C.1.2(d).
In this case, Dennis had asked the lender for hardship and was refused.
Dennis instructed the solicitor to lodge in AFCA on his behalf. We had to have regard to AFCA’s Operational Guidelines on how they approach this situation (at page 43). These say that Dennis would need to either:
1- sell the property himself within a reasonable time … but Dennis would need to have taken sufficient steps to prepare to sell the property
2- imminently refinance the loan … here Dennis would need to show he had already taken steps to refinance
3- show that he was suffering from personal (as distinct from financial) hardship and needed a reasonable time to organise his affairs …Dennis would have to explain his personal hardship, with documents, and how it was likely to be temporary
4- apply to the court to have his default judgment set aside … Dennis would need to have an arguable basis and have taken steps to make the application, and demonstrate a prima facie case that the judgment was irregular or obtained in contravention of a legal requirement.
Dennis was not able to provide an agency agreement for the sale of the property and he wanted an unusually long time to sell. We followed up with AFCA, and just in case, drafted an application for a stay at the Supreme Court.
Fortunately for Dennis, the day before the scheduled eviction, the lender’s lawyers contacted us and advised that they had agreed to stop the eviction and allow AFCA to review the hardship matter. The matter proceeded in AFCA and the parties exchanged information. Dennis was able to enter into favourable terms along the lines of what he was seeking, which was time to repair the property and sell.
If the lender had refused, given the wording in the Operational Guidelines, AFCA may not have awarded Dennis the length of time he was seeking. Equally the Supreme Court may not have agreed to the time frame Dennis was after to repair his house for sale. Despite this AFCA does have limited jurisdiction where default judgment is entered, and this may provide an avenue for consumers to obtain resolutions for their situations.
6- UPDATE: Our Reconciliation Action Plan (RAP).
Financial Rights continues to progress its ‘Reflect’ Reconciliation Action Plan in 2019. Two major achievements in implementing our RAP so far are:
- Implementing our RAP into our staff induction procedure and encouraging new staff to take part in the RAP committee and activities.
- Implementing CLCNSW’s cultural safety workbook into our staff meetings to discuss questions relating to cultural safety for Aboriginal and Torres Strait Islander staff, clients and callers.
Financial Rights is now finalising its Welcome to Country protocol and developing a MOU with the Metropolitan Local Aboriginal Land Council.
We have been getting great help and advice from Reconciliation Australia with implementing the RAP and recommend other small organisations like ours to engage with them on building reconciliation with a RAP as well.
The Financial Rights RAP is a one-year Reflect RAP, valid until October 2019. A Reflect RAP lays the groundwork for an organisation’s reconciliation journey and sets out steps the organisation must take to prepare for reconciliation initiatives in future RAPs.
The deliverables for us to complete under this RAP include:
- Preparation for relationship building with Aboriginal and Torres Strait Islander peoples, communities and organisations
- raising awareness of ourRAP; participating in National Reconciliation Week (May 27 to June 3, 2019) and NAIDOC Week (July 7 to 14, 2019)
- investigating opportunities to expand our use of a range of Aboriginal and Torres Strait Islander suppliers
- updating organisational policies and procedures to improve cultural safety, and
- providing professional development and support options for Aboriginal and Torres Strait Islander staff and advisory committee members.
Page last updated: June 2019.