Submissions

Financial Rights and Consumer Action are supportive of FOS’s proposed expansion of its small business jurisdiction.

The jurisdictional limits and compensation caps for consumer disputes must be reviewed and raised significantly at the same time. It would be sensible and fair for the same limits to apply to consumer and small business disputes. This would also simplify FOS’s jurisdiction and avoid further confusion for consumers.

Consumer groups have written to the Prime Minister to expression our concerned about the creation of a new banking tribunal, as we fear it may in fact deliver worse outcomes for consumers. We encourage the Government to ensure that the type of dispute resolution forum that is ultimately decided upon builds upon the existing success of EDR schemes and is one that delivers for Australian consumers.

In May 2016 the Federal Government announced the establishment of an independent expert panel to lead the review into the financial system’s external dispute resolution and complaints framework. Our joint consumer submission strongly supports mandatory external dispute resolution. We believe the final dispute resolution framework in the financial system should empower a single industry-funded external dispute resolution scheme.

We are opposed to the establishment of a new banking tribunal. The consumer experience of tribunals has not been positive and are very concerned that a new tribunal may in fact deliver worse outcomes for consumers.

While there is certainly room for improvement, the existing EDR schemes are world class and an extremely important alternative to the court system. A robust, well-resourced single ombudsman scheme with appropriate scope and design, together with a well-funded regulator and a statutory scheme of last resort, will provide a free, fair, accessible and effective dispute resolution framework in the banking and financial sector.

The Australian Banker’s Association agreed to resource a joint consumer submission to the current review with the Financial Rights Legal Centre engaged by the Consumer Federation of Australia to consult with consumer representatives to prepare this submission. Eighteen consumer organisations have endorsed the submission.

Trust and confidence in the financial services sector, particularly the banking sector remains low. While Consumer Representatives do acknowledge that the banking sector has been working in many areas to improve the way they engage with consumers, there remains a number of areas where banks can work harder to improve their relationship with consumers, particularly with those in financial hardship and other vulnerable Australians.

From the consumer impacts we observe that poorly constructed incentives have played a part, (and we suspect, have driven), inappropriate sales practices. Financial Rights, Consumer Action and Good Shepherd Microfinance take the view that product sales commissions and product based payments inevitably distort sales-staff behaviour, placing the imperative to make a sale above considerations of appropriateness for the consumer. We are sufficiently convinced of the negative outcomes of commission driven sales to contest the value of retaining such incentives, and believe that a major cultural shift in banking practice is necessary for the public good.

The drafting of a Life Insurance Code of Practice follows the industry-commissioned Trowbridge report on retail life insurance advice, which recommended a life insurance code of practice be developed. We are pleased that the FSC has committed to instituting a Code of Practice and believe that this will be of great benefit to both consumers and the industry. Benefits to consumers arising out of the current draft of the Code include commitments moving beyond the law, relating to investigations, surveillance, product suitability, the review of medical definitions and financial hardship. However, we hold significant ongoing concerns with numerous elements of the Code as it stands including time frames, enforceability, group insurance, sales practices and problem products and medical definitions.

The NSW Government has established the Emergency Services Levy Insurance Monitor to oversee the transition from an insurance-based levy to a property-based levy. Financial Rights has made a submission supporting the process being developed by the Emergency Services Levy Insurance Monitor and the guidelines proposed to address issues relating to price exploitation and false or misleading conduct. The Monitor’s role in ensuring consumer interests are protected is a vital one throughout the transition process.

The Productivity Commission is currently looking into the benefits and costs of options for improving availability and use of public and private sector data. Financial Rights has made a submission on matters relating to Australia’s consumer credit reporting regime, insurance reporting and privacy protections. The submission argues that we have grave concerns about unintended consequences in making credit reporting mandatory and we believe an overhaul of the insurance reporting regime is necessary.

The Federal Government is proposing a set of reforms that are aimed at improving competition and consumer outcomes in the credit card market including tightening responsible lending obligations, prohibiting issuers from making unsolicited credit limit increase offers and requiring issuers to provide consumers with online options to initiate card cancellation. In a joint submission with the Consumer Action Law Centre we are broadly supportive of the proposed reforms and pleased that the Government is tackling issues that have long been of concern to consumers.

Financial Rights supports the central proposal to reduce the default period for bankruptcy to 1 year from 3 years. 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 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 therefore strongly 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.

Financial Rights has argued 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.

Financial Rights has made a number of submissions on the new NSW Strata Schemes Management legislation and with this submission on the draft regulations we reiterate our concerns with respect to the new payment plans. While introducing payment plans is an important and positive step, they remain voluntary and heavily weighted towards the interests of owners corporations.

The Financial Rights Legal Centre continues to believe that that the simplest approach to dealing with the dangers of small amount credit contracts and consumers leases is to ensure that they are all subject to a 48 per cent Annualised Percentage Rate (APR) cap. However, Financial Rights welcomes this Final Report, supports most of its recommendation and seeks implementation of these recommendations as soon as possible to limit the ongoing damage to financially vulnerable consumers wrought by the pay day loan and consumer lease sector.

Councils are litigious – so much so they are in the top ten issuers of statements of claim in the NSW Local Court system. This not only clogs the system and increases costs to government but exacerbates problems for ratepayers who are already experiencing financial hardship. Financial Rights recommends that a detailed procedure is required before litigation can be commenced by a local council that is consistent with model litigation best practice and best practice hardship policies. Financial Rights also recommends legislating a right to apply for financial hardship in the Local Government Act 1993 among other recommendations to ensure those suffering from financial hardship do not experience a worsening of their situation through their interactions with local councils.

The Australian Energy Regulator sought additional input from stakeholders on the issue of publicly publishing a list of retailers who have signed up to the Framework and how retailers should begin conversations with those in financial hardship. Financial Rights strongly supports the publishing of retailer names who sign up the Framework and made a number of suggestions regarding questions to ask of consumers.

Our joint submission with CHOICE and the Consumer Action Law Centre addresses problems with the sale of life insurance, with the claims and investigations process and with the level of funding and powers the financial regulator needs to properly regulate the life insurance sector. Our organisations have raised concerns about life insurance for decades. 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 joint submission makes a series of recommendations to address these problems including, amongst others:

• 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.

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. Financial Rights’ submission addresses some of the outstanding concerns with the drafting to ensure that the Framework that it applies to inactive account customers, is appropriately publicised and evaluated and that the Framework is effective in improving outcomes for consumers.

We put in a very short email submission to Fair Trading NSW supporting the Tenants’ Union of NSW and Tenancy Advice and Advocacy Services as the only place for tenants to get free and independent advice.  Those services should be well funded as they are a critical and irreplaceable part of early dispute resolution services for tenants in NSW.

Credit Repair Australia is developing its own Code of Conduct. We wrote a submission to O’Shea Lawyers who are developing the code with the following comments and recommendations:

• We strongly believe that debt management firms should instead belong to an industry-wide and enforceable Code of Practice. Individual Codes of Conduct like the one drafted by CRA will only create inconsistent consumer protections for customers and will not be universally enforceable.
• Codes of conduct in the financial services sector should be modelled on ASIC’s Regulatory Guide 183. Unfortunately in its currently drafted form the CRA Code of Conduct does not come close to addressing the criteria listed in RG183. We are particularly concerned about the Draft Code’s failure to  address consumer concerns; demonstrate enforceability; outline any remedies for breaches and commit to a 3-year independent review.
• We also made many specific recommendations regarding the provisions in the draft code.

The Financial Services Commission has written a Draft Code of Practice for the Life Insurance industry. Consumer advocates have written a joint submission in response which argues that the Life Insurance Code of Practice (LICOP) as currently drafted is not a best practice standard and has not fulfilled the expectations and obligations set by Government. The current draft does not require life insurers to meet any standard that is not already required of them by the law. It does not meet the minimum standards of enforceability set by ASIC. The draft Code includes a number of sections dictating how consumers should be behave rather than self-regulating the industry’s own conduct addressing consumer issues, concerns and problems with industry practice. The current draft also makes no attempt to address the problems with churn and poor sales practices, issues that initiated the process that ultimately led to the development of this draft LICOP. Unless substantial changes and additions are made, consumers will have minimal confidence in the Code and our organisations will not be able to support it. The final Code should also set enforceable, best practice standards for advisers and licensees.

We believe that life insurers should make the following specific commitments to improve consumer confidence in the industry (additional recommendations are in our submission):

1. Life insurers should address consumer concerns about someone selling or distributing life insurance products.
2. Life insurers should commit to provide to policyholders:
   • projections of likely costs of the premium
   • information and contact details of the subscriber’s internal dispute resolution and complaints process;
   • in the case of replacement policies, information on what a consumer may potentially be losing and specific information on pre-existing conditions
3. Contact via a letter, email or text message should be sent on the same day that a cancellation occurs. The Code should also require life insurers to offer financial hardship assistance if a customer misses a payment, and be prepared to offer reasonable assistance if it is requested.
4. The life insurance industry should:
   • commit to improving the prominence of warnings and the risks and consequences of replacing a policy
   • commit signatories to investigate reported or suspected mis-selling of replacement policies
   • report where they uncover wrongdoing; and
   • ensure any customers who have suffered a loss are compensated.
5. The Code should include directions to the IDR and Complaints process on making a decision. For those policyholders experiencing financial difficulty whilst an investigation is taking place life insurers should commit to paying a portion of the income protection payments.
6. Life insurers need to commit to training staff on how to engage appropriately with vulnerable consumers.
7. The Code needs to include a commitment to fully inform consumers of the tax and legal implications of a lump sum payment.
8. The Code should commit life insurers to using only licensed investigators and more specific standards be set for investigators to address our concerns with respect to investigations including poor communication practices, aggressive or unethical investigator behaviour and unreasonable requests for documentation.
9. The Code should commit insurers to addressing the high lapse rate of funeral insurance products; immediately stop sales of funeral cover for people under 18 years old; stop allowing CCI to be sold through the ‘add-on’ sales technique; and not allow products to be sold through pressure sales techniques.