The new Australian Financial Complaints Authority (AFCA) launches on November 1, 2018. Financial firms, including superannuation funds, will be required by law to join AFCA. AFCA has increased powers and a broader reach than its predecessor bodies.
What is AFCA?
AFCA is designed to be a free, ‘one stop shop’ for external dispute resolution (EDR) of consumer complaints for the financial services industry, replacing three existing EDR schemes:
- the Financial Ombudsman Service (FOS);
- the Credit and Investments Ombudsman (CIO); and
- the Superannuation Complaints Tribunal (SCT).
Rulings made by AFCA will be legally binding.
What is new?
Compared to the EDR schemes it will replace, AFCA will have:
- broader jurisdiction (consumers and small businesses with less than 100 employees may make complaints to AFCA);
- higher monetary limits ($1 million jurisdictional limit for most disputes which are not related to credit facilities purchased by non-consumers, $500,000 compensation cap for most non-superannuation disputes, larger compensation caps for non-consumer facilities and no cap for disputes relating to guarantors’ principal place of residence);
- greater accountability to users, including through an independent assessor; and
- rules supporting its dispute resolution functions.
How does it compare?
AFCA has a more favourable jurisdiction for consumers than that found in similar bodies in the UK, Canada and Singapore. While other jurisdictions also contain EDR bodies which can hand down binding decisions (e.g. UK, Singapore), they are not always the sole EDR service provider (e.g. in the UK), nor are they all creations of the government (e.g. the Singapore body). Bodies providing consumer assistance in the US do not provide similar EDR solutions.
The Financial Ombudsman Service (UK FOS) is an independent public body funded by the businesses it covers, which resolves individual disputes in relation to financial services, insurance, investments and pensions.
It has a lesser jurisdiction; it can assist with complaints made by consumers and micro-enterprises with annual turnover of up to €2 million and fewer than ten employees, and make an order for compensation up to £150,000. If accepted by the consumer within a set timeframe, these orders are legally binding. However, it is not a ‘one-stop-shop,’ rather, it works in tandem with the Pensions Ombudsman.
In Canada, banks must be a member of a registered External Complaint Body (ECB) which is subject to government regulation; however they can choose which to join.
One such EBC, the Canadian Ombudsman for Banking Services and Investments (OBSI), assists consumers and small businesses (an undefined term) but it can only make non-binding compensation recommendations limited to $350,000 and publicly advise that a firm has not complied with an order.
Only two of Canada’s five major banks use OBSI. Other major banks in Canada use the private mediation firm, ADR Chambers Banking Ombuds Office (ADRBO), as their ECB.
Singapore has a ‘one-stop-shop’ for banking, insurance and capital complaints, the Financial Industry Disputes Resolution Centre (FIDREC). However, it was initiated by the finance sector, not by the government.
FIDReC offers mediation with a case manager, and then arbitration (a fee is payable by the complainant for the latter). It will only make awards at the adjudication stage, and has a jurisdiction and award cap of S$100,000 for individuals and sole proprietors. These orders are final and binding on the financial institution.
The main bodies assisting with consumer complaints in the US finance sector are the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) which work together in enforcement and education. However they are not EDRs, rather they are authorised to take legal action for violations of federal consumer financial law. In the US, there is no clear EDR process offered to consumers, and indications are that the CFPB is likely to be weakened under the current administration (see here and here).
Notably, however, where the compensation available at court does not fully compensate consumers, the CFPB may compensate them through its Civil Penalty Fund (funded by penalties obtained in other enforcement actions).
AFCA is a new ‘one-stop-shop’ created by government for consumers and small businesses to seek timely resolutions to their complaints about financial services in Australia. Its government mandated ‘one-stop-shop’ factor differentiates it from its international counterparts, as does its wider jurisdiction and ability to make binding orders. It will be interesting to see whether AFCA achieves its goals of timely and cost efficient dispute resolution or if consumer and small business stakeholders go directly to the Courts.