AFCA user pays model starts in July

Positive or neutral effect on fees for most members

By Priscilla Dickinson

01 Jun 2022

A new user pays funding model to resolve financial disputes will kick in from July 1, resulting in most firms paying the same or less in fees, AFCA says.

AFCA is a non-government ombudsman providing independent help to consumers and small businesses who have a dispute with a financial organisation.

All Australian financial services licensees, Australian credit licensees, authorised credit representatives and superannuation trustees are required to be AFCA members under their financial service licence conditions, which are regulated by ASIC.

AFCA’s current funding model incorporates a membership levy, user charges and complaint fees.

Responding to changes to its fees model proposed by AFCA, MFAA CEO Mike Felton said in March there had been issues around the fairness of AFCA’s fee structure, which required members to pay complaint fees regardless of whether they were at fault. Some members felt compelled to make unwanted settlement offers purely to avoid an escalation in fees, Felton said.

Following an extensive consultation process with dispute resolution scheme users and industry bodies, AFCA announced on Wednesday the new model was approved by its independent board.

The new model will incorporate a mix of annual registration fee, user charges and complaint fees, AFCA confirmed. It includes a single registration fee, and a simplified complaints fee structure. All members qualify for five free complaints per year.

Based on feedback, instalments will be introduced for member payments above a threshold amount.

For complaints found upon AFCA’s initial assessment to be outside of its jurisdiction, no fee will be payable.

When calculating the user charge applying to more frequent users, AFCA said the five free complaints would not be included.

Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme will pay only their annual registration fee, set at $375.55 for the coming financial year, AFCA said.

Among authorised credit representatives, 99.9% will pay $65.98 annually – steady with their annual membership levy for the past year.

Under the new model, AFCA said around 90% of members of the national ombudsman scheme would see a “positive or neutral impact on total fees”.

The remaining 10%, considered to be heavy scheme users, are expected to experience an increase in cost, which more accurately and fairly reflects their usage.

The superannuation levy has been removed and super funds have been brought under the same fee structure as other scheme members, resulting in a positive or neutral impact for most super fund trustee members, AFCA said.

The new model minimises the cross-subsidisation across sectors that occurred under the interim model, put in place in 2018. It considers the volume of complaints registered for a firm, along with the time taken to resolve them.

AFCA chief ombudsman and CEO David Locke (pictured) said feedback received on the new model had been “overwhelmingly positive”.

“Members welcomed the fact the model rewards good complaints resolution performance, and that it apportions fees fairly based on use of AFCA’s services,” Locke said. “This is a fair, transparent and equitable funding model. Ultimately, firms have control over the fees they pay by taking a resolution mindset when managing complaints.”

AFCA said it had followed a rigorous consultation process which included over 60 meetings with peak bodies and members likely to experience a greater impact. Five webinars were held with member firms and 11,000 individual, tailored impact assessments were undertaken.

Thanking AFCA members and the peak bodies for their engagement, Locke said their feedback helped to “improve and refine the model”.

Locke said AFCA would continue to monitor the performance of the new model over the coming year, ensuring that positive, fair and equitable member and complainant resolution behaviours were occurring.

AFCA would continue to work with firms and peak bodies to help the financial services sector reduce and more readily resolve complaints.

“Our user-pays approach incentivises firms to use internal dispute resolution to decrease complaints to AFCA,” Locke said. “At AFCA, we believe our role isn’t just to resolve complaints escalated to us but also to play a preventative role.”