But brokerage still pursues legal action
A complaint investigated by the Australian Financial Complaints Authority over 2020 and 2021, for which a broker was charged over $9,000 will be a thing of the past under a new user pays model, AFCA says.
Bruce Gibbons, the director of Adelaide brokerage Select Finance Brokers Pty Ltd, has this week issued a summons against AFCA to the Magistrates Court of South Australia. This concerns Gibbons being charged $9,013 for the resolution of a complaint made against his brokerage, despite AFCA saying he had no case to answer. Gibbons is also seeking compensation of more than $11,000 from AFCA.
But AFCA said the complaint, if it was being considered now, would fall under its new user pay model which include five free complaints per year.
Introduced on 1 July, AFCA’s user-pays model was developed in response to feedback from members, industry bodies and other stakeholders.
The “user-pays” approach means heavy users pay their share towards AFCA’s service, while companies and industries which receive few or no complaints pay less. The model features a single registration fee and has a simplified fees structure that aims to reduce complexity and encourage early resolution.
Under the new model, all AFCA members, regardless of business size, receive five free complaints per year.
Read more: AFCA user pays model starts in July
Bruce Gibbons (pictured immediately below), who has been a mortgage broker for 26 years, spoke to MPA about a customer complaint investigated by AFCA under its former model, lodged with AFCA on 30 June 2020, for a loan written in 2014.
MPA is publishing an outline of the complaint as a case study to illustrate what’s changed under the AFCA user-pays model and how the new model may benefit brokers who have complaints lodged against them.
The complaint was in relation to a bridging loan of $94,000 brokered by an employee of Gibbons, before he left the company that same year.
AFCA’s determination shows the complainants alleged Gibbons’ employee misled them on the basis that they were advised to accept the loan, and the employee would arrange a subsequent refinance loan on better terms and conditions, which did not happen.
The complainants were also found to have misunderstood that the solicitor referred to them by Gibbons’ firm was representing the lender and stated they weren’t given an opportunity to choose their own legal representation.
The complaint was found by AFCA to be baseless. A copy of the determination dated 17 September 2021, published on the AFCA website, shows it was “in favour of the financial firm” and that the financial firm was “not required to pay any compensation to the complainants”.
For confidentiality reasons, an AFCA spokesperson confirmed AFCA was unable to discuss individual complaints or interactions with individual financial firms.
However, AFCA chief operating officer Justin Untersteiner (pictured below) confirmed to MPA that under AFCA’s new model, Gibbons’ complaint would be covered free of charge.
“What would be different in this situation is [Gibbons] wouldn’t have paid for the complaint, on the basis that it would’ve been covered under the five free complaints,” Untersteiner said.
Having issued a 21-day notice against AFCA in the Magistrates Court of South Australia on 23 March 2022, Gibbons confirmed to MPA he is disputing AFCA’s fee of $9,013 – the total amount charged to Gibbons’ firm for investigating the complaint.
Copies of emails sent to Gibbons from AFCA state that as this was a legacy complaint, Gibbons should have been charged $21,005. However, due to an “error by the accounts department”, Gibbons had received “over a 50% discount”. AFCA stated in the email that the $9,013 was the fee for a standard complaint that went through to an Ombudsman decision, if the parties do not resolve it.
Gibbons is requesting $11,882 in compensation, which he told MPA was comprised of $3,377 in monies he actually paid to AFCA “under protest” towards its final invoice of $9,013, as well as 102 hours of personal time he claims he spent providing information to AFCA to investigate the complaint (which equates to $8,320), and two court filing fees ($185).
While Gibbons said AFCA discussed the dispute and claim with him, no formal resolution was reached.
“Brokers are unaware that a simple complaint can turn into $21,000 in AFCA fees,” Gibbons said.
“It’s just not a fair system and it’s the only system - we have no choice. Brokers should stand up and dispute any AFCA overcharging.”
Gibbons said he was concerned AFCA’s investigation process was “an error-riddled procedure” that relied on “production of documents” rather than talking to the person filing the complaint.
He questioned why AFCA started to investigate the complaint when an amount was not initially specified on the complaint form lodged with AFCA. He also claims AFCA did not follow the standard process of requiring the complainants to contact his firm to attempt to resolve the complaint before investigating it.
Gibbons said he was also concerned that under the new model, if a complaint proceeds all the way through to a formal decision (rather than being resolved at an earlier stage), AFCA’s fee for a decision was $7,570.
Commenting more widely on AFCA’s role and responsibilities to members, Untersteiner said AFCA is intended to be an alternative to the court system. Generally, the complaint process was more efficient, cheaper and less formal than going to court, he said.
Untersteiner said from a consumer and risk perspective, it was important to avoid unnecessary delays. The majority of complaints AFCA dealt with went through the “refer back” process, whereby it was sent to the AFCA member to attempt to resolve it with the complainant, he said.
However, he said there were specific circumstances where AFCA could bypass this process. One example is where a member challenges AFCA’s jurisdiction. In this situation, AFCA reverts the complaint to a technical team, which undertakes a complete review and provides a formal assessment.
“So we don’t unnecessarily delay the consumer, if the member is unsuccessful in that jurisdictional challenge, after we’ve reviewed the rules, we don’t then refer it back to the member to go back to the consumer for another three weeks to try to resolve it,” Untersteiner said.
“If [Gibbons’] challenged the jurisdiction again, it would still be free, but it would play out in the same way: we would bypass the ‘refer back’, because more time is being afforded to him while we review the jurisdiction. If he were unsuccessful, it [the complaint] would go back to our case management team.”
Untersteiner also said AFCA did not have a mandatory requirement that the complainant enter the amount on the complaint form.
“We cover everything from complex life insurance cases, superannuation, responsible lending [etc] and we deal with vulnerable consumers,” Untersteiner said.
“It is not completely uncommon that there are some consumers out there that they don’t know how to qualify it into a figure. We don’t want to be in a position where we prevent vulnerable consumers from using our service because they don’t have the sophistication to articulate the exact dollar value.”
When AFCA opened its doors in November 2018, Untersteiner said it inherited a “hybrid of different funding models” from the three predecessor schemes, which were always intended to be a temporary transitional arrangement.
The user-pays model was the result of a full review and design of a new model, which was endorsed by the Board. It was developed through heavy consultation with the industry, and overall, feedback was very positive, he said.
Read more: AFCA welcomes results of independent review
The new model, which came into effect on 1 July, is guided by a set of principles, such as minimising cross-subsidisation between members and industries, Untersteiner said. Among the other principals were that the model be a “user-pays system”, that it be free to consumers and that it should incentivise “good internal dispute resolution practices”.
Some smaller businesses felt like they were covering the cost of some of the bigger players, and there was also a feeling that the model could be simplified and more transparent, he said.
Among the key changes of the user-pays model was the introduction of five free complaints per year, for all AFCA members, which Untersteiner said were of particular benefit to smaller firms.
“If you look at the data, our small brokers along with our insurance brokers and smaller members, are the ones that are more likely to have an occasional complaint, if any,” Untersteiner said.
The membership fee was capped at just over $365, which meant for 95% of AFCA members, due to the five free complaints, there were no complaint fees.
“That’s a big change and it’s been really well received, but where we’ve had the most positive feedback has been through the broker and adviser community, and through small business,” Untersteiner said.
He said AFCA was also introducing other changes, such as reducing the cost of individual complaints. This meant the sixth complaint would be at a reduced cost compared to what might have been charged under the old model.
As AFCA’s services were funded by the industry and not from the government, the user-charge, essentially a “levy” was charged to higher users of the system. This was calculated based on their previous year’s performance.
“That means that a small number of our members will see an increase, but it’s the big players that have large volumes of complaints,” Untersteiner said.
“Our analysis with PWC told us that through this model, it is a fairer distribution of costs, and it is more aligned to a user charge and user pays model.”
