Compensation Scheme of Last Resort awards $50,000 to Queensland couple
The vast majority of brokers act in the best interests of their clients, says the MFAA and FBAA, following the news that the Compensation Scheme of Last Resort has made a payment of more than $50,000 to a couple following the financial misconduct of their mortgage broker.
The independent not-for-profit CSLR, which was set up by the federal government and is overseen by ASIC, announced on Tuesday that it had made its first payments to four claimants totalling more than $360,000.
The CSLR, which began operating in April, said one of the payouts was more than $50,000 to a couple from Queensland “who were advised by a mortgage broker to take out a loan that was inappropriate for their circumstances”.
The other three payments involved:
- a couple from Sydney’s south received about $145,000 following inappropriate personal financial advice provided by their financial planner relating to an SMSF;
- a from Sydney’s Hills District was paid $150,000 in compensation after receiving superannuation advice, with AFCA ruling that the advice was not tailored to reflect the couple’s circumstances or goals. The risks were also poorly explained to them, and the advice failed to consider alternatives;
- a man from Sydney’s Northern Beaches received just under $17,000 in compensation after taking out a large loan on the advice of his financial adviser to invest in a scheme he was told had “guaranteed returns”.
MFAA’s and FBAA’s views on CSLR
Reacting to the CSLR’s announcement regarding the $50,000 payment to the couple due to the actions of the mortgage broker, MFAA CEO Anja Pannek (pictured above left) said the MFAA acknowledged the CSLR was operating and was now doing what it was set up to do – “to be the last resort for those who have suffered a loss due to misconduct and have exhausted all other avenues for recompense”.
“We fully support the CSLR’s intended purpose,” Pannek said. “While mortgage and finance brokers are not immune to complaints, less than 0.5% of all AFCA complaints relate to our industry.”
Pannek said it was important to acknowledge that comparative to levies on other industry sectors, CSLR levies for the mortgage and finance broking sector were low.
“This reflects low levels of complaints generated by the industry and low levels of unpaid determinations.
“When the CSLR was being established, the MFAA advocated heavily for levies to be directly proportionate to the risk of consumer harm posed by our industry and balanced with the impact of regulatory costs on our small business members.”
Pannek said the MFAA maintained that the levies its members paid “must remain reasonable and proportionate”.
“We will continue to monitor complaint volumes and payments made through the scheme and industry levies to ensure our members are not subsidising payments for misconduct by other segments of the financial services sector.
It was also important to note, said Pannek, that the first CSLR payment was made for a complaint that was a number of years old and before the introduction of the best interests duty.
“This [BID] has sought to provide not just further protection for home loan borrowers using a mortgage broker but has also further increased consumer confidence in the channel.
“Our members have built trust with Australian consumers, and it is imperative that trust is maintained … we will continue to engage with David Berry, CSLR CEO, and his team and act as that connection point between the scheme and our industry to monitor any trends that emerge from the CSLR’s review of broker-related claims.”
FBAA managing director Peter White (pictured above right) said the FBAA had previously advised finance and mortgage brokers back in April to be aware of this scheme, “given that they pay a levy along with lenders and others across several financial sectors”.
“It is unfortunate that a mortgage broker was alleged to have assisted a customer with a loan that was deemed to be inappropriate for their circumstances but as the CSLR noted, these claims go back up to five years,” White said.
“We know that finance and mortgage brokers act in the best interests of their customers but this is timely reminder of our legal obligations to do so. There are many protections in place for consumers and the CSLR is a further way for consumers to seek recourse.”
In the findings from the FBAA’s April 2024 Broker Poll, 62% of those surveyed had never heard of the CSLR.
The CSLR in action and how it works
CSLR chief executive David Berry (pictured above centre) said the scheme was created on the advice of the Ramsey Review as well as the banking royal commission.
To be eligible for compensation, claimants must have experienced financial misconduct – as determined by the financial services sector ombudsman, the Australian Financial Complaints Authority (AFCA) – related to one or more of the financial products and services covered under the scheme.
The CSLR, according to its website, provides up to $150,000 in compensation to eligible consumers who have experienced misconduct by a financial firm and where the firm has not made recompense generally due to insolvency.
The scheme announced back in January that it had allocated a $241 million initial levy estimate to support eligible consumers impacted by financial misconduct, covering compensation claims and associated costs tied to complaints filed with AFCA from November 1, 2018, to September 7, 2022.
“Whilst the financial services industry works toward the betterment of their clients it’s unfortunate that there are a small few who take advantage of the trust bestowed on them,” Berry said.
“Ensuring some basic consumer protections works to lift trust in the financial services industry and the professions that support it.”
Berry said the crucial safety net for victims of financial services misconduct was now in place and those who had experienced financial loss through no fault of their own were being compensated.
“This really is a compensation scheme of last resort – these first four claimants had exhausted all other avenues and waited up to five years for a resolution. The CSLR claims team has been moved by the joy expressed by the scheme’s first claimants, some of whom were in quite desperate financial straits.”
Berry said the CSLR was an important part of Australia's consumer protection framework and aimed to alleviate the distress of consumers when other avenues for redress were unavailable.
“In turn, its existence will support confidence in the financial services sector.”
Industry’s financial support for CSLR
Berry said it was also important to acknowledge the financial support that industry was providing to the compensation scheme, through the levies on the sub-sectors covered in the legislation.
“Industry contributions ensure the scheme will both compensate eligible claimants but also encourage industry to back stronger standards, which enhances confidence and trust in the financial services sector,” he said.
“It is important to note that the vast majority of people in the financial services industry act ethically and in the best interests of their clients.
“The CSLR is a genuine last resort for misconduct only, not for poor performing investments or people who ignore good advice and take undue investment risks.”
CSLR levies will be collected from credit intermediaries, credit providers, licensees providing financial advice, and securities dealers.
The levies are calculated by ASIC in accordance with federal legislation. The CSLR is managed independently and operates under parliamentary legislation.
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