MFAA welcomes AFCA's new lower fee model

AFCA’s proposed new user-pays fee structure will lower the overall complaint fees paid by mortgage and finance brokers and is a positive outcome for the industry, said the MFAA.

Mike Felton (pictured), the CEO of the MFAA, was responding to significant changes to the fees model proposed by the Australian Financial Complaints Authority, the non-government ombudsman that provides independent help to settle financial disputes. AFCA is seeking members’ feedback on the model until April 22.

All Australian financial firms must be members of AFCA by law and are required to pay a membership levy and other complaint-related charges to contribute to operating costs.

Read more: How much does AFCA membership cost?

Felton said there had been issues regarding the fairness of AFCA’s current fee structure.

“Members have been required to pay complaint fees regardless of whether or not you’re at fault,” said Felton. “Some of you are feeling compelled to make unwanted settlement offers purely to avoid an escalation in fees, which is not a healthy situation at all.”

Felton said over the last few years the MFAA had actively engaged with both AFCA and the Treasury regarding the fairness of the fee structure, with Treasury conducting a full review of AFCA operations last year and presenting a report in November.

The report dealt with the AFCA model and said AFCA should not disincentivise financial firms from defending complaints they considered did not have merit, and should take into account the circumstances of small financial firms, both points that MFAA had made in its feedback.

“It’s a really good outcome for mortgage and finance brokers and will see our industry paying less,” Felton said.  “It reflects a lot of hard work the MFAA has done over an extended period but also reflects a number of our suggested changes.”

He said the new funding has three core components but with some noticeable differences.

Under the current model, AFCA members pay a membership levy of about $376, which escalates depending on the size of the business and can reach up to $30,000 for larger broker aggregators. There is also a fee of $65 per authorised credit representative.

Felton said the levy would be replaced with a flat annual registration fee of $376, with no escalation based on business size and a flat $65 per rep.

“Complaint fees is where the most noticeable change is. At present you pay fees from the first matter with no free matters,” he said.

“However, going forward each member will get five free complaints, that’s at the licensee level which is along the lines of the old CIO structure but with even more free complaints than that had.

“Complaint fees have also been simplified and lowered. That will only kick in, of course, from the sixth complaint onwards and they’ve taken steps to remove complaints earlier out of the system where they do not have merit or cause loss.”

The third component of the fee structure was the user charger levy. Felton said, in the past, frequent users – those with three or more complaints - would pay an additional levy: the user charge levy. Under the new structure that would now be increased to six or more complaints.

“While it will lower the overall fees that our industry is paying to AFCA, that is the right outcome,” Felton said. “It is not mortgage brokers that are clogging up the AFCA workflows and using EDR resources.

“Of course no solution is ever perfect but we do think this is a good one for our industry. It is more beneficial to smaller licensees but, at the end of the day, it is smaller licensees that are more vulnerable to the impact of complaint fees where they are not at fault.”

AFCA said under the model about 90% of members would see a positive or neutral impact on total cost. One in five members would experience a decrease in fees.

About 10% – the very largest financial institutions which make most use of AFCA’s services – would experience an increased cost that more accurately reflected their usage, addressing cross-subsidisation of larger firms by smaller members.

“It’s a fair, transparent and equitable model that is supported by strong data and modelling,” AFCA chief ombudsman and CEO David Locke told a webinar for members last week.

“We have listened to what you have told us over the past few years and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services.”

Under the proposed model, 66% of fees would be recovered from the 2.5% of AFCA’s members that represent 66% of all complaints received by AFCA.

The model would reduce the burden on small members like financial planning firms and brokers, as well as other less frequent users of the scheme through its user-pays approach and the buffer of five free complaints.

Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme would pay only their annual registration fee each year, currently estimated to be $376 for the coming financial year. Among authorised credit representatives, 99.9% would pay only $65.98 annually – steady with their current annual membership levy.

AFCA will be taking feedback from members on the proposed model until 22 April. The model will then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from July 01, 2022.