Australians use a large number of financial services from banks and therefore it’s essential that robust consumer laws exist to protect people from conduct that is misleading, deceptive or unconscionable, or preventing financial institutions to make misleading statements relating to the provisions of goods and services, and that these statutory warranties include most financial services – especially in relation to banking and loans. Statutory instruments such as the Corporations Act (Cth) and more specifically, the Financial Services Reform provisions within the Act, along with the Australian Securities and Investments Commission Act (Cth) and other regulations and industry codes like the Code of Banking Practice (The Code), exists to ensure that the consumer is protected when they engage with financial services.
However, even with the numerous statutory provisions and Codes that are in force, disputes can still arise and in instances where a consumer has an issue with a financial institution, there are various dispute resolution mechanisms that exist which a person can utilise, and this article will cover some of them.
Dispute resolution under the Code of Banking Practice
Under cl 35.1 of the Code, banks must have an internal dispute resolution process which a consumer is able to take advantage of if they have an issue. The internal dispute resolution process must:
- be free of charge;
- meet with the ASIC standards;
- provide written reasons for the decision by the financial institution to the consumer.
Clause 35 of the Code mandates that once the bank becomes aware of the dispute, it must undertake an investigation and give notice to the customer of their decision within 21 days, or if need be, inform the customer that more time is required to complete an investigation as outlined in cl. 35.3 of the Code. An investigation must then be completed within 45 days, unless exceptional circumstances arise (cl 35.4).
If for any reason the bank is unable to complete their investigation within 45 days, then under cl 35.5 of the Code, the bank must:
- inform the consumer the reason for the delay;
- provide the consumer with monthly updates on the progress of the dispute; and
- specify a date when a resolution to the dispute can reasonably be expected, unless the institution is awaiting a response from the consumer.
Dispute resolution under the Corporations Act
Under the provisions of the Corporations Act, certain financial services providers like banks and other financial institutions that hold financial services licenses as outlined in s 911A of the Act, must have dispute resolution processes in place for consumers who are retail clients, as stated in s 912A of the Act.
The Act requires that the dispute resolution process includes both internal and external dispute resolution procedures and furthermore, the internal dispute resolution procedures must be in compliance with the standards set out by ASIC. Additionally, members of an external dispute resolution body must be part of a scheme that has been approved by ASIC as well.
Both the internal and external dispute resolution procedures can be found in regs. 7.6.02 and 7.9.77 of the Corporations Regulations (Cth)(the Regulations) for internal dispute resolution, and external dispute resolution schemes must comply with regs 7.6.02(3) and 7.9.77(3).
Financial Services Ombudsman
Consumers, as well as small businesses that engage with financial services are able to turn to the Financial Services Ombudsman (the Ombudsman) as another external dispute resolution body.
The Ombudsman can consider disputes that a consumer or small business has:
- received the financial service that is subject of the dispute; or
- have provided security over a financial service and either the security or the financial service is the subject of dispute; or
- given information that is the subject of the dispute which relates to the confidentiality of both the individual and small business, and privacy, in the case of an individual.
Matters that cannot be dealt with by the Ombudsman under Terms of Reference are:
- matters that relate to policy, such as interest rates or fees; and
- decisions about lending or security;
- any dispute that exceeds $280,000.
What happens if a resolution cannot be resolved by the Ombudsman?
Interestingly, the Ombudsman isn’t bound by the rules of evidence, as well as any previous decisions by predecessors.
Whilst a dispute is on foot, the Ombudsman can suggest that the dispute be withdrawn or the settled by agreement with the parties in a full and final settlement. If the parties do not agree with settlement, then the Ombudsman may continue to consider the matter and make a conclusion at the end of their consideration.
If the Ombudsman makes a recommendation that is accepted by the person making the complaint within one month, but not the financial institution, then the Ombudsman is empowered to make a determination against the financial services provider, and determinations can include:
- a monetary sum that does not exceed $280,000;
- if a dispute relates to privacy, then the Ombudsman can make a determination, awards, declarations, orders or directions that the Privacy Commissioner may make under the provisions of the Privacy Act;
- an order for the provision of information relating to the subject matter of the dispute.
In making a determination, the Ombudsman takes into account the applicable laws, the principles of good industry practice and they must act by reference to fairness in all circumstances.
Upon acceptance of the determination by an applicant within one month, the determination then becomes binding to the complainant and the financial institution.
This is a general overview of the dispute resolution process in regards to financial institutions. If you have any pressing concerns relating to a financial service and need assistance, please consult a legal practitioner who will be able to help with your matter.