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Issue 32 - February 2018

Systemic issues update

This article summarises some notable systemic issues that were identified during the December quarter of 2017. These de-identified matters were reported to the Australian Securities and Investments Commission (ASIC) in accordance with our processes.

An update on a selection of current systemic issue investigations, as well as some positive outcomes from matters that we investigated but ultimately considered were not systemic, is also provided.

Our process for identifying and resolving systemic issues was outlined in Issue 4 of The FOS Circular. The process is in line with our obligations to ASIC.

Our online training module provides further information about our approach to systemic issues.

New Definite Systemic Issues

Incorrect Interest Charges
The FSP incorrectly applied a higher rate of interest to its business overdraft accounts. The FSP acknowledged that the error had occurred due to a system processing error.

A remediation program was established, and identified approximately 1,800 affected customers. It resulted in over $2 million in overcharged interest being refunded.

A system fix was implemented in 2013, however this failed to satisfactorily address the issue and further complaints were received. The FSP subsequently applied an enhanced solution to address previous errors in 2017.

We considered the failure to properly remediate the matter to be a definite systemic issue.

Misleading conduct
We raised concerns that the FSP's terms and conditions for its credit card products were potentially misleading. The FSP had charged customers a cash advance fee for purchases of lottery tickets, relying on a clause which referred to "casino gambling chips or tokens".

We informed the FSP that while fees can be charged for such purchases, the entitlement to do so must be clearly outlined in the terms and conditions. It must also be written so that it could be understood by a reasonable person. The clause that the FSP was therefore seeking to rely on was deemed to be insufficient.

Unauthorised transactions
We approached the FSP about letters sent to its customers for disputed transactions which were incorrect or potentially misleading. In the letters, the FSP notified customers that its investigations had been closed in their favour and that funds would not be debited from their accounts. Despite this, the FSP later debited funds from the customers' accounts.

In response, the FSP advised that in each of the disputes, merchants had later provided information in support of debiting the customers' accounts. The FSP acknowledged however, that its process in such circumstances required staff to contact customers and seek consent prior to reversing the credit. If consent was not provided, the credit should not be reversed. The FSP had neither contacted customers in the dispute referrals nor sought the relevant consent.

We considered this to be a definite systemic issue due to the volume of complaints and concerns regarding the FSP having appropriate levels of staff training to follow process.

Misleading conduct
We approached the FSP about Statements of Advice (SOA) which had contained misleading wording about customer membership entitlements.

In response, the FSP identified 430 customers who had been sold products using the SOA. The FSP has subsequently amended its SOA.

We informed the FSP that ASIC's Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client (RG90) outlines the importance of 'clearly pointing out the key disadvantages and risks of the advice, so that clients have all the information they need to make a decision'.

The FSP agreed to write to affected customers and explain why the SOA was misleading, as well as offering those clients, the option of lodging a complaint through its internal dispute resolution process.

Positive outcomes from rejected systemic issues
Sometimes we investigate issues that are ultimately determined not to be systemic. The issue may involve substantial investigation and result in a change to an FSP’s process or a better understanding of good industry practice.

  • An FSP agreed to amend collection correspondence provided to customers, to align with information provided on statements of account. The change was designed to remove any potential for confusion in the default amount and the payment due date.
  • An FSP updated its policy agreement with customers, to be more transparent about how it reviews decisions made by a related entity, where purchaser protection claims are received. 
  • An FSP agreed to update its standard resolution agreements reached with applicants through FOS disputes. The updates include written notice and extended timeframes to rectify any breach of arrangement prior to recommencing recovery action.
  • An FSP took a proactive approach to extend its investigation beyond FOS’s request to conduct additional audits to ensure that it was accurately recording customers’ level or extent of insurance cover. In doing so, the FSP identified a small number of instances where it had incorrectly denied insurance claims.
  • An FSP committed to provide refresher training to its claims officers and managers to reinforce compliance with sections 21A and 22 of the Insurance Contracts Act 1984. Specifically, this applied to the application of general exclusion clauses for existing medical conditions.
  • An FSP expanded its hardship policy and training to staff, to be inclusive of requests for assistance made in relation to novated lease agreements. This was despite the FSP’s discontinuance of the product.  This allowed for consistency if the product was re-introduced.
  • An FSP amended its correspondence to customers where requests for hardship assistance are made. It now makes it clearer and easier for customers to understand what information is required, and what types of solutions the FSP can provide.
  • An FSP improved the way that it deals with FOS requests for information, by formalising its approach to providing copies of call recordings. This in turn assisted in providing more timely responses to requests.