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Issue 24 - January 2016

Systemic issues update


This article summarises some notable systemic issues that were newly identified during the December quarter of 2015. These de-identified matters were reported to the Australian Securities and Investments Commission (ASIC).

This update also provides information on a selection of current systemic issue investigations, a summary of the possible systemic issue investigations for the December quarter, as well as some positive outcomes from matters that we investigated but ultimately considered were not systemic.

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.

To learn more about our approach to systemic issues, you can do our online training module.


New definite systemic issues

Improper collection activity
We wrote to the FSP after becoming aware that it had not issued legal proceedings in the jurisdiction where the applicant resided. Such action is in breach of Regulation 36 of the National Consumer Credit Protection Regulations 2010 (the NCCP Act).

The FSP responded by advising that its third party legal practitioners appeared to have breached Regulation 36 on five occasions, based on a review of a sample of 120 active matters. However, the FSP has instructed its solicitors to review its practices and also confirmed it will take action taken to file Notice of Discontinuances or Notice of Motions to set aside proceedings in these cases. The FSP also advised that its internal policies have been amended and staff and relevant third parties provided with training to ensure there is no further occurrence of this error.

Calculation of premium
We contacted the FSP after receiving information which indicated that it had incorrectly charged certain policyholders an increased premium in relation to their legacy life insurance policies. Recommendations were issued in both disputes, which found that premiums had been miscalculated by the FSP and the applicants were entitled to refunds. In response to a request for an information, the FSP advised they had identified the breach and self-reported this to ASIC and were commencing a remediation program.

Processing error
A dispute was received at FOS from a customer who complained about reloading foreign currency to a pre-paid multi-currency travel money card. The card was purchased via a third party retailer and customers were able to reload the card via the third party retailer’s website.

The applicant complained that they were charged reload fees when they loaded foreign currency onto their card via the third party retailer’s website, in breach of the relevant Product Disclosure Statement (PDS).

Information provided to FOS during the course of the dispute indicated that customers seeking to reload their cards via the third party website were transferred to another website, operated by the card provider, which caused the customer to incur a reload fee.

The FSP has confirmed that 743 customers have been affected by an incorrect redirect which has caused their financial loss when they have reloaded their cards. The FSP has now begun to scope a project to reimburse the affected customers.

Inappropriate charging of fee
Two disputes were referred to the Systemic Issues team from case workers concerned that the FSP had failed to account for its Reduced Input Tax Credits (RITC) entitlement in these disputes and that this may have been representative of the FSP’s general accounting practice in this area and have impacted a wider group of customers.

We wrote to the FSP requesting information about its policies and procedures relating to its entitlement to claim RITC and to review a sample of those disputes to determine whether it had properly accounted for it.

The FSP responded that although its policies complied with its understanding of the FOS approach a review of several cases indicated that there had been a small section of valuations charged to customer accounts which were not correctly adjusted to reflect the FSP’s RITC entitlements. The FSP has undertaken to ensure the valuations fees were correctly calculated in future and noted that 24 customer accounts had been impacted.

The Lead Ombudsman considered the FSP’s response and took the view that the matter represented a definite systemic issue. Further information has been sought about whether the FSP has reviewed other potentially affected accounts with a view to restoring the affected customers to the position they would have been in, but for the error.

Failure to advise about FOS
We approached the FSP to ask whether the Internal Dispute Resolution (IDR) responses provided to FOS in the course of relevant disputes were produced using a pro forma template and for further information in relation to its IDR procedures, as it appeared customers may not have been provided with the correct information about referring their disputes to FOS.

The FSP advised that the letter was based on a template and which had now been amended to include FOS referral details as required. Based on the information provided in its response, particularly the FSP’s advice that the final IDR response letters neither advised customers of their right to take their complaint to FOS, nor provided information on the relevant timeframes in which a customer could make these referrals, this matter was found to represent a definite systemic issue.

The FSP has advised FOS that 69 customers have received the incorrect IDR letters, which fail to advise of the customer’s right to approach an external dispute resolution scheme.

Error in credit listings
A dispute was received at FOS arising from concerns that the FSP had entered a default listing on the applicant’s credit file before the amount was 60 days overdue.

The dispute from which this systemic issue arises was referred to the systemic issues team who determined that it should have been corrected when we previously approached the FSP about this matter which was resolved in December 2013. At this time the FSP undertook to remove 248 default listings made in error between 1 January 2011 and 24 December 2013.

Information about the dispute was informally referred to the FSP and it was asked for its comment. The response advised that when identifying the affected group of customers in 2013, the FSP used system codes which resulted in a significant number of records being excluded from its review. In this regard, the FSP acknowledged that a further 2,680 default listings were identified as erroneous.

The FSP has been asked to update FOS with information about the remediation of the 2,680 newly identified customers. An update will be provided in the next quarter.


Possible systemic issues
Some details about trends and common issues under investigation as possibly systemic during the December quarter include:

  • Error in credit listings: Three new possible systemic issues were referred to FSP’s under this code in the December quarter. Of note, two of these investigations relate to matters previously investigated by the systemic issues team.
    Information provided in the dispute space has suggested in both cases that the FSP has not properly identified the affected class of customer or is not complying with processes previously provided to FOS relating to entering serious credit infringement listings.
  • Policies for dealing with customers in financial difficulty: One matter remains under investigation this quarter. Several other matters have been referred informally to FSPs to seek comment, establish the scope of any particular error and to request contemporaneous or relevant documentation. These matters have often been closed before progressing to a formal investigation status during the period in line with recently introduced processes.
  • Disclosure of Terms and Conditions: During the December quarter we approached an FSP to determine whether a wider group of customers may have been affected by a possible failure to adequately disclose the risks of investing in a product within its Product Disclosure Statement. We also approached another FSP about its processes for advising telephone customers about their duty of disclosure.
  • Conduct of employees and authorised representatives: We have shared information with ASIC under clause 11.1 of FOS’s Terms of Reference on a number of occasions during the quarter. FOS does, however continue to monitor a number of open advice review programs categorised as definite systemic issues.
  • Compliance with responsible lending provisions of the NCCP: Two new investigations have commenced in the December quarter. In one case we have referred concerns that an FSP may not have sufficiently robust policies and procedures to establish the suitability of a consumer lease. In the other matter, we have requested further information about an FSP’s apparent policy of failing to take into account a customer’s credit card limit when assessing serviceability.

A number of other codes were raised as possible systemic issues during the quarter with only one or two investigations per code so they could not be noted as representing a trend. They include:

  • Disclosure of interest rate calculation
  • Compliance with ePayments Code
  • Inadequate claims handling process
  • Privacy processes
  • Unauthorised transactions

Positive outcomes from rejected systemic issues
Sometimes we investigate issues that are ultimately determined not to be systemic, but the investigation may result in a change to an FSP’s process or a comment from the relevant Lead Ombudsman about an industry practice. Some of the positive outcomes from rejected systemic issues this quarter include:

  • An FSP undertaking to remove incorrect information relating to the estimated term of loans on business loan statements in order to prevent confusion to customers.
  • An FSP undertaking to disclose the debit interest rate on certain Line of Credit account statements where the limit had been cancelled.
  • An FSP implementing further checks and balances in its internal processes to ensure that continuing collections activity does not occur when a dispute has been referred to FOS.
  • An FSP amending a clause in its terms and conditions to remove ambiguity and to clarify when certain protections apply to users of its payment platform.
  • An FSP making improvements to internal guidance documents relating to the ePayments Code and providing further training to call centre and operational staff to ensure they are able to identify and action complaints appropriately.
  • The FSP reorganising its operations and reviewing its telesales processes to improve the quality and eliminate duplication of sales calls to certain insurance customers.
  • An FSP confirming it will waive compliance with the duty of disclosure on all eligible contracts of insurance and will no longer be informing customers of the nature and effect of this duty.
  • An FSP confirming it will launch a new underwriting system for motor vehicle products which will include vehicle garaging information as part of its rating system.
  • An FSP amending its internal policies to explicitly set out that once a hardship request has been received from a customer, no default fees will be charged and that collection and enforcement action must not proceed either at this time or when a dispute is referred to FOS.