Skip to content
Circular Home
Issue 17 - May 2014

Compliance with paragraph 13.1 of the Terms of Reference


There has been an increased trend in referrals of possible systemic issues relating to financial services providers’ compliance with paragraph 13.1 of the FOS Terms of Reference. This has been referred to in previous updates as Improper Collection Activity, particularly while a dispute is open with FOS.

In January 2010, FOS introduced new Terms of Reference which included the ability to consider disputes where legal proceedings have been issued. This provision was included because ASIC required us to include it.

In August 2010, following consultation with industry and other stakeholders, FOS released Circular 3.1 in relation to legal proceedings disputes. This Circular was subsequently incorporated into the Operational Guidelines at pages 116 to 127.

In general, and as outlined in Circular 3.1:

“…the Terms of Reference stop FSPs from taking certain legal proceedings and other action against Applicants. While FOS is dealing with a Dispute lodged with it, the FSP must not:

  • Instigate proceedings against the Applicant relating to the subject of the Dispute;
  • Pursue legal proceedings relating to debt recovery instituted before lodgement (unless the Applicant has taken a step in those proceedings beyond lodging a defence or a defence and counterclaim); or
  • Take action to recover a debt that is the subject of the Dispute, to protect assets securing that debt or to assign any right to recover that debt.”


At page 122 of the Operational Guidelines, we provide information about what should happen to the legal proceedings. If the dispute is within FOS’s jurisdiction, the financial services provider must stay the proceedings, at no cost to the applicant. The stay must apply until our file is closed. If a hearing date has been set down, the financial services provider must adjourn the hearing date from time to time until our file is closed.

If a stay, adjournment or undertaking is not possible due to relevant court rules, the proceedings must be discontinued at no cost to the applicant. The applicant must consent to a stay, adjournment or discontinuance of legal proceedings. If the applicant does not consent, then our file will be closed.

In addition, at page 125 of the Operational Guidelines we say:

“…the FSP will not be entitled to recover legal costs at any time (whether pursuant to the contractual right, court order or otherwise) for:

  • Staying, adjourning or discontinuing the proceedings;
  • Setting aside any default judgement;
  • Making submissions about FOS’s jurisdiction to consider the Dispute; or
  • Dealing with the Dispute; or
  • An application for leave by the Applicant to file a defence or defence and counterclaim where the time limit for filing of these documents was after the date on which the Applicant lodged the Dispute.

This is because these costs were incurred by the FSP in dealing with a dispute lodged with FOS and, as a service which is free to consumers, should not be passed on to consumers”

Where we see conduct in a dispute, or a number of disputes, that demonstrates repeated non-compliance with paragraph 13.1 of the Terms of Reference, we may refer the matter to the financial services provider as a possible systemic issue.

You can read the full systemic issues report for the March quarter here.