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Issue 19 - November 2014

Systemic Issues update


This article summarises the new systemic issues that we identified during the September quarter of 2014 and reported to the Australian Securities and Investments Commission (ASIC). It also provides an update on some current and recently resolved systemic issue investigations, a summary of the possible systemic issue investigations for the September quarter, and some positive outcomes from matters that we investigated but ultimately considered were not systemic.

The FOS process for identifying and resolving systemic issues was outlined in Issue 4 of The 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

Intention to recover FOS costs from applicant

During FOS’s investigation of a number of financial hardship disputes, it was determined that the financial services provider (FSP) had passed on legal costs incurred to the applicants. The FSP acknowledged that its processes were not sufficiently robust to ensure that relevant staff were not passing on costs relating to EDR to customers. As a result of this acknowledgement, as well as our understanding that a number of disputes had been identified where costs were passed on in error, we advised that we considered the matter to be a definite systemic issue. We have asked the FSP to review all disputes referred to FOS in the last financial year to establish the extent of the systemic issue.

Conduct of Investigators

An applicant lodged a dispute with FOS regarding the conduct of an investigator in relation to a Comprehensive Motor Vehicle Insurance policy claim. The dispute was the subject of a Determination by the Ombudsman in the applicant’s favour. The Ombudsman stated in the Determination that the investigator’s conduct was such that it breached the FSP’s duty of utmost good faith in dealing with the dispute, in particular the conduct of seeking to recover investigation costs from the applicant was considered to be inappropriate.

In the course of further investigation of the matter as a possible systemic issue, the FSP confirmed other instances of the conduct and where such recoveries had been sought.

Collection activity while a dispute was with FOS

An FSP has been approached about breaches of clause 13.1 of our TOR as well as statements in some financial difficulty cases which suggest that it does not give genuine consideration to customers in hardship if they have lease accounts.

The FSP has confirmed the conduct and the matter is being treated as definitely systemic.

In a separate issue, a number of disputes were referred to FOS highlighting that the FSP was continuing collections activity after disputes had been lodged with us. At least one dispute indicated that the FSP had passed on enforcement costs to applicants after the dispute had been lodged.  We commenced a systemic issue investigation and requested the FSP’s policies and procedures for ceasing collections activity upon a dispute being lodged with FOS, and for ensuring it did not pass on enforcement costs inappropriately.

In light of the number of occasions when the FSP had inappropriately passed on enforcement costs to applicants, and that the FSP did not have documented policies and procedures in relation to this, the Ombudsman considered to the matter to be a definite systemic issue.

Inappropriate charging of fee

In a FOS Determination, the Ombudsman raised concerns that excessive arrears fees had been charged to a customer whose loan was not in good standing.  It was acknowledged, however, that the fee for the relevant arrears letter was disclosed and contractually payable. However, in the Ombudsman’s view, the generation of multiple letters by the FSP in close proximity was excessive.

A possible systemic issue investigation was commenced to establish if the FSP had charged excessive arrears fees to a wider class of customer causing them financial loss. A number of customers were identified as having been affected by the issue and the matter has therefore been considered systemic.

Possible systemic issues

Trends and common issues under investigation as possibly systemic during the September quarter include:

  • improper collection activity, particularly while a dispute is open with FOS
  • policies for dealing with customers in financial difficulty
  • conduct of employees and authorised representatives
  • processing errors, such as whether processes for releasing pre-authorisations were subject to unreasonable delay and/or caused a wider group of customers financial difficulty or loss
  • inappropriate charging of a fee, particularly relating to over-limit fees on accounts entered into after July 2012
  • compliance with responsible lending provisions of the NCCP
  • inadequate expertise.

Otherwise, there were a number of varied one-off issues that arose as potentially systemic during the period such as:

  • break cost methodology
  • retention of documents
  • privacy processes
  • complaints handling procedures.

In addition, it was noted that a number of issues that have previously featured as common trends have reduced this quarter such as:

  • errors in credit listings
  • policy interpretation
  • policies for dealing with customers in financial difficulty.

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:

  • One FSP will amend its Visa Debit Card terms and conditions to explain the effect of pre-authorisation holds to customers.
  • One FSP undertakes to update its internal processes and documents to ensure that customers are specifically advised of any early repayment charge.
  • One FSP has amended its internal collections and credit listing policies and procedures to reflect recent updating of the Privacy Act 1988 (Cth) regarding serious credit infringements.
  • One FSP will review its debt collection processes to ensure adherence with the contact provisions of the ASIC/ACCCC debt collection guideline. The FSP will also implement a specific policy to deal with requests for hardship assistance from single borrowers to a joint loan.
  • In one case, while it was determined that the matter would not be investigated as a possible systemic issue, the FSP confirmed it had identified isolated cases where staff were using local directories to source a certain letter, instead of using the correct template. A formal communication has been issued to staff to reinforce the use of the correct template.