01.Consumers left in the lurch by defunct or uncooperative financial businesses
Over $10m owed to consumers by financial services providers (FSPs) going back to 2010 still remains unpaid, despite a series of binding determinations issued by the Financial Ombudsman Service (FOS).
In a recently released report, FOS says 22 financial services providers "have been unwilling or unable to comply with 105 FOS determinations made in favour of consumers".
As of 30 June 2014, outstanding amounts totalled $10,157,401, plus interest of about 5% a year.
FOS has taken legal action in four of the cases and says the FSPs involved "represent only a small proportion of all the awards we issue across all our jurisdictions in banking, insurance, life insurance and investments".
But financial advice businesses make up a disproportionate number of the FSPs who are stiffing consumers. About 30% of all determinations relating to advice given about life insurance, superannuation, and investments remain unpaid.
In total, unpaid monies owed by financial advice businesses amount to $671,790. And of the 22 FSPs who haven’t paid and currently are not in administration or liquidation, 16 of them are financial advice businesses.
Both FOS and the interim report of the Financial System Inquiry has highlighted concerns that "current compensation arrangements are not adequate to provide redress to consumers who have suffered financial loss", the report says.
FOS says it supports a compensation scheme in principal that would reimburse consumers in cases where FSPs don’t pay up, though many of the financial industry stakeholders who would fund such a scheme are lukewarm at best about the idea.
FOS systemic issues update
FOS has identified the following areas are issues of ongoing concern for the mediation service:
- FSPs issuing default and vehicle repossession notices that don’t comply with the National Credit Code.
- Interest rate cap contraventions on short term, small amount credit contracts (or payday loans) offered to consumers in NSW.
- Debt collectors issuing default notices when borrowers have already applied for the release of superannuation funds to pay their debts.
- FSPs failing to contact customers who have failed to make contracted payments for years.
- FSPs passing on legal costs to consumers who lodge a dispute and pursue legal proceedings.
- FSPs failing to deal with and reimburse disputed online transactions according to the ePayments Code.