Overview
When many of our individual and small business clients have come to us wanting to explore their enforcement options about a credit, insurance, finance, super or investment matter, we have often found they have not been aware of the option to pursue a complaint with the Australian Financial Complaints Authority (AFCA) rather than via the court process.
Equally, we have a number of clients that have been the subject of an AFCA complaint, and have been unsure about where to start in responding to the claim and putting forward their defence.
AFCA has in place a fairly simple complaints process for the resolution of financial matters, and the ability to make wide-ranging remedial orders. The AFCA process provides a valuable alternative to court enforcement for consumers and small businesses often faced with what seems like a “David vs Goliath” battle.
And for a financial firm, the AFCA process can also provide the benefit of a streamlined investigation process and a quick, pragmatic outcome, rather than facing the prospect of a court proceeding that may drag on indefinitely. At the same time, because financial firms only have very limited appeal rights if an AFCA determination is made, it is critical for a firm to take any complaint made against it very seriously, and seek legal advice promptly.
This article provides an overview of what AFCA does, what rights it can offer to consumers and small businesses, and how to navigate the AFCA complaints process.
Understanding these matters could save you a lot of time, money and stress – regardless of whether you are bringing or defending an AFCA complaint.
What is AFCA, and what does it do?
AFCA provides consumers and small businesses with a free, independent dispute resolution service in relation to financial complaints.
It was established in 2018, following the consolidation of a number of previous external dispute resolution schemes such as the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.
The Australian Government’s aim was to establish a “one-stop-shop” to resolve financial complaints simply and quickly – one of the key recommendations made in the course of the Banking Royal Commission in 2017-2018, which brought to light a number of serious instances of misconduct on the part of banks and financial services entities, and the significant power imbalance between those entities and their customers (including limited enforcement options).
AFCA is authorised to hear complaints about a broad range of financial matters, including those relating to:
- banking deposits and payments;
- credit, finance and loans;
- insurance;
- investments and financial advice; and
- superannuation.
The complaints process is governed by AFCA’s Complaint Resolution Scheme Rules (Rules) and the accompanying AFCA Operational Guidelines (Guidelines) – the latest versions of which were released on 1 July 2024.
The new versions of the Rules and the Guidelines were issued following an Independent Review of AFCA that was undertaken in 2021, with a view to enhancing efficient and procedural fairness in the complaints process, as well as genuine and good faith engagement with the process from participants, and to also provide further guidance on how AFCA should exercise its discretion in the course of a complaint.
Who can make a complaint?
An AFCA complaint can be made by any “eligible person”. This is defined in section E.1 of the Rules to mean:
- an individual (including someone acting in a trustee capacity);
- a “small business” with less than 100 employees – whether carried on by a sole trader, a company, a partnership, a trust or otherwise;
- the corporate trustee of a SMSF or family trust;
- a not-for-profit organisation or club;
- a body corporate of a strata title or company title building; and
- the policy holder of a life or group general insurance policy.
Who can a complaint be made against?
A complaint can only be made against a “financial firm” that is an AFCA member. This includes any entity required to hold an Australian Financial Services Licence (AFSL) or a credit licence – such as banks, credit providers, funds managers, insurance firms and financial advisory firms.
Excluded claims
However, AFCA has a broad discretion under section C.2 of the Rules to exclude a complaint if it considers that to be appropriate. This may occur, for example, if:
- the complaint is frivolous, vexatious or lacking in substance;
- legal proceedings have already been commenced;
- a settlement has already been reached, and a complainant is essentially just trying to “get a better deal” via an AFCA complaint, or seeking to stall the settlement process; or
- the complainant is a sophisticated or professional investor.
AFCA will also reject a complaint if it relates merely to how an investment has performed, and a complainant’s desire to obtain a better return than what it actually received.
In our experience, the most common types of AFCA complaints that are made by our clients include:
- financial hardship matters, resulting in the inability to repay a mortgage or other loan;
- misleading or incorrect information relating to financial products;
- compliance with responsible lending obligations; and
- the denial of an insurance claim.
Money limits
Apart from the exclusion of certain complaints based on their subject matter or circumstances of the parties, there are also various monetary thresholds imposed by AFCA.
For example, for a claim relating to a credit facility provided to a small business borrower, AFCA will only hear complaint if the amount of the credit facility does not exceed $6,317,000 and the compensation sought does not exceed $1,263,500 per claim.
For a claim relating to a credit facility provided to an individual borrower, AFCA will only hear the complaint if the compensation sought does not exceed $631,500 per claim and $1,263,000 in total.
Claims for indirect financial loss and non-financial loss are also limited to $6,300.
Other types of claims are subject to their own distinct monetary limits, which should be carefully considered by both complainants and respondents in considering their AFCA enforcement options.
Enforcement restrictions
Once a complaint is lodged with AFCA, a financial firm is prevented from commencing or continuing any enforcement action (including enforcing a security) or seeking judgment against the complainant, unless special permission is obtained from AFCA.
That is a rare occurrence, but might apply where, for example, the complainant’s assets – which are subject to a valid security held by a financial firm – are at risk of being dissipated or damaged.
AFCA can also give leave to a financial firm to continue court proceedings that have been “sufficiently progressed” beyond the initial pleading stages, and it would be more efficient and fair to the parties to continue with the court process rather than devote their resources to opening the matter all over again before AFCA.
The complaints process
Once an AFCA complaint has been lodged, the details of it will be forwarded to the financial firm within 2-3 business days.
The financial firm will then be allocated a “refer-back period” of 21-90 days. The length of this period depends on the type of claim, with shorter timeframes more appropriate for credit contracts and National Credit code complaints, and longer periods generally appropriate for superannuation complaints.
During the refer-back period, the financial firm must either resolve the complaint with the complainant directly, or provide its submissions in response, unless the complaint relates to an urgent matter (e.g. financial abuse or a compromise to basic living conditions), in which case AFCA will consider dealing with the complaint immediately.
Because of these refer-back obligations, complainants should ideally seek to resolve a disputed matter with the relevant financial firm directly, using the firm’s internal dispute resolution process, before initiating an AFCA complaint. Otherwise, it will end up needing to do so anyway as part of the refer-back process.
If an outcome cannot be agreed, it moves to case management. At this stage, an AFCA manager investigates the complaint and reviews the supporting evidence. Informal dispute resolution processes such as conciliation and negotiation may also be offered at this time.
If an agreement still cannot be reached, AFCA will make a final determination.
Investigation powers
During the case management process, and before making a final decision if the matter gets that far, AFCA has broad powers to gather information from the parties. Among other things, it can request submissions to be filed, compel documents relevant to the complaint to be provided, and require a party to attend an interview to provide further information.
Possible orders
In making a final determination, AFCA has very broad powers. Typically, it will order one or more of the following:
- the payment of a sum of money (by either the complainant or the financial firm);
- the forgiveness or variation of a debt;
- the release of security for a debt;
- the repayment, waiver or variation of a fee or other amount paid;
- the reinstatement, variation, rectification or setting aside of a contract;
- the meeting of a claim under an insurance policy;
- not enforcing a default judgment; and/or
- an apology to be provided.
Can you appeal an AFCA determination?
If AFCA has made a final determination, the parties’ appeal rights and enforcement options will depend on the type of dispute involved.
In the case of a superannuation complaint, according to section A.15.1 of the Rules, once AFCA makes a determination, it becomes immediately binding (unless the determination nominates a different effective date). Either party can appeal the decision to the Federal Court within 28 days, but only if there has been an error of law. This is a very limited basis for an appeal, and requires a party to show the AFCA decision-maker made a mistake in their application of the law to the dispute. A party will not be able to argue that a different decision should have been reached on the merits.
Under section A.15.3 of the Rules, for a non-superannuation complaint, a determination by AFCA is final and binding on the parties if it is accepted by the complainant within 30 days of the complainant receiving notice of the determination. In that event, the financial firm has no right of appeal, and under its contract of membership with AFCA it must provide any remedy specified in the determination within the nominated timeframe.
If it fails to do so, AFCA may expel the financial firm from its AFCA membership and report the firm to ASIC. This could result in the firm losing its right to continue to operate its business, as most financial firms are required by law to be an AFCA member as a condition of their AFSL.
If the complainant does not accept AFCA’s determination concerning a non-superannuation complaint, neither the complainant nor the financial firm are bound by the determination. The complainant can then bring an action in the courts if it wishes to take the matter further.
The AFCA decision-making process is therefore very much “complainant friendly” – effectively giving the complainant control over whether a determination is binding or not (outside of a superannuation claim). If a complainant is not happy with a determination, it can pursue the matter in court as if the AFCA determination was never made.
At the same time, this enhances the liability risk for financial firms, insofar as a firm – if a complainant decides to pursue an AFCA complaint – is bound by whatever AFCA’s determination is for all complaints (subject only to a very limited right to appeal a superannuation determination due to an error of law).
It is therefore particularly critical for financial firms to ensure they receive proper advice and put their best defence forward in any AFCA complaint brought against them. Failure to do so will risk a financial firm being bound by a highly unfavourable decision, with no right of appeal.
Legal representation
Legal representation can be obtained in pursuing or responding to an AFCA complaint, without any need for permission – unlike in proceedings before the Queensland Civil and Administrative Tribunal (QCAT), where permission is required for a lawyer to appear before QCAT on behalf of a party.
However, the AFCA process is intended to be an informal process, not an adversarial matter of the kind often seen in a court dispute, and AFCA only has a limited jurisdiction to award legal costs to be paid by the losing party.
We have acted for a number of complainants and respondents, and – consistent with the objective of the AFCA process – our focus is always on seeking to promote the most efficient and cost-effective resolution possible. We seek commercially sensible and reasonable outcomes for our clients, while pursuing proactive negotiations on their behalf.
Takeaways
The AFCA complaints process serves as an important remedy for consumers and small businesses, providing an alternative to the expense and delays of the court system and a viable option in seeking to protect your personal finances or your business when a financial dispute arises.
For financial firms, the AFCA process can provide the potential for a cooperative, negotiated outcome at an early stage outside the adversarial system of the courts. However, because any AFCA determination will be binding on a financial firm (subject to a limited right to appeal a superannuation decision if there has been an error of law), a firm should take any AFCA complaint very seriously, and obtain suitable legal representation as a priority upon being notified of a complaint.
Further, because a financial firm may be able to obtain leave from AFCA to continue existing court enforcement proceedings underway where those proceedings are “sufficiently progressed”, it is important for both financial firms and complainants to seek legal advice at an early stage in considering their formal enforcement options.
We regularly act for clients in AFCA complaints, providing strategic and pragmatic advice on the complaints process and assisting our clients to navigate the process with ease.
If you wish to discuss your options to enforce or respond to a financial dispute, please get in touch with Alyce Corbutt or Matthew Kumnick.
The content – including publications – on this website is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive, nor does it constitute legal advice. We attempt to ensure that the content is current, but we do not guarantee its currency. You should seek legal or other professional advice before acting or relying on any of the content.
