AFCA Legacy Claims

AFCA LEGACY CLAIMS focusing on Maladministration in Lending

On 18 June 2019, ASIC issued a statement that it approved changes to the Australian Financial Complaints Authority (AFCA) Rules which give effect to the AFCA authorisation condition introduced by Government on 19 February 2019. AFCA is required to give expanded access to the AFCA scheme for consumers and small businesses that were harmed by financial misconduct, dating back to 1 January 2008.

The new Rules require that an eligible legacy complaint: relates to a compulsory member of the AFCA scheme who is a member of the AFCA scheme at the time the complaint is made; is not an excluded complaint; and is made during the lodgment period,1 July 2019 to 30 June 2020.

The excluded complaint is a complaint:

a)       Which was previously decided on its merits by a court, tribunal, AFCA or a predecessor scheme or was previously settled between parties;

b)       Which is about a superannuation death benefit;

c)       Which is solely about a right or obligation arising under the Privacy act.

AFCA considers complaints that previously would have been handled by the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal in following terms: credit, finance and loans insurance, banking deposits and payments, investments and financial advice and superannuation.

Time Limits and AFCA – Maladministration in Lending

The legacy complaints refer to financial misconduct dating back to 1 January 2008.

AFCA has specific rules about time limits, where time for reckoning the time limits is defined in AFCA Rules.

In its Operational Guidelines, AFCA states that, when considering a legacy complaint, it will apply the AFCA Rules as at 30 June 2019.  The AFCA rules state, under B4 Time Limits for Complaints at B.4.3.1 “…AFCA will generally not consider a complaint unless it was submitted to AFCA before …a) within six years of the date when the Complainant first became aware (or should reasonably have become aware that they suffered the loss)…” 

AFCA, and its predecessor FOS, clarified that where an applicant claims they have been granted a loan that they could not afford, they consider that an Applicant should have become aware of an inability to service a loan within a few months of being required to make payments. The FOS and AFCA approach in relation to maladministration claims has been that an Applicant becomes “reasonably aware” of their loss on the date they began making repayments on the loan.

This corresponds to the general principles established by common law regarding contingent loss in tortious claims: when there is detriment consisting of  exposure to a loss which will only be suffered if events transpire in a particular way, the loss and damage will not be suffered until those events occur.

Scope of Bank’s Duties in Maladministration in Lending Claims

The Code of Banking Practice is the banking industry's customer charter on best banking practice standards. It is a set of promises outlining how a bank should conduct itself in its dealings with customers, as well as specific requirements for banking services. The Code is owned and published by the Australian Banking Association. The Code is voluntary and when banks chose to accept it,   they are promising to meet the Code’s standards of good banking practice. According to the Australian Prudential Regulator Authority, in June 2015, there were 13 banks which accepted the Code.

AFCA has firmly stated that it is of a view that if a financial firm has adopted the Code, all contracts between the financial firm and its consumers include the financial firm’s commitment to comply with the Code. AFCA has also firmly stated that it considers that if a financial firm adopts the Code but does not comply with it, then the financial firm has breached its contract with the consumer.

The code contains the following provision: “25.1. Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.”

According to the document “AFCA Approaches” which is part of the AFCA website, this means that: “Before a financial firm decides to provide credit to a consumer, it must pay careful attention to whether the consumer can afford to repay the money”. 

When determining the scope of the Bank’s duties stipulated at 25.1., useful are many decisions of FOS, AFCA and the courts, ASIC Regulatory Guide 209 and APRA’s Prudential Guides APG 223- Residential Mortgage Lending and other.

In addition to the above, there were other provisions of the Code of Banking Practice 2004, which may be applicable such as:

“2.2. We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.”

“2.3.  In meeting our key commitments to you, we will have regard to our prudential obligations.”

Other Claims

AFCA would also consider claims in Insurance, banking deposits and payments, investments and financial advice and superannuation. All kind of misconduct are considered on a case to case basis.

The AFCA would consider all claims which can be made in law such as for unconscionable conduct, Contract Review Act and other.

Compensation

There are monetary limits to compensation which the AFCA can award. Rules about this are detailed and depend on a type of claim. Importantly, there are low limits for compensation of indirect financial loss and non-financial loss.  

Disclaimer:

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.