Presentation to FCAWA

Anna Mandoki Case Manager, Financial Difficulty 29 September 2011

Who is FOS? What’s new at FOS? FOS and its terms of reference (TOR) Dispute resolution process Financial difficulty and conciliations Case studies Resources

What we will cover

Who is FOS?

FOS was created by the merger of the BFSO, FICS, IOS, CUDRC and IBD

FOS is an ASIC approved External Dispute Resolution Scheme operating across the financial services sector, complying with ASIC RG 139, however we are not a regulator

We handle up to 80% of banking, insurance and investment disputes in Australia

We offer a free, fair and accessible service for consumers, however we do not advocate for consumers

Membership is open to any financial services provider operating in Australia

Financial Ombudsman Service

What’s new at FOS?

Shane Tregillis

(replacing Colin Neave) Former ASIC Commissioner Before that, in a senior role at

the Monetary Authority of Singapore where he was also Chair of the Financial Education Steering Committee

Chief Ombudsman

Aim to reduce barriers & improve access for Indigenous Australians to our complaint process

A dispute process that is culturally sensitive Dispute form amended to ask about ATSI origin Disputes monitored by Indigenous Liaison Team Progress matters over the phone where possible Outreach to communities, build strong

relationships with FCs and other stakeholders Help to identify issues with specific impact on

Indigenous communities (e.g. CBA ATM issue)

Indigenous Liaison Team

FOS Natural Disaster Hotline – 1800 337 444 Natural Disaster information on FOS website,

including summary of bank assistance and contacts

Financial Counsellors’ Toolkit (online & brochures)– Responsible lending & credit cards– Insurance excesses– Account suitability

Feedback: amandoki@fos.org.au

New Resources

FOS Terms of Reference

As part of the merger, FOS needed to develop uniform Terms of Reference

The Terms of References came into effect on 1 January 2010, and apply to disputes lodged from that date

The Terms of Reference were designed to accommodate the increased profile of EDR schemes in the new national credit regime

FOS Terms of Reference

FOS may consider a dispute between a financial services provider (FSP)(who is a FOS member) and:

– Individuals

– A partnership comprised of individuals

– The corporate trustee of a self managed superannuation fund

– A small business (whether a sole trader or constituted as a company, partnership, trust or otherwise)

– A club or incorporated association

– A body corporate of a strata title or company title building; or

– The policy holder of a group life or group general insurance policy

Small business – if a manufacturing component, < 100 employees

– otherwise, < 20 employees

Jurisdiction

We can consider disputes:– where the value of the Applicant’s claim is $500,000 or less– if the FSP is a member of FOS at the time that the dispute is

lodged even if not a member at the time of the events giving rise to the dispute

– brought within 6 years of when the Applicant became aware (or should reasonably have become aware) that they suffered a loss, or within 2 years of receiving a final IDR response (note separate time limit for credit contract variations)

– Where the Applicant is seeking a variation to a consumer credit contract on the grounds of financial difficulty

– Where legal proceedings have commenced– Further collection/recovery action will be placed on hold, but

interest will usually continue to accrue under the contract

Jurisdiction

We can award up to $280,000 in compensation for each claim

This excludes compensation for costs or interest Non-financial loss is limited at $3,000 Consequential loss is limited at $3,000 Applicant’s costs are capped at $3,000 unless

exceptional circumstances apply Applicants can abandon that part of their claim

over $280,000 provided their claim does not exceed $500,000

Compensation caps

Where customer has made a reasonable request for a variation to a regulated credit contract, and that request has been declined by Financial Services Provider, FOS can require that the contract be varied

Used as a last resort. FOS will consider:– Financial Services Provider’s response– Whether customer has proposed a realistic repayment plan that

will result in repayment of the debt, including arrears, within a reasonable timeframe

– Customer’s current financial circumstances and whether they will improve – does Applicant have capacity to meet payments if variation is granted?

Jurisdiction - Power to vary

FOS Circular 2 (April 2010):– Centrelink income, no assets – debtor can’t be

compelled to make payments – Creditors are not obliged to waive the debt– Creditor is still entitled to seek recovery e.g. by

obtaining judgment, but this may be a hollow exercise particularly where circumstances are unlikely to change

– FOS would not exercise its power to vary

Centrelink recipients

Our dispute resolution process

Financial Difficulty and Conciliations

Paragraph 5.1(c) of the Terms of Reference preserves the ability to consider:– maladministration in lending, loan management or

security matters; and– financial difficulty disputes

Applies to Consumers and Small Business– 25.2 of Code of Banking Practice sets the obligation– FSP must give genuine consideration to a customer in

financial difficulty– Genuine consideration reflects a process of

engagement

Jurisdiction

Jul-0

9

Aug-0

9

Sep-0

9

Oct-0

9

Nov-0

9

Dec-0

9

Jan-

10

Feb-1

0

Mar

-10

Apr-1

0

May

-10

Jun-

10

Jul-1

0

Aug-1

0

Sep-1

0

Oct-1

0

Nov-1

0

Dec-1

0

Jan-

11

Feb-1

1

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-1

10

100

200

300

400

500

600

700

800

900 The last 2 years – trending up

Financial Difficulty disputes received monthly by FOS

2009 average = 174

2011 average = 627(3 month average = 743)

We ask for information to:– Identify the issues in dispute– Understand the actions of the parties– Assist in finding mutually agreeable outcomes– Decide on the dispute

Common information requests for financial difficulty include:– Current Statement of Financial Position– Are your client’s circumstances likely to change?– How does your client propose to repay the debt?

Information FOS needs

Effective process to attempt to resolve 75% disputes resolve at conciliation

– Ideally all borrowers should attend– Be prepared– Be flexible

Outcomes owned by participants Provide certainty More flexible outcomes

Telephone conciliation conferences

25%

75%

Not resolved

Resolved

Repayment arrangement with variation

Timeframe for sale / re-finance of

asset

Repayment arrangement

with debt waiver

Repayment arrangement

and time-frame

Timeframe for sale or re-finance with

partial waiver

APRA re-lease

Debt waiver Other com-mercial de-

cision

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Majority of outcomes relate to repayment arrangements

Telephone conciliation conferences

Agreed timeframes– Sale of asset– Refinance of debt

Case Studies

US Citizen (64), sole incomea US pension of $450 per month,but has home with substantial equity

No repayments on credit card for 18 months

FSP commenced legal action Original debt $2,500, now $8,000 Conciliation conference held

– What were the issues?– What is FOS approach?– What was the outcome?

Case Study 1: Credit Card Debt

Home Loan, Applicant affected by GFC, then took12 months Parental Leave

No repayments for 8 months, returns to work in 4 months Loan (incl arrears) $360k, bank valuation $355-$370k,

monthly repayments $2,700 Conciliation conference:

– What were the issues?– FOS approach?– What was the outcome?

Case Study 2: Home Loan

Resources

Relevant information A library of relevant information available Old Terms of Reference publications:

– Bulletin 46 UCCC vs CoBP Financial Difficulty Approach, Decisions and Loss

– Bulletin 53 Information requests Multiple debts and reduced repayment requests Repeat requests for assistance Dealing with one debtor about a joint debt

– Bulletin 60 (financial difficulty, maladminstration secured lending)

New Terms of Reference publications– The Circular 2

Small business financial difficulty Debt collection and social security recipients Secured debts and shortfall issues Lender’s mortgage insurance and financial difficulty

– The Circular 3 Debt recovery legal proceedings and financial difficulty

– The Circular 5 Information, varying a contract and responsible lending Preserving assets Repayment arrangements

Relevant information

Fact sheets– Information for consumers and representatives– Small business financial difficulty– Natural Disasters

Other tools – Statement of financial position– Guide to conciliation conferences– Financial Counsellors Toolkit (in development)– E-learning sessions

All available at www.fos.org.au

Relevant information

Telephone: 1300 78 08 08 Internet: www.fos.org.au E-mail: info@fos.org.au Mail: GPO Box 3

Melbourne Victoria 3001 Indigenous Liaison Team: ilt@fos.org.au

How to contact theFinancial Ombudsman Service