Introduction
On 2 December 2011, ASIC released Consultation Paper 172: “Review of External Dispute Resolution Jurisdiction over Complaints When Members Commence Debt Recovery Legal Proceedings” (CP172).
The purpose of this consultation paper is to:
-
review the external dispute resolution (EDR) scheme jurisdiction, which currently exists to adjudicate on complaints made by consumers against members [1] when debt recovery legal proceedings have been commenced, and
-
assess the current EDR Scheme jurisdiction to determine if ASIC needs to refine its policy in relation to Regulatory Guide 139: “Approval and Oversight of External Dispute Resolution Schemes” (RG139).
ASIC are calling for submissions for changes to the EDR Scheme and the likely compliance costs, effect on competition, and other impacts, costs and benefits.
The current EDR scheme
Two EDR schemes currently exist for financial services and credit complaints, being the Financial Ombudsman Service (FOS) and Credit Ombudsman Service Limited (COSL).
RG139 requires FOS and COSL to deal with complaints in accordance with their Terms of Reference. Once a complaint has been made to FOS or COSL, generally all legal proceedings are postponed until resolution of the complaint.
Concerns about FOS handling EDR claims have included the requirement of members to stay legal proceedings or set them aside when a consumer complaint was referred to FOS. This was the case even if legal proceedings had advanced to a very late stage, such as a hearing or judgment. Members have complained that when borrowers bring a complaint to FOS or COSL, this results in 'uncertainty, increased member costs, delay and further problems where FOS is unable to resolve the complaint’. [2]
ASIC states it has considered such concerns during past reviews of FOS and COSL's guidelines and Terms of References. These reviews have resulted in FOS and COSL:
-
allowing limited access to EDR in early stages of debt recovery proceedings
-
allowing members to raise questions regarding the FOS' jurisdiction for the complaints
-
providing other means for members to issue proceedings to preserve their legal rights and preserve assets, and address legal costs in the complaint
-
as of 1 January 2010, if legal proceedings that relate to debt recovery proceedings had commenced and a complainant makes an EDR complaint to FOS or COSL, the complaint should be investigated at least up until the point where the complainant had taken no step beyond lodging a defence or defence counter claim.
Suggested areas of review
ASIC proposes that RG139 does not require any review, as it has no reason to believe the Scheme jurisdiction does not work as intended.
On one hand, the number of complaints handled by FOS and COSL suggests that the schemes perform a useful role in helping consumers who need hardship assistance. However, ASIC acknowledges the schemes are not the only avenue for consumers who need assistance, such as under the recent National Credit Reforms.
ASIC is calling for interested stakeholders to consider the following issues:
-
should EDR, FOS and COSL scheme jurisdictions cover other financial products that are not currently included in their scheme jurisdiction scenarios?
-
certain complaints are allowed in EDR where it is not in EDR’s jurisdiction or position to be able to handle the complaint. Here, the court is a better forum for the complaint to be dealt with. Does EDR lack capacity and the resources to handle certain financial product complaints? Are these more appropriately heard in court?
-
some court procedures and processes do not allow for some scheme members to be able to comply with certain requirements of FOS and COSL in the scheme jurisdiction. This can lead to reporting members for serious misconduct. Should ASIC update RG139 to accommodate court processes and procedures?
Submissions are due by Monday 27 February 2012. If you require any additional information, please contact:
Emma Hodgman | Partner
T +61 2 8233 9650
F +61 2 8233 9555
