Banking and Financial Services Ombudsman
2006–2007 Annual Report
Banking and Financial Services Ombudsman 2006–07 Annual Report
Banking and Financial Services Ombudsman
Level 5, 31 Queen Street
Melbourne 3000
GPO Box 3, Melbourne Vic 3001
Local Call 1300 780 808
Monday to Friday 9am to 5pm
TTY Facsimile 03 9613 7344
03 9613 7345
Email Website [email protected]
www.bfso.org.au
resolution
BFSO is a free and independent
dispute resolution service dealing
with disputes that individuals and
small business have with their
financial service providers.
Our year
1 Highlights
2 Message from the Chairman
4 Message from the Ombudsman
6 Our people
8 Industry and community involvement
10 Who uses the scheme
11 Our telephone service to the public
12 How we resolve disputes
14 Closed cases
18 About our disputes
24 Disputes we can’t consider
25 Systemic issues investigations
29 Case studies
44 Financial statements
46 Appendices
Our Purpose:
Our primary function is dispute resolution.
bfso:
fair
accessible
independent
We contribute to:
• raising industry standards
• increasing financial literacy of consumers
• better informed policy outcomes for
government, industry and the community
Workplace Values:
• Excellence in decision making
• A cooperative working environment
• Respect for all users of the Scheme
• Staff development – knowledge, skills, initiative
Thank You
BFSO
“
‘Thank you so much for your support and keeping me up to date
throughout the whole situation. I am very relieved and feel I can now
move on with my life.’
‘I would like to thank you for the thoroughness of your work and
detail you have presented in your findings. It is a great credit to
you and reflects most positively on the Ombudsman service.’
‘Thank you so very much for your quick response to my
complaint...the service that you provide is greatly appreciated.
Consumers would have no one to turn to, were it not for
yourself and others who work in your field.’
‘I thank you for your assistance in resolving this matter. It has been very
reassuring to have an agency such as this to find support and clarity in
these situations.’
‘We are writing to thank you for your effort in resolving a dispute that
we had recently… We felt that we had been unfairly treated by the
bank and charged several fees that we thought were not necessary.
Your involvement in this issue persuaded the bank to reimburse these
costs to us, which we were extremely grateful for. Your prompt
assistance with this matter was greatly appreciated and we just
wanted to thank you personally.’
‘Your organisation is providing an invaluable service to small
consumers like myself who otherwise will not be able to
exercise their rights in such matters. Thank you again.’
‘My wife and I are extremely grateful to the Ombudsman and to
you personally for the extreme diligence and compassionate way
in which you have taken up our case. We have no doubt that your
intervention has been the key to a positive result.’
‘Thank you for your help in this matter. As an individual one feels rather helpless when dealing with powerful organisations.’
”
highlights
6,446 new cases, an increase of 1.9 per cent.
See New cases on page 12.
26 systemic issues resolved in the reporting year. See page 25.
For the sixth year in a row, disputes about consumer finance
are the predominant category. See About our disputes on page 18.
19 new members join the Scheme. Total of 106 members
as at 30 June 2007. Full listing page 47.
BFSO hosted, in partnership with the Insurance Ombudsman
Service (IOS) and the Financial Industry Complaints Service (FICS),
the International Financial Services Ombudsman Conference in
Australia. See Ombudsman’s message on page 4.
BFSO stakeholder survey finds that public awareness of BFSO
is around 60 per cent in the Australian community.
See Chairman’s message on page 2.
35 presentations to industry and community groups, including
presentations for young people, outreach to Aboriginal communities
in New South Wales, publication of quarterly bulletins and
submissions provided to four enquiries.
For details see Industry and community involvement on page 8.
A decision in principle to merge BFSO with IOS and FICS
has been made by the Boards of the three schemes.
See Chairman’s message on page 2.
BFSO 2006–2007 Annual Report Page 1
Chairman
Message from the
This year a number of significant steps were taken by the Board to
ensure the quality of the Scheme’s work remains of a high standard.
Stakeholder survey
Changes to the Board
The Board commissioned a community and other
stakeholder survey which was completed in late 2006.
The survey consisted of qualitative surveys of the general
public, telephone enquirers to BFSO and members.
The results of the survey were very similar to a survey
previously conducted by the Board in 2003, despite the
broader role that BFSO now plays.
Su Mahalingham, a Consumer Representative, retired
after five years’ service. I would like to thank her for her
positive contribution to the Scheme. Fiona Guthrie joined
the Board in May 2007.
The survey showed that public awareness of BFSO is around
60 per cent in the Australian community. In addition, the
survey found that there was a high level of customer service
afforded to telephone enquirers by BFSO Case Officers.
Some helpful suggestions were made in the report and that
has led to a number of initiatives during the year in review,
including a ramped up programme of promoting our services
to the community, with a particular focus on raising
awareness of BFSO amongst young people.
Financial Ombudsman Service
The Board is also pleased to report that the Scheme has
worked on a number of joint initiatives with IOS and FICS
under the Financial Ombudsman Service (FOS) name
during the year in review. The provision of joint information
technology services for FOS is working well and a number
of other collaborative activities, including the jointly hosted
International Financial Services Ombudsman Conference,
have been completed successfully.
The Board looks forward to a continuing working
relationship with all dispute resolution schemes operating
in the financial services area, and in particular, a close
working relationship with IOS and FICS. A decision in
principle to merge BFSO with IOS and FICS has been
made by the Boards of the three schemes, subject to the
legal and regulatory requirements being satisfied. The
Board has been supportive of greater cooperation
between the three schemes for many years and views the
establishment of a single scheme as serving the interests
of both consumers and industry participants.
Page 2 BFSO 2006–2007 Annual Report
Jill Lester, a Member Representative, retired after almost
six years’ service. I would like to thank her for her
outstanding contribution to the affairs of the Scheme
during her term of office. Susie Upton of Westpac joined
the Board in November 2006.
Thank you
On behalf of the Board, I thank the Ombudsman and
his staff, not only for their usual solid contribution, but
for the enthusiasm which they bring to their tasks on
behalf of the Scheme.
The Board looks forward to working with them in the
year ahead.
Professor the Hon Michael Lavarch
Chairman
BFSO Board Members June 2007
Professor the Hon Michael Lavarch
Chairman
Professor Lavarch is currently Executive Dean of
the Faculty of Law at the Queensland University
of Technology and was a former Commonwealth
Attorney-General and Secretary-General of the
Law Council of Australia. His current service on boards
and committees includes Chief Adjudicator of the
Alcohol Beverages Advertising Complaints Panel;
Director of the National Electricity
Market Management Company
(NEMMCO) and Director of the
Audit Quality Review Board
(AQRB).
Ms Deborah Batten
Member Representative
Ms Batten is a General Manager of the
National Australia Bank, in charge of the office
of the Executive General Manager of the bank.
Ms Batten was appointed to the Board
in June 2002.
Mr Jeremy Griffith
Member Representative
Mr Griffith is the General Manager Corporate
Relations of St George Bank Limited. Mr Griffith
was appointed to the Board in May 2003.
Ms Jan Pentland
Consumer Representative
Ms Pentland is a financial counsellor with
Eastern Access Community Health and
represents Victoria on the national association
for financial counsellors. She was appointed
to the Board in February 2006.
Mr Roger du Blet AM
Small Business Representative
Mr du Blet was appointed to the Board
as the Small Business Representative in 2003.
He is a Director of the Australian Chamber of
Commerce and Industry and chairs the Building
Products Innovation Council, the Small Business
Forum and the Small Business Coalition.
Ms Fiona Guthrie
Consumer Representative
Ms Guthrie is a self employed management
consultant. She was appointed to the Board
in May 2007.
Ms Susie Upton
Member Representative
Ms Upton is the Head of Unsecured Risk,
Consumer Financial Services of Westpac
Banking Corporation. She was appointed to
the Board in November 2006.
BFSO 2006–2007 Annual Report Page 3
Ombudsman
Message from the
The year in review has been an active
one for the Scheme in many ways.
Overview of disputes
Merger of schemes
In the year to June 2007, the office received 6,446 new
cases, a small increase of 1.9 per cent compared to the
previous year. The number of cases closed also increased
this year, albeit slightly, to 6,349 compared with 6,336 in
2006. In addition, the number of cases subjected to indepth investigation increased this year from 249 to 261,
continuing a trend of an increase in the number of cases
raising complex legal and practical issues.
In August 2006, we hosted, in partnership with the IOS
and FICS, the first large scale International Financial
Services Ombudsman Conference in Australia. In past
years we have hosted similar conferences in Australia but
on this occasion we welcomed over 150 delegates from
Australia and Canada, the Czech Republic, Denmark,
Finland, India, Ireland, Malaysia, New Zealand, Pakistan,
South Africa, Trinidad and Tobago, South Africa,
Switzerland, the United Kingdom and the United States of
America. The exchange of information during conference
sessions, together with the informal discussions which
inevitably take place during such a conference, led to very
positive responses from all those who attended.
Early resolution of disputes
I have in the past reflected on the excellent early
resolution rate which our members have been achieving
over the last few years. In the current reporting period,
this rate remained steady at around the previous year’s
level of 93 per cent. This is, once again, an excellent
result as far as the Scheme is concerned.
Systemic issues
Our concentration in 2007 on identifying and then dealing
with systemic issues has been both satisfying for us and
regarded positively by our members. This year we
identified 41 potential systemic issues, 26 of which were
confirmed as systemic and resolved.
New members
We were very pleased to welcome 19 new financial
services providers to the Scheme over the reporting
period. The expanding coverage of the Scheme continues
to encourage the personal and professional development
of our staff, as exposure to a wide range of financial
products and problems, whilst providing challenges,
leads to greater job fulfilment. In addition, our increasing
membership gives to us real opportunities for influencing,
in a positive sense, the performance of greater numbers
of providers within the financial services market.
Page 4 BFSO 2006–2007 Annual Report
During the conference, the Parliamentary Secretary to the
Treasurer, the Hon Chris Pearce, raised the issue of the
convergence of dispute resolution mechanisms in this
country in the financial services area. Mr Pearce then
asked the Chair of IOS and FICS, Peter E Daly AM, and me
to advise him on the possibility of such a convergence.
Mr Daly and I reported favourably on the prospect of the
schemes developing closer relationships and by the end
of the year in review, the options for taking the matter
further were being considered by the Board and the
Boards of IOS and FICS.
The benefits of closer cooperation between the
three larger schemes are demonstrable, including:
• less confusion for consumers in identifying the
appropriate dispute resolution scheme;
• greater efficiency in combining information
technology infrastructure and support and
administrative and accounting functions;
• pooling of resources to promote and publicise
the services provided by the schemes; and
• a focus on providing comprehensive complaints data,
which will enable financial services providers to
develop financial services products that meet the
interests of both consumers and industry participants.
Importantly, the schemes have agreed that the existing
expertise which each has developed should not be diluted
by the development of a closer working relationship.
The challenge of potential scheme mergers, whether
they involve legal or regulatory issues, are considerable
and over the next year much work will be required to
develop what could be a new scheme servicing
Australian consumers and industry participants.
Thank you
Given my involvement in this work on issues around
scheme merger and amalgamation, I have been
supported magnificently by the staff of our office and
have continued to enjoy great support from the Board,
all of which has been appreciated. To the staff and the
Board, I give my thanks for that support.
Colin Neave AM
Banking and Financial Services Ombudsman
BFSO 2006–2007 Annual Report Page 5
expertise
Our people
BFSO employs a group of highly qualified and skilled professionals
whose expertise in areas such as the law, accountancy, financial
markets and information technology contributes significantly to
the quality of the service provided by BFSO.
We also use consultants regularly to provide specialist advisory services to our staff.
A financial planning adviser is called on from time to time to advise on specific cases.
A professional writing consultant assists the case management team and a voice and
word consultant advises case officers who provide the telephone service to the public.
BFSO employs the services of 33 full-time and 19 part-time staff members.
The roles performed by some staff have changed to meet the
different demands faced by the Scheme during the year.
A number of staff are employed to provide
services to FOS. These roles are described
in more detail on page 7.
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Administrative Support (3)
Policy and Public Affairs Manager (1)
The Administrative Support staff provide personal assistant
services to the Ombudsman and reception, mail and maintenance
services for the Scheme. They contribute to case management by
documenting all incoming correspondence to the office on the
Scheme’s case management database.
The Policy and Public Affairs Manager is part of the team which
develops and publishes internal and external policy, and
coordinates the publication of BFSO materials. The Policy and
Public Affairs Manager also has responsibility for preparing
submissions to government enquiries, responding to other requests
for information about the Scheme’s procedures and coordinating
projects undertaken by the Scheme throughout the year.
Assistant Finance Manager (1)
The Assistant Finance Manager provides clerical assistance to the
Finance Manager.
Banking Adviser (1)
The Banking Adviser provides advice to the Ombudsman and staff
on banking practice standards, technical knowledge of banking
and banking procedures and systems. The Banking Adviser is
seconded annually from one of the member banks.
Case Managers (14)
Case Managers are responsible for resolving disputes that have not
been resolved at the initial referral and facilitation stage and which
require investigation. They investigate disputes and resolve them
through providing a written Finding, convening conciliation
conferences and facilitating negotiation. Several of the Case
Managers have additional responsibilities. One performs the role
of Privacy Officer, a second is the Training and Development Co­
ordinator and a third is the EFT Disputes Manager. Two of the Case
Managers provide quality assurance services to the Case Officers.
Case Officers (15)
Case Officers provide the telephone information and referral
service of the BFSO. They classify and summarise written
disputes, manage the initial referral and facilitation process and
are also involved in investigating some disputes.
Finance Manager and Company Secretary (1)
The Finance Manager and Company Secretary is responsible for
the preparation of the Scheme’s annual budget and arranging the
funding of the Scheme from members. Other responsibilities
include the maintenance of all financial records and the company
registers, the preparation of the Scheme’s financial statements
and the payment of staff salaries and benefits.
Public Affairs Officer (1)
The Public Affairs Officer assists in the coordination of BFSO
publications, including the Scheme’s Annual Report, and the
promotion of the Scheme to the community. The Public Affairs
Officer also has responsibility for coordinating special events,
such as the BFSO Members’ Conference.
Systemic Issues Manager (1)
The Systemic Issues Manager is responsible for the management
of all systemic issues including reporting quarterly to the
Australian Securities and Investments Commission (ASIC).
Team Leader – Complaints (2)
The Team Leader – Complaints provides leadership and case
management support to Case Officers, in addition to producing
assessments of disputes and monitoring Case Officers’ workloads.
Financial Ombudsman Service (FOS)
FOS is a joint venture between BFSO, IOS and FICS. FOS provides a
shared telephone enquiries area and also provides joint information
technology services to the three schemes. The cost of providing the
staff described below is shared by the three schemes.
Enquiries Officers (2)
The Enquiries Officers are responsible for answering all calls
received by FOS. They direct callers through to the participating
scheme with the most appropriate jurisdiction or to other more
appropriate organisations.
Chief Information Officer (1)
The General Manager contributes to internal management,
BFSO policy, quality assurance in case management and the
management of external relationships. The General Manager
also reviews and responds to complaints about the Scheme.
The Chief Information Officer has the responsibility for the FOS IT
network infrastructure and staff. This includes the daily management
of internal and external IT resources and desktop support for all
users of BFSO, FICS and IOS. Additionally the Chief Information
Officer is responsible for initiating and overseeing IT project work in
accordance with the schemes’ stakeholder requirements.
Legal Counsel (4)
Communications Systems Manager (1)
General Manager (1)
The Legal Counsel group, which includes the Special Counsel
to the Ombudsman and General Manager - Corporate, provides
legal and jurisdictional advice to the Ombudsman and to staff
and also provides quality assessment services to Case Managers
and Case Officers to ensure all relevant legal and decision-making
principles are considered during dispute resolution. The group
also contributes to policy direction and to internal and external
education. The General Manager – Corporate also has
responsibility for assessing institutions which apply for Scheme
membership, overseeing the provisions of services to other
dispute resolution schemes and managing relationships with
non-bank financial institutions.
Ombudsman (1)
The Ombudsman is the Chief Executive Officer of the BFSO whose
principal powers and duties are to consider disputes within the
Terms of Reference and to facilitate the satisfaction, settlement or
resolution of such disputes.
The Communications Systems Manager ensures the provision of
quality telephone systems through the management of call flow
traffic and the review and improvement of telephone processes,
including the shared call centre service. The Communications
Systems Manager is also responsible for the maintenance of the
BFSO website, electronic communications systems as well as
technical support for special projects.
Information Systems Manager (1)
The Information Systems Manager has direct responsibility for
the FOS IT infrastructure which is shared by BFSO, FICS and
IOS users. He manages desktop support for all users, network and
infrastructure housekeeping, and liaison with external IT resources.
Assisting the CIO, the Information Systems Manager makes
recommendations about network and desktop requirements in
relation to infrastructure, security, access and software.
Technical Support (1)
FOS employs one person for technical support, who is primarily
responsible for fulfilling desktop support requests. This person
also provides assistance to the Information Systems Manager.
BFSO 2006–2007 Annual Report Page 7
contributing
Industry and community involvement
Resolving disputes gives BFSO a unique perspective on the nature of
disputes that arise in the financial services sector. BFSO is committed
to using this knowledge to contribute to raising industry standards,
increasing the financial literacy of consumers and better informed
policy outcomes for government, industry and the community.
Presentations
Submissions
BFSO made 35 presentations to a wide range of industry,
community and government groups including:
• Asia Pacific Economic Forum
• Consumer Representatives’ Forum 2007
• Financial and Consumer Rights Council Inc (Victoria)
• Hunter Valley Project Financial Counselling Course
• Interbank Dispute Forum
• La Trobe University Law Faculty
• Meridian International School
• National Consumer Congress
• RMIT Diploma of Financial Services’ students
• Victorian Department of Justice ADR Strategic
Planning Conference
• Victorian Law Foundation
• Victoria Legal Aid
• WA Financial Planners Association Conference
BFSO provided submissions to the following enquiries
over the course of the year:
• Australian Law Reform Commission - Review
of Privacy: Issues Paper 31 (Joint Submission by
Alternative Dispute Resolution Schemes)
• Australian Law Reform Commission - Review of Privacy
(Credit Reporting) Issues Paper 32
• Australian Securities and Investments Commission
- EFT Code Review
• Productivity Commission - Inquiry into the Consumer
Policy Framework
Topics included:
• Alternative Dispute Resolution
• EFT Code Workshop
• Financial Difficulty and Hardship
• Introduction to BFSO
• Maladministration in Lending
• Privacy
• Procedural Fairness
• Role of In-house Counsel
Page 8 BFSO 2006–2007 Annual Report
Bulletins
BFSO produced four bulletins about its approach to
emerging legal and industry practice issues. Topics
included:
• International Alternative Dispute Resolution
Conference 2006
• Causes of systemic issues
• Common misunderstandings about legal rights
and obligations
• Customers in financial difficulty: Code of Banking
Practice and UCCC Obligations
• Privacy case studies on the National Privacy Principles
and default and serious credit infringement listing
• Debt collection: dealing with bankrupt debtors
Sort It
This year BFSO reprinted its successful joint bulletin with
the Telecommunications Industry Ombudsman (TIO)
entitled Sort It. This bulletin is based around a series of
case studies involving problems experienced by young
people with mobile phone, credit card and other debt.
Sort It formed the basis of an interactive role play
presentation to 185 Victorian secondary school students
as part of Law Week on 16 May 2007. In addition, Sort It
presentations were made to secondary school students
in Morwell in Victoria as part of the Victorian Law
Foundation’s Civics Roadshow and to participants
at the National Youth Affairs Conference held in
Melbourne on 3 May 2007.
Website
Our website contains important information about BFSO’s
jurisdiction and processes. We received 128,991 hits to
our website during the reporting period.
On our website you can find:
• Information about how to lodge a dispute, including
an online dispute form and jurisdiction checker
• Dispute resolution contacts for all of our members
• Our publications and media releases
• Case studies and sample findings
Outreach to Aboriginal communities
in New South Wales
Over the past year, BFSO has participated in two
programs organised primarily through the AntiDiscrimination Board and Office of Fair Trading NSW
that provide outreach to Aboriginal communities in New
South Wales: the Good Service and Do It Right forums.
The Good Service forums aim to inform communities
about their rights and avenues of complaint to a range
of services provided by Commonwealth and State
Governments and private and public companies. BFSO
participated in the Good Service forums in Condobolin
and Bankstown alongside presenters from a range of
other government agencies and Ombudsman schemes.
We also attended Do It Right forums in Bega and Moruya,
which included speakers from Legal Aid, the AntiDiscrimination Board, Department of Fair Trading,
Australian Taxation Office and WorkCover NSW.
BFSO presentations at these forums aim to increase
awareness of the Scheme and focus on issues that may
be relevant to these communities, such as
maladministration in granting credit (unsolicited increases
in credit limits and personal loans for cars); financial
difficulty; EFT disputes and the Centrelink
Code of Operation.
BFSO 2006–2007 Annual Report Page 9
equitable
Who uses the scheme
BFSO continues to devote resources to promoting
the Scheme to consumers and ensuring that it provides
equitable access to its services.
All users
All users (%)
BFSO compares the percentage of telephone enquiries and
written complaints from each state and territory with the
total population in each state and territory. The graphs show
that in most states and territories, use of the scheme is in
proportion with, or slightly below, the population level. There
continues to be proportionally higher use of the Scheme in
Victoria than in other states and there was a small increase in
the percentage of written disputes from NSW this year (35.7
per cent compared to 33 per cent last year). BFSO will
continue its efforts to promote national awareness of the
Scheme in the coming year.
)%
Rural users
BFSO defines rural users of the Scheme as those consumers
living in the non-capital city statistical divisions identified by
the Australian Bureau of Statistics. This reporting period, in
all states, except Tasmania and Western Australia, the
telephone enquiries or written disputes lodged by rural users
was in proportion with, or slightly above, the rural population,
indicating that rural consumers are generally aware of and
use the Scheme.
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Small business
The relative proportion of individual and small business
consumers using the Scheme was consistent with previous
years, with 6.2 per cent of telephone enquiries and 8.6 per
cent of written disputes received from small businesses.
The low proportion of disputes from small business may
reflect a higher level of service being provided to businesses
and a greater ability to negotiate resolution of complaints.
However, BFSO will be increasing its efforts to improve
awareness of the Scheme amongst small businesses in
the coming year.
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Page 10 BFSO 2006–2007 Annual Report
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Our telephone service to the public
199,967 calls to FOS
31,803 calls to BFSO
Calls received by the FOS
FOS is a joint venture between BFSO, FICS and IOS. It
operates a single telephone contact point for consumers
wishing to access a financial services external dispute
resolution scheme. Consumers can telephone 1300 780808
from any location in Australia at the cost of a local rate call
and a FOS Enquiries Officer will refer them to the most
appropriate scheme.
FOS switches calls directly to:
• Banking and Financial Services Ombudsman
• Credit Union Dispute Resolution Centre
• Credit Ombudsman Service Limited
• Financial Co-operative Dispute Resolution Scheme
• Financial Industry Complaints Service
• Insurance Brokers Disputes Limited
• Insurance Ombudsman Service
• Superannuation Complaints Tribunal
This year the Financial Co-operative Dispute Resolution
Scheme (FCDRS) joined FOS. As a result, consumers can now
access all external dispute resolution schemes dealing with
financial services providers using a single local rate telephone
number from anywhere in Australia. During this reporting
period, FOS answered a total of 199,967 calls, an increase of
23.1 per cent from the previous year’s 162,408 calls.
Telephone calls answered by BFSO
– 5 year trend (‘000)
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Distribution of calls answered (%)
1. New enquiries within Terms of Reference
67.0
2. New enquiries outside Terms of Reference 11.2
3. Follow up calls on open cases
4. Administrative calls not related to cases
15.6
6.2
)
Of all the calls answered by FOS, 16.6 per cent were directed
to BFSO, 75.2 per cent were directed to other participating
schemes and 1.5 per cent were referred to organisations
outside FOS. The remaining 6.9 per cent were calls where
no referral was required.
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Calls received by BFSO
A total of 31,803 calls were answered by BFSO case officers
during the year in review, a decrease of 5.2 per cent compared
to the 33,559 calls answered in the previous year. A total of
67 per cent of new calls answered were new enquiries within
BFSO’s Terms of Reference. Of the remainder, 11.2 per cent
were outside Terms of Reference, 15.6 per cent were follow up
calls on open cases and 6.2 per cent were administrative
calls not related to cases.
Performance figures indicated the high level
of service provided by BFSO case officers with:
•
•
A low average monthly abandonment rate
of 1.56 per cent; and
A high average speed of answer of all calls
of 27 seconds.
BFSO 2006–2007 Annual Report Page 11
disputes
How we resolve disputes
New cases
New cases received – 5 year trend
This year BFSO received 6,446 new cases, an increase
of 1.9 per cent from the previous year.
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Cases received online – 3 year trend
Of the 6,446 new cases received this year, 3,247
were lodged online. This is a 44.9 per cent increase
from last year when 2,241 cases were lodged online
and follows an increase of 59.8 per cent the
previous year.
(!*%%
'!-%%
'!&%%
&!)%%
,%%
'%%(
'%%)
'%%*
Distribution of open cases
Work in progress
At year’s end, there were 1,348 open cases
distributed as follows:
1. Cases received but not classified
(‘preliminary stage’)
142
2. Cases referred to the member and
awaiting response (‘with member stage’) 448 33.2%
3. Cases under investigation by BFSO
(‘investigation stage’)
)
'
(
174
12.9%
4. Cases provisionally closed pending
acceptance or appeal of BFSO’s
assessment (‘provisionally closed stage’) 584 43.4%
Page 12 BFSO 2006–2007 Annual Report
&
10.5%
'%%+
'%%,
Dispute resolution process and outcomes
Disputes closed as OTR
or discontinued
total: 2,390
Total cases closed: 6,349
OTR/DIS: 2,007
OTR:
985
DIS:
1,022
BFSO reviews dispute
OTR/DIS: 333
OTR:
167
DIS:
166
Unresolved
cases
Dispute
referred to
member
OTR/DIS: OTR:
DIS:
50
10
40
Outcome determined
total: 3,959
Resolved by member
3,698 (93.4%)
Unresolved cases
Finding
110 (2.8%)
BFSO investigation
Negotiated Settlement
90 (2.3%)
Appeal by member or consumer
Conciliation Conference
8 (0.2%)
Ombudsman’s review
Recommendation
53 (1.3%)
Appeal by member
Ombudsman’s review
of member’s appeal
Determination
0 (0.0%)
OTR: Outside Terms
of Reference
DIS: Discontinued
BFSO 2006–2007 Annual Report Page 13
resolution
Closed cases
Closed cases
Closed cases – 5 year trend
A total of 6,349 cases were closed during the year,
an increase of 0.2 per cent from the previous year.
&%!%%%
-!%%%
+!%%%
)!%%%
'!%%%
'%%(
'%%)
'%%*
'%%+
Cases outside Terms of Reference
Of the 6,349 closed cases, 1,162 were considered to be outside Terms of Reference (OTR).
If it is clear from the consumer’s correspondence that the dispute is OTR we write to the consumer to
explain why the matter is OTR and refer the consumer to the customer relations department of the member
or to a more appropriate forum.
If there is any doubt about jurisdiction, the dispute is referred to the member.
Further information about OTR disputes is provided in the Disputes we can’t consider section of this report.
Discontinued cases
Of the 6,349 closed cases, 1,228 were discontinued. Discontinued cases are considered to be within
Terms of Reference but do not proceed to a conclusion about the merits of the case. There are a variety
of reasons for a case being discontinued including:
• the dispute was sent to BFSO and the member at the same time and the member resolved the matter
without BFSO’s involvement;
• the disputant did not respond to BFSO’s request for additional information or return the appropriate
authority;
• the disputant’s claim against the member was unable to be established; or
• the disputant accepted BFSO’s view that the member’s response to the dispute was appropriate.
Of the 1,228 discontinued cases, 1,022 cases were discontinued prior to referral to a member.
The number of cases that were discontinued after referral to the member was 206, almost half that of the
previous year at 413. This decrease is largely due to 194 discontinued cases which related to a single issue
with a member in the 2006 year.
Page 14 BFSO 2006–2007 Annual Report
'%%,
Early resolution
Of the 3,959 cases where an outcome was determined
by BFSO, 3,698 or 93.4 per cent were resolved early
by the member (ie prior to a BFSO investigation). This
is consistent with the previous year at 93.6 per cent.
These early resolution cases did not involve a detailed
BFSO investigation. However, in 476 of these cases,
BFSO facilitated the resolution by writing to the
member and/or the consumer to point out unresolved
questions in order to facilitate a settlement.
Early resolution rates (%)
&%%
.*
.%
-*
'%%(
'%%)
'%%*
'%%+
'%%,
Investigations
The 261 cases that were not resolved at the early resolution stage were investigated by BFSO. There is
usually a waiting period between when a dispute is determined to be unresolved and when a case manager
is available to commence the investigation. This year, the median number of days before cases were
allocated to case managers was 41.
There are various options for resolving disputes in investigation and the method chosen will depend largely
on the complexity of the issues raised, the expectations of the parties and their willingness to compromise.
This year:
• 90 investigations were closed after BFSO facilitated a settlement between the parties;
• 8 cases were closed after a Conciliation Conference was held by the Ombudsman; and
• 110 cases were closed after the parties were provided with a Finding, which is a written
assessment of the merits of the dispute issued by a case manager.
Where the consumer or member rejects a Finding, the dispute is referred to the Ombudsman for his
consideration. The Ombudsman then issues a Recommendation on how the dispute should be resolved.
This year 32.5 per cent of Findings were rejected and referred to the Ombudsman, a slight decrease from
last year at 35 per cent. These cases were closed after Recommendations were issued.
The Case Studies section of this report provides examples of the various resolution methods being
applied to cases.
BFSO 2006–2007 Annual Report Page 15
Outcomes of 261 cases investigated excluding DIS and OTR
No
Monetary
Non-monetary
compensation
compensation
compensation
Finding
Conciliation Conference
Both monetary
and non-monetary
compensation
51
131
6
12
1
6
0
1
Recommendation
29
22
0
2
Total
81
159
6
15
Outcome of closed investigations
This year we have improved the way that we report on the outcome of closed investigations to more
accurately reflect the actual outcomes.
The new reporting method sets out the numbers of claims where compensation was awarded to the
disputant and the numbers of claims where that compensation was monetary, non-monetary or both
monetary and non-monetary. The most common example of non-monetary compensation is having
a credit-reporting listing removed or amended.
Of the 261 cases closed after a Finding, Conciliation Conference or Recommendation:
• 81 cases resulted in no compensation to the disputant;
• 159 resulted in monetary compensation to the disputant;
• 6 resulted in non-monetary compensation to the disputant; and
• 15 resulted in both monetary and non-monetary compensation to the disputant.
Case resolution time – 3-year comparison of time taken to resolve disputes (%)
+%
'%%*
*%
'%%+
'%%,
)%
(%
'%
2005
2006
2007
Total cases
3834
3900
3959
58
58
57
Median days all cases
sent to member
&%
%id+% +&id.% .&id&'% &'&id&*% &*&id&-% &-&dkZg
Case resolution time
The resolution time is the period of time between the date the dispute is referred to the member and the date
it is closed. This includes the 30 day appeal period after a Finding is issued during which the case is said to be
provisionally closed.
Of the cases referred to members during the year, 53.9 per cent were closed within 60 days, a slight decrease
compared to the previous year in which 54.1 per cent of cases were closed within 60 days. The median
number of days to resolve all cases referred to members was slightly less than last year at 57 days.
There was also a slight increase in the number of cases that took over 181 days to close, with the figure increasing
from 8.0 per cent last year to 8.4 per cent. These cases represent complex unresolved disputes that require
detailed investigation by BFSO and this year BFSO has also seen an increase in the number of more complex cases.
However, the Scheme will continue its efforts to improve efficiency in this area in the year ahead.
Page 16 BFSO 2006–2007 Annual Report
Member statistics
Early resolution
time (median days*)
Early resolution rate
The table has three columns which show for each member:
• The number of disputes within Terms of Reference that
were closed during the year in review, excluding cases
that were discontinued;
• The percentage of disputes resolved by each member
at an early resolution stage, which did not require an
investigation by BFSO; and
• The median number of days to resolve the cases at the
early resolution stage. This is measured from the date
a case was referred to the member to the date on
which the case was closed (including the 30 day
appeal period).
Total cases closed
(Ex OTR & DIS)
Readers should note the following points to avoid forming
inaccurate views about the dispute resolution performance
of any member:
• Members have vastly different market shares. A large
number of disputes lodged against a particular
member may reflect these differences in customer
base size rather than the member’s performance;
• Some figures will include disputes lodged against a
member’s related bodies corporate. Some members,
however, have few or no related bodies corporate; and
• Some figures may reflect the length of time that the
financial institution has been a member of the Scheme.
Members can join the Scheme at any stage during the
year, and some may only have joined shortly before the
end of year.
The table lists members in alphabetical order.
Member
The following table sets out dispute resolution statistics for
each member of the Scheme which had a dispute referred
to it during the reporting period. The table only includes
those disputes which came within the Scheme’s Terms
of Reference and were not discontinued. The publication
of this information reflects BFSO’s continuing commitment
to transparency and independence.
Cases closed: 1 July 2006 – 30 June 2007
Adelaide Bank Limited
39
92.3%
62
American Express Australia Limited
21 100.0%
59
12
91.7%
59
513
93.0%
51
Arab Bank Australia Limited
3 100.0%
142
Bank of China
1
NA
AMP Bank Limited
ANZ Banking Group Limited
0.0%
Bank of Queensland Limited
36
97.2%
65
Bank of Western Australia Limited
95
93.7%
60
Bank SA (a division of St George
Bank Limited)
16
75.0%
45
Bendigo Bank Limited
45
86.7%
46
Citigroup Pty Limited
350
92.3%
73
1,044
92.3%
45
1 100.0%
59
Commonwealth Bank of Australia
eChoice Pty Ltd
Elders Rural Bank Limited
GE Money
Home Loan Selection Services
(Australia) Pty Ltd
HSBC Bank Australia Limited
2
50.0%
133
171
94.7%
76
3 100.0%
126
95.6%
65
ING Bank (Australia) Limited
29 100.0%
49
Laiki Bank (Australia) Limited
3 100.0%
66
Lion Finance Pty Ltd
5 100.0%
70
Macquarie Bank Limited
Mega International Commercial
Bank Co Ltd
Members Equity Bank Pty Limited
National Australia Bank Limited
Paymate Pty Ltd
114
19
89.5%
72
1 100.0%
77
17
94.1%
52
551
92.7%
57
2 100.0%
60
PayPal Australia Pty Limited
56 100.0%
66
PayPal Inc
19 100.0%
74
St George Bank Limited
Suncorp-Metway Ltd
Telecheck Payment Systems Limited
Veda Advantage Limited
Westpac Banking Corporation
All Cases
205
93.2%
51
65
92.3%
62
1 100.0%
59
16 100.0%
61
504
96.2%
48
3,959
93.4%
55
Excludes those members that did not have cases closed
during the period
*Calculated from the date the case was referred to the
member to the date the case was closed.
BFSO 2006–2007 Annual Report Page 17
categories
About our disputes
Types of disputes
BFSO classifies all cases according to:
• The product or service obtained by the consumer; and
• The problem with the product or service as reported by the consumer.
Every case involves at least one product and for each product recorded there is at least one
problem. Some cases will involve multiple products and for each product there may be multiple
problems. Appendix C is the full list of products and problems used in BFSO classification.
The figures in this section are derived from all cases closed after referral to a member.
This excludes cases that were determined to be outside Terms of Reference or were
discontinued prior to referral to a member.
Product categories
Products are classified into one of six broad categories as shown in the graph below.
During the reporting period there were 4,548 products recorded in respect of the 4,342 cases
closed after referral to a member. Appendix C lists the products in each product category.
As in the previous five years, consumer finance (37.6 per cent) was the top product category
in disputes this year. The other main product categories were housing finance (18 per cent),
payment systems (17.1 per cent), and deposit accounts (15.7 per cent).
Product categories
1. Consumer finance
37.6%
2. Housing finance
18.0%
3. Payment systems
17.1%
4. Deposit account
15.7%
5. Business facility
7.8%
6. Other products or services
2.9%
7. Financial planning
1.0%
Page 18 BFSO 2006–2007 Annual Report
* +,
&
)
(
'
Problem categories
Problems are classified into one of seven broad categories as shown in the graph below.
During the reporting period there were 5,074 problems recorded in respect of the
4,342 cases closed after referral to a member. The graph shows the distribution of
problem categories. Appendix C lists the problems in each problem category.
Across all product categories, transactions/calculations was the most common problem
identified by consumers, representing 24.7 per cent of all problems recorded. This problem
category includes disputes about unauthorised transactions, calculation errors and
withdrawal and deposit errors.
The second ranked problem category identified by consumers was commercial decision.
Problems in this category relate to whether a member has made a commercial decision,
which it is entitled to make, or whether, in fact, it has acted contrary to the terms of a
contract or a duty owed to the consumer. This category accounted for 17.5 per cent of
problems identified and includes disputes about the rejection of a credit application,
dishonoured transactions, maladministration in granting credit and maladministration in
debt recovery, including reporting to a credit reporting agency.
Service quality made up 17.3 per cent of problems identified. This problem category includes
disputes about administrative errors, breaches of privacy and/or confidentiality, delays,
failure to respond to correspondence or enquiries, inappropriate requests for information
or inappropriate staff attitudes to customers and loss of a document or safe custody item.
Problem categories
1. Transactions/calculations
24.7%
2. Commercial decision
17.5%
3. Service quality
17.3%
4. Industry practice
16.1%
5. Info inadeqate
9.9%
6. Fees
7.1%
7. Other problems
5.9%
8. Interest rates
1.6%
+
,-
*
)
&
'
(
BFSO 2006–2007 Annual Report Page 19
The pie charts below indicate the broad
financial product categories in descending order
according to the number of disputes about the
product category. The total number of products
recorded was 4,548.
The corresponding tables show the proportion
of disputes involving discrete financial product
groups within the broad categories.
Consumer finance No. of products: 1710
1. Credit cards
76.7%
2. Personal loan
15.3%
3. Personal overdraft
4.7%
4. Other Consumer hire purchase/lease
1.4%
Equity finance
1.1%
Margin lending
0.6%
Interest free finance
0.2%
Housing finance ()
'
3.3%
&
No. of products: 818
1. Home loan - variable rate
74.0%
2. Investment property loan
13.3%
3. Home loan - fixed rate
12.7%
(
'
&
Payment systems
No. of products: 777
1. Atm
32.3%
2. Computer banking
18.7%
3. Periodical payments/direct debits
11.5%
4. Non cash payment facility
10.0%
5. Cheques (inc. third party)
9.8%
6. Telegraphic transfers
9.7%
7. Other Bank cheque
2.3%
Eftpos
2.1%
Currency exchange/travellers cheques
1.8%
Telephone banking
1.0%
Direct credit
0.8%
Page 20 BFSO 2006–2007 Annual Report
8.0%
,
+
&
*
)
(
'
Deposit account No. of products: 713
1. Statement savings account
71.8%
2. Term deposit
9.0%
3. Personal cheque account
7.0%
4. Passbook
6.3%
5. Other Cash management
3.5%
Mortgage offset
1.8%
Foreign currency account
0.6%
Business facility *
)
'
5.9%
&
No. of products: 353
1. Business cheque account
32.9%
2. Merchant facility
25.3%
3. Business loan - variable
15.6%
4. Business overdraft
7.9%
5. Lease
5.7%
6. Other Business loan - fixed
3.1%
Bank guarantee
3.1%
Commercial bills 2.5%
Business credit card
2.5%
Trade facilities
1.4%
Financial planning (
+
&
*
)
(
'
12.6%
No. of products: 46
1. Shares/bonds
45.6%
2. Superannuation
26.1%
3. Managed funds
19.6%
4. Life insurance
8.7%
)
(
&
'
Other products or services No. of products: 131
1. Other products or services
36.6%
2. Insurance
34.3%
3. Holding title deeds
15.3%
4. Safe custody
7.6%
5. Deposit to third party account
3.1%
6. No product or service
3.1%
+
) *
&
(
'
BFSO 2006–2007 Annual Report Page 21
Linking problems with product categories
The table below lists each of the broad product categories
and the three main products identified in each category. For
each of the products, the two most frequently described
problems are listed. The percentage figure represents the
number of times the particular problem was recorded for that
particular product. For example, in the case of credit card
disputes, 16.2 per cent of all problems relating to credit cards
were about unauthorised transactions and 9.7 per cent
were about maladministration in granting the credit. The low
percentage for the two top problems (25.9 per cent) indicates
that the problems experienced with credit cards were across
the whole range of problems classified by BFSO. By contrast,
the two main problems with ATMs, cash dispensing problems
(48.8 per cent) and unauthorised transactions (38.5 per
cent), together represented 87.3 per cent of all problems
identified within that product category.
Products linked to problems
Product category
Major products
Main problems
Consumer
finance
Credit cards
Unauthorised transactions
Maladministration in granting credit
Request for indulgences
Maladministration in granting loan
Misleading advertising or promotion
Inappropriate collection activity
16.2
9.7
11.4
11.1
15.3
7.1
Delays (eg loan approval, settlement)
Contractual breach, written instruction not carried out
Delays (eg loan approval, settlement)
Contractual breach, written instruction not carried out
Contractual breach, written instruction not carried out
Delays (eg loan approval, settlement)
21.6
9.4
17.7
11.5
20.7
11.6
Incorrect cash given
Unauthorised transactions
Lost funds
Internet transactions
Unauthorised transactions
Contractual breach, written instruction not carried out
48.8
38.5
28.9
10.7
21.6
21.6
Fee excessive, inappropriate or wrong
Unauthorised transactions
Product/service advice
Contractual breach, written instruction not carried out
Unauthorised transactions
Fee excessive, inappropriate or wrong
17.3
12.3
12.9
12.9
17.0
15.1
Unauthorised transactions
Contractual breach, written instruction not carried out
Chargebacks
Withdrawal or deposit errors
Delays
Unilateral member action
13.4
13.4
26.0
12.5
17.5
11.1
Delays
Unilateral member action
Delays
Lost funds
Contractual breach, written instruction not carried out
Delays
20.8
12.5
30.8
15.4
33.3
11.1
Contractual breach, written instruction not carried out
Product/service advice
Reporting to a credit reporting agency
Other
Loss of document/safe custody items
Delays
20.8
16.7
25.0
16.7
45.0
30.0
Personal loan
Line of credit/personal overdraft
Housing
finance
Home loan - variable rate
Investment property loan
Home loan - fixed rate
Payment
system
Atm
Electronic/computer banking
Periodical payments/direct debits
Deposit
account
Statement savings account
Term deposit
Personal cheque account
Business
facility
Business cheque account
Merchant facility
Business loan - variable
Financial
planning
Shares/bonds
Superannuation
Managed funds
Other products
and services
Insurance
Other
Holding title deeds
Page 22 BFSO 2006–2007 Annual Report
%
Products and problems in disputes
resolved at an early stage and disputes
resolved after investigation
The table below shows the relative representation of
different product categories in disputes closed at an early
stage compared to cases closed after an investigation.
Consumer finance
This year, the consumer finance category was the
predominant product category in both the early resolution
cases (38.2 per cent) and in investigation cases
(31.7 per cent). In early resolution cases, the main
problem identified within this category was unauthorised
transactions. In cases closed after investigation however,
the main problem identified by consumers was
maladministration in lending. Disputes about
maladministration in lending are about the provision of
credit when there was no capacity to repay the credit.
These disputes raise more complex banking and legal
issues and require detailed investigation to reach
resolution.
Product category
Housing finance
Housing finance and payment systems were the equal
second ranked product categories in cases resolved at an
early stage (17.4 per cent). The main problems identified
by consumers in housing finance disputes that were
resolved at an early stage were delays in either loan
approvals or settlements. In such cases the financial loss
flowing from delays is quantifiable and the matters are
relatively easy to resolve. The main problem identified
by consumers in housing finance disputes that were
investigated was that of an alleged breach of the finance
contract.
Payment systems
Payment systems was the other second ranked product
category in cases resolved at an early stage (17.4 per cent)
but the fourth ranked product category in cases closed
after investigation. The main problem identified in both
early resolution cases and investigation cases was that of
unauthorised transactions. This indicates the varying
complexity of disputes and claims arising from the
unauthorised use of payments systems to access the
accounts of the disputants.
Representation of product group %
Early resolution
cases
Investigation
cases
Consumer finance
38.2%
31.7%
Housing finance
17.4%
24.8%
Payment systems
17.4%
12.8%
Deposit accounts
16.0%
11.4%
Business facility
7.2%
14.9%
Financial planning
1.0%
0.9%
Other products or services
2.8%
3.5%
BFSO 2006–2007 Annual Report Page 23
jurisdiction
Disputes we can’t consider
OTR categories
The Terms of Reference set out the Ombudsman’s
jurisdiction to consider disputes.
There are certain categories of dispute that the Ombudsman
is unable to consider. These include disputes about:
• Members’ policy decisions – such as levels of interest
rates or fees; and
• Commercial decisions – such as decisions not to
provide finance, where there is no pre-existing
obligation to lend.
Telephone enquiries
This year, 11.2 per cent of telephone enquiries answered
were considered to be outside Terms of Reference (OTR),
a slight increase from 9.9 per cent last year and
9.3 per cent the year before.
Closed written cases
Disputes from individuals
The profile of written disputes received from individual
consumers that were classified as OTR was similar to
the previous year. The top four OTR categories were
the same as last year: non-member financial institution
(25.8 per cent), member policy (15.8 per cent), other
jurisdiction more appropriate (21.4 per cent) and no
financial service (13.2 per cent).
Consumers who write to BFSO about non-member
financial institutions are directed to the customer
relations department of the financial institution, the
appropriate ASIC approved external dispute resolution
scheme, or other services that may be able to assist.
In relation to telephone enquiries, the largest category
was non-member financial institution at 22.9 per cent.
Disputes from small businesses
The percentage of closed written cases that were
classified as OTR increased slightly from 18.7 per cent
last year to 19.7 per cent this year.
The table below shows the main OTR categories for
disputes received during the year from both individuals
and small businesses.
The main reason for small business telephone enquiries
and written disputes to be categorised as OTR this year
was that no financial service had been provided to the
disputant with 34.5 per cent of telephone enquiries and
31.3 per cent of written cases categorised as OTR for this
reason. These are instances where a disputant may be
affected by dealings with a financial service provider and
may even have a claim for loss, but because they did not
receive a direct financial service from the member, BFSO
is unable to assist.
Main OTR reasons
Individuals
Small business
Closed cases
Closed cases
Non-member financial institution
25.8%
No financial service
31.3%
Other jurisdiction more appropriate
21.4%
Other jurisdiction more appropriate
17.2%
Member policy
15.8%
Non-member financial institution
11.1%
No financial service
13.2%
Member policy
Telephone enquiries
9.1%
Telephone enquiries
Non-member financial institution
22.9%
No financial service
34.5%
No financial service
18.2%
Member policy
13.7%
Member policy
17.8%
Non-member financial institution
12.5%
Other jurisdiction more appropriate
13.9%
Other jurisdiction more appropriate
10.1%
Page 24 BFSO 2006–2007 Annual Report
systemic
Systemic issues investigations
BFSO’s workload in relation to systemic issues has remained
steady during the year. During the reporting period BFSO concluded
41 systemic issue investigations into possible and confirmed
systemic issues.
What are systemic issues?
Systemic issues are those that are raised in a dispute with
the BFSO and appear to have either affected, or have the
potential to affect, a number of customers in addition to
those who have complained to BFSO.
The power and obligation to investigate systemic issues,
which was first introduced in September 2001, is of
significant benefit to consumers in that all customers
in an affected group will obtain compensation that is due
to them when there has been an error. For our members,
the investigation of systemic issues has raised industry
standards.
Identification of systemic issues
BFSO aims to identify systemic problems as early as
possible, with most matters being identified by case
officers or reviewing legal counsel in the early stage of
the dispute resolution process. A potential systemic issue
can only arise from a dispute lodged by an individual or
a small business and is then referred to the systemic
issues manager.
The member is given an opportunity to respond to BFSO
before a possible systemic issue is confirmed as a definite
systemic issue.
Systemic issues are more likely to occur in an industry
that is highly automated.
Investigation and resolution
Investigations into systemic problems are carried out by
the systemic issues manager in consultation with legal
counsel and the Ombudsman. Often, legal advice and/or
banking advice is required. If the systemic issues manager
concludes that there is a systemic problem, options for
resolving the matter are put to the member.
There are generally two limbs to the resolution of any
systemic issue:
• ensuring that the problem is fixed at its source; and
• ensuring that customers who have experienced loss as
a result of the problem are appropriately compensated.
Reporting
BFSO is obliged, under its Terms of Reference and as
an ASIC approved external dispute resolution scheme,
to report systemic issues to ASIC on a quarterly basis.
During the course of this year:
• 26 definite systemic issues were identified and
resolved to the satisfaction of the Ombudsman; and
• 15 possible systemic issues were identified and
determined not to be systemic.
At the end of the year there were 28 investigations in
progress into 13 possible and 15 definite systemic issues.
Definite systemic issues during this year fell into six broad
categories:
1. disclosure in relation to the operation of an account
or facility;
2. ambiguous or misleading disclosure;
3. computer programming and human errors;
4. complex product package errors;
5. contract and calculation errors; and
6. conduct contravening legal codes or good
banking practice.
BFSO 2006–2007 Annual Report Page 25
Case studies
The following are examples of some systemic
issues that BFSO considered over the last year:
Bank guarantee
establishment fee
Incorrect calculation
of withholding tax
Issue
Issue
A number of disputes received at this office illustrated
that the disputants had been charged an establishment
fee of $150 contrary to the terms of a Bank Guarantee
product offered by a member.
As a result of a dispute received by BFSO it became
apparent that the member had been incorrectly calculating
and remitting non-resident withholding tax on savings
accounts to the Australian Taxation Office (ATO).
Resolution
After receiving the results of a random audit, the member
conducted a full audit of all the relevant Bank Guarantee
accounts in order to identify the number of affected
customers and refund the fee to them.
The member audit covered all relevant accounts opened
from July 2003 to 31 March 2006 as the establishment
fee did not apply to that type of account during that
period. The member provided a refund to all customers
who were identified in that audit as having been
incorrectly charged the establishment fee at the time the
account was established.
Out of a total of 5,703 relevant accounts, the final number
of affected customers identified by the audit was 2,181.
The total refund was $262,100.
Page 26 BFSO 2006–2007 Annual Report
Upon further investigation by BFSO the member
confirmed that the rounding methodology used by it did
not comply with the Taxation Administration Regulations
regulating the calculation of both resident and nonresident withholding tax.
Resolution
The member referred the matter to ASIC and ATO in
addition to appointing a dedicated person from its
organisation and an independent firm of accountants to
manage the identification and remediation process. The
member initially identified that the number of customers
affected by the rounding error was 70,174 with an average
over deduction of $5.24.
At the conclusion of the investigation the member
confirmed that a total of 70,972 customers were affected
by the systemic issue and that remediation amounted to
$486,158.48 including an amount of $16,300 paid to a
charity. All payments made in the remediation process
were in accordance with methodology agreed to in
conjunction with ASIC and ATO.
Refund of lender’s
mortgage insurance
premium
Refusal to pay in
accordance with promotion
Issue
Issue
One dispute received by BFSO illustrated that the
customer had not received the refund of Lenders
Mortgage Insurance (LMI) premium owed to him in
accordance with the LMI policy. The particular LMI policy
provided for a partial refund if the insured loan was paid
out within two years of its establishment.
At the end of October 2005 one member contacted a
select group of customers in writing to notify them that
they would be eligible to qualify for a special promotion
running in November and December 2005. On the basis
of the offer and information provided by the member’s
call centre staff, a number of customers conducted
transactions through their eligible accounts in order to
receive the benefit of the promotion.
Resolution
The member agreed to undertake a full audit of all accounts
eligible for an LMI premium partial refund since 2001. The
audit revealed that, in a number of cases, particularly
between 2003 and 2006, refunds due to eligible customers
had not been paid by the LMI provider.
The member said that all identified customers would be
reimbursed in full including any applicable interest
adjustments (at 10 per cent per annum). The member also
acknowledged that, as the audit findings showed that the
LMI provider had not acted on the member’s instructions
in all cases, it had therefore introduced new procedures
to confirm that all records submitted to the LMI provider
in the future were correctly actioned.
Upon completion of the identification process, the
member confirmed that a total of 8,252 customers had
been affected by the systemic issue and that a total of
$5.6 million in refundable premium and additional interest
would be refunded to affected customers.
In a number of cases the customers then also relied on
the member’s representation that the benefit of the
promotion would be provided in the December 2005 and
January 2006 account statement periods and spent the
anticipated benefit, which they said they would not have
otherwise spent. Some time in February 2006 the
member contacted a number of the select group of
customers to inform them that it would not be paying the
benefit of the promotion to them because, in its view, they
did not qualify for the benefit.
A large group of those customers complained to BFSO.
Resolution
The Ombudsman’s view, as a result of further
investigation and advice, was that a binding contract was
formed that related to the member’s promotional offer
between each of the select group of customers and the
member. This contract was separate from the contract
relating to the operation of the account. The contract was
concluded by each of the customers spending at least the
amount required to receive the benefit of the promotion.
As a result the Ombudsman formed the view that the
member was liable to pay each of the affected customers
the relevant benefit of the promotion.
The member accepted the Ombudsman’s view and agreed
to contact each of the affected customers and pay them
their relevant benefit resulting from the promotion.
BFSO 2006–2007 Annual Report Page 27
Credit listing
transaction accounts
Communication
with a debtor
Issue
Issue
During the course of an investigation of a dispute it was
noted that the member listed a default on a transaction
account on a disputant’s credit report.
As a result of a dispute received by BFSO, an issue was
identified regarding the member’s collection process.
One week after sending a default notice requiring remedy
of an outstanding debt within 31 days, the member’s
system generated a second letter listing the current
balance of the account, referring to the terms of the
previous letter and stating that its terms had not been met.
The Ombudsman takes the approach that a credit report
must relate to the provision of credit and that an
overdrawn amount on a transaction account should not
be credit listed.
An internal investigation by the member determined that,
since 2002, a system error had occurred when one area
of the member’s collections department had continued to
list overdrawn transaction accounts at the time the
accounts were written off.
Resolution
Resolution
The Ombudsman considered that the member’s process
of sending the second letter could be regarded as
harassment and not in accordance with the terms of the
Australian Competition and Consumer Commission
(ACCC) and ASIC Debt Collection Guideline (2005).
The member identified that it had incorrectly listed 1598
accounts and that it was taking steps to remove those
incorrect listings. The member confirmed that it has not
received complaints from any other affected customers
regarding loss suffered as a result of the incorrect listings.
The member noted the Ombudsman’s concerns and
amended its process to remove the sending of the second
letter during the 31 day default notice period. The letter
was replaced by a telephone call by the member to
confirm the customer’s receipt of the default letter.
As required by the Ombudsman, the member confirmed
that if it received complaints from any other affected
customers, it would assess each complaint on a case by
case basis and work with those customers to resolve the
matter. It also changed its procedures in an attempt to
ensure that the listing of overdrawn transaction accounts
does not recur.
Page 28 BFSO 2006–2007 Annual Report
Case
studies
Case studies selected for this report illustrate
a range of situations that have led to disputes,
BFSO’s investigation process and different
types of dispute resolution.
BFSO 2006–2007 Annual Report Page 29
Refund
for aborted
holiday
Page 30 BFSO 2006–2007 Annual Report
In August 2005, Mrs G booked a holiday
to Bali through a travel agent. Using her
credit card, Mrs G paid around $4,800
for air fares and accommodation for
four people.
Soon after, Mr and Mrs G cancelled their holiday due
to safety concerns associated with travel to Bali. Mrs G
sought a refund from the travel agent but received only
a partial refund of approximately $2,000 for the
accommodation. Mrs G accepted that there was a nonrefundable deposit of $250 per person but she claimed
the remaining $1,800 that had not been refunded.
Mrs G applied for a chargeback
In February 2006, Mrs G wrote to her bank seeking a
chargeback for $1,864.
The bank sought relevant documentation from Mrs G
to proceed with the claim. Mrs G said that she sent the
documentation by fax on more than one occasion but
the bank said that it did not receive it until March 2006.
The bank said that, in accordance with the rules of the
relevant credit card scheme, a claim for a chargeback
had to be made within 120 days of the transaction.
As more than 120 days had elapsed since August 2005
when the transaction was made, the bank could only
seek a ‘good faith’ chargeback from the merchant’s bank.
The merchant’s bank rejected the request.
Mrs G complained to BFSO that delay on the part of the
bank caused her application for a chargeback to be
outside the time limit and therefore unsuccessful.
BFSO’s investigation
One of the questions raised by the case was whether
the airline, which had not refunded the payment, or
the travel agent, through whom Mrs G had booked her
holiday, was the merchant for the purposes of the credit
card transaction. The other question was whether the
bank had delayed in processing the chargeback request
and, if so, was it liable for the portion of the payment that
had not been refunded?
BFSO reviewed the terms and conditions of Mrs G’s credit
card, which described the terms of the contract between
Mrs G and her bank. The terms and conditions stated that
a customer might be entitled to a chargeback of a
transaction when there was a dispute with a merchant,
noting ‘for example, you may be entitled to reverse a
transaction where the merchant has not provided you with
the goods or service you paid for…’
In this case, the merchant to whom Mrs G gave her credit
card in payment for the holiday was the travel agent.
BFSO considered that the relevant service that had been
provided by the travel agent was the arrangement of
flights and accommodation. The travel agent charged a
fee for its services as well as passing on a proportion of
the payment to the airline and hotels. In the view of BFSO,
this meant that the service had been provided by the
travel agent to Mrs G and there was no basis for a
chargeback against the travel agent.
Further, BFSO considered that, as Mrs G did not use her
credit card to enter into transactions directly with the
airline or hotel there was no basis for a chargeback of
any payment to those entities. Whether or not Mrs G
was entitled to a refund depended on the refund policies
of those entities. As such, BFSO concluded that even
if the transaction had been processed in time, it would
not have succeeded.
On the question of timing, BFSO found that, in
accordance with the card scheme rules, the claim had to
be lodged within 120 days of the initial transaction, which
was made on 17 August 2005. As such, the claim was
already out of time before Mrs G contacted the bank in
February 2006.
BFSO found that, given the claim was out of time, the
bank had acted appropriately in requesting a ‘good faith’
chargeback and that the bank was not liable to refund the
balance of the transaction.
BFSO 2006–2007 Annual Report Page 31
Reverse
mortgage
shock
Ms B, aged 64, decided to talk to her
bank about obtaining a home loan in
order to purchase a new home.
Ms B had only $5,500 left to pay on her
home loan and she approached the bank
to borrow more money to purchase a
new property.
Page 32 BFSO 2006–2007 Annual Report
Ms B was informed that, because of her low income, she
could not increase the amount of her current home loan
as she would not be able to afford the repayments.
However, she was also advised that once she turned 65
she would be eligible to obtain a reverse mortgage.
A reverse mortgage does not require regular repayments.
Instead, interest is added to the loan balance and
compounds. The loan is required to be paid out when
certain events occur, for instance, if the property is sold,
the borrower moves out of the property or dies, or the
borrower defaults. Default provisions vary.
Ms B buys a new home
BFSO’s approach
In November 2006, Ms B signed a contract to purchase a
new home. After she sold her existing home she required
an additional $58,000 to cover the cost of the new home
and pay associated costs. Ms B, who had now turned 65,
approached the bank about obtaining a reverse mortgage
over the new property.
Ms B sent BFSO copies of the loan documentation and a
letter outlining her complaint that the bank had given her
a loan product which was not suitable for her and had not
allowed her sufficient time to seek advice before signing
the loan documentation. BFSO reviewed Ms B’s
correspondence and asked the bank to respond to her
concerns. The bank maintained that the working of the
reverse mortgage facility was adequately explained to
Ms B by the bank staff and Mr A. However, it admitted
that it had initially provided loan documentation for the
wrong product.
In December 2006, the bank agreed to provide Ms B with
a reverse mortgage and issued her with a loan offer.
Ms B was told by the bank that she needed to obtain
independent advice about the loan offer before it would
proceed with the loan. The bank recommended that she
see Mr A, an accountant.
Ms B seeks independent advice on the wrong
documents
Ms B took the loan offer with her to the appointment with
Mr A. However, due to a bank error, the loan offer was not
for the bank’s reverse mortgage product but for another
product. Ms B said that the accountant did not, therefore,
explain the reverse mortgage product.
Mr A disputed Ms B’s recollection of the meeting. He said
that the advice he provided did not relate to any particular
product but discussed, in general terms, how reverse
mortgage loan products work.
BFSO under its Terms of Reference also has regard to
applicable industry codes or guidelines. The bank in this
case was a member of the Senior Australians Equity
Release Association of Lenders (SEQUAL) and had agreed
to abide by the SEQUAL Code of Conduct. The SEQUAL
Code requires, among other things, that lenders ensure
that borrowers obtain independent legal advice from the
solicitor of their choice and make available to borrowers a
tool illustrating the potential effect of the capitalisation of
interest on the loan.
Ms B said the appointment with Mr A lasted 10 minutes.
She paid Mr A $50 for his advice.
In this case, the bank had not ensured that Ms B obtained
independent legal advice and the schedule, setting out
the effect of the capitalisation of interest on the loan, was
not provided to her until after she had signed the loan
documentation.
Right documents provided
Resolution of the dispute
In mid-December 2006, shortly after Ms B signed the
loan documents, the bank realised that it had issued Ms B
with incorrect loan documentation and faxed a new set of
loan documents to Ms B’s branch. Ms B signed the new
documents, including a disclaimer stating that she had
received independent advice even though she did not
read the documents or have them explained to her by an
independent adviser. Ms B was not given copies of the
documents at the time. The manager at the branch then
faxed the disclaimer to Mr A for him to sign.
The dispute was resolved between Ms B and the bank
after the case went into investigation.
The property settlement occurred five days later.
Ms B shocked at the impact of compound interest
In January 2007, Ms B requested and received a copy of the
loan documentation she had signed on 14 December 2006.
Ms B also requested and received a balance schedule
which showed the effect of compounding interest on the
balance of the loan. The schedule showed that, over a ten
year period, the estimated balance of the loan (if no
repayments were made) would increase from $58,000 to
$126,511. Ms B said that, had she realised the effect of
compound interest over this time, she would not have
entered into the loan.
Ms B was adamant that she would not have agreed to the
loan if she had known that the balance would increase.
She wanted to make payments sufficient to cover interest
and in the amount that she had been paying on her
previous loan. The bank agreed to Ms B’s request and
reduced the interest rate on her loan by a margin of
approximately 5 per cent so that repayments in the order
of $75 per fortnight were sufficient to meet the interest
charged on the loan. It was agreed that the interest rate
would vary with future interest rate changes but that Ms B
would not be charged for valuations of the property, which
would otherwise be required every two years, if the loan
balance did not exceed $58,000.
Ms B phoned LifeLine to seek help with her situation.
She was referred to a Community Legal Service who
advised her to write to BFSO.
BFSO 2006–2007 Annual Report Page 33
Dangers
of PIN
disclosure
Mr C complained to the bank in
March 2006 about unauthorised
electronic withdrawals from his
accounts between December 2004
and June 2005 amounting to $114,000.
Three accounts were involved:
• a home loan account;
• a joint savings account with
his wife, held in trust for his
daughter; and
• a second savings account
in his name only.
Page 34 BFSO 2006–2007 Annual Report
The web of transactions
Mr C had telephone banking access to all his bank
accounts. He had set up a telephone banking password in
June 2003, but had never made a telephone banking
transaction himself. In mid-December 2004, someone
changed the telephone banking password and increased
the daily limit. Mr C said it was not him, and that he
believed a family member had changed the password.
Between December 2004 and June 2005, about $114,000
was transferred from the home loan account to the joint
savings account. From the joint savings account $25,000
was withdrawn in card and PIN transactions and $87,000
transferred in telephone BPay transactions to an account
in Mr C’s name with another bank to which a family
member had been granted access. Another $1,200 was
transferred by BPay to pay the utility bills of a third party.
Mr C’s knowledge of the unauthorised transactions
Mr C said that he noticed that the balance of his home
loan account was too high at the end of December 2004
but that he had no time to have a good look at the matter.
A little while later he spoke to a family member, who, he
says, admitted to making the withdrawals and promised
to return the money by the end of February 2006.
Mr C acknowledged that he had given the card to the joint
savings account to his daughter, so that she could access
funds in the account. He wrote the PIN for the card on a
piece of paper. As far as he knew, his daughter kept the
card and PIN record together in her handbag. He believed
that the family member had taken the card from his
daughter’s handbag.
The bank’s allocation of liability
The bank recovered the $1,200 transferred by BPay to the
utility companies, but could not recover any of the funds
transferred by BPay to Mr C’s account with another bank
and subsequently withdrawn.
The bank regarded Mr C as being liable under Electronic
Funds Transfer (EFT) Code provisions for the unauthorised
withdrawals because:
• Mr C had breached the requirements of the EFT
Code by voluntarily disclosing the PIN for Mr C’s
access card to his daughter, who in turn had kept
the card and a PIN record together in a way that
apparently allowed the family member to gain
possession of both; and
• Mr C unreasonably delayed in notifying the bank
after he became aware of the theft of funds from
his accounts.
BFSO’s investigation
The focus of the investigation was on whether Mr C had
contributed to the losses resulting from the unauthorised
transactions in terms of the EFT Code, and whether there
was any limitation on his overall liability.
Mr C could not be held responsible for the change to the
telephone banking password - the bank was unable to
confirm it was Mr C himself who changed the password
on 17 December 2004; or the increase in the daily limit.
The limit for Mr C’s card had been increased from $1,000
to $2,000 per day but the bank was unable to confirm
when the limit was increased, or that it was Mr C himself
who requested the increase.
In addition, Mr C did not receive the home loan statement
for the six month period to the end of December 2004,
because the mailing address had been changed to the
family member’s address. However, the bank did contact
Mr C on 24 January 2005 to advise that his home loan
repayments were increasing in line with the increase in
the account balance and the bank mailed three-monthly
statements for the two savings accounts to Mr C‘s
residential address on 28 February 2005.
Mr C, however, had not notified the bank as soon as he
became aware that the unauthorised transactions were
occurring. Mr C made a withdrawal from his home loan
account at 2.45pm on 24 December 2004, after $25,000
of unauthorised withdrawals had been made. The bank
said the teller would have told Mr C the balance of the
home loan account after the withdrawals and Mr C should
have noticed at that point that the unauthorised
withdrawals were occurring.
Outcome of BFSO’s investigation
The case manager accepted that the telephone banking
transfers from the home loan account were unauthorised.
He also accepted that it was more probable than not that
an unauthorised third party had changed the telephone
banking password. But the case manager did consider that
Mr C had become aware of the unauthorised transfers on
the afternoon of 24 December 2004 when he made the
withdrawal from his home loan account, and that this was
the relevant time from which liability for unreasonable delay
in notification commenced.
The case manager did not treat the unauthorised transfers
from the home loan account as having caused a loss to Mr
C, because the funds went to another of Mr C’s accounts.
However, he did consider that the additional interest that
Mr C had to pay on his home loan account constituted a
loss to Mr C, and that Mr C should be compensated for
interest charges on the amounts withdrawn prior to 2:45pm
on 24 December 2004. The interest refund totalled $3,400.
As far as the card and PIN withdrawals from the joint
savings account were concerned, the case manager
considered that Mr C was liable because he voluntarily
disclosed his PIN to his daughter and his daughter kept
the card and PIN record together in her handbag. But Mr
C was not liable for amounts that exceeded the usual daily
limit of $1,000 because it was more probable than not
that the unauthorised third party had initiated the
increase to $2,000 per day. The overlimit amounts
totalled $12,900.
As far as the BPay transfers from the two savings
accounts were concerned, there was no information to
indicate that Mr C disclosed his telephone banking
password. In fact, it was more probable than not that it
was the unauthorised third party who initiated the
password change. The case manager considered that Mr
C was not liable for an amount of $3,600 transferred on
24 December 2004, before he became aware of
unauthorised withdrawals on the home loan account, but
he was liable for all transfers after this date because of his
unreasonable delay in notification.
BFSO’s finding
Of the total unauthorised withdrawals and transfers of
about $114,000, the Finding proposed that the bank
refund $19,900. Both Mr C and the bank accepted the
Finding and the dispute was closed.
BFSO 2006–2007 Annual Report Page 35
Credit
card
debt
Mr F had a credit card debt of just over
$16,000. He had been unwell and was
struggling to make payments. He said
that he had had a number of discussions
with the bank about repaying the debt
because he wanted to avoid going
bankrupt but there was no formalised
repayment agreement in place.
Mr F complained to BFSO after the bank sold the
debt to a debt collection company and the company
threatened legal action against him.
Mr F’s complaint
Mr F complained that the bank did not assist him in his
difficult financial situation with his credit card debt. He
claimed that the bank had known for two years that he
was on work cover payments and taking medication for
Page 36 BFSO 2006–2007 Annual Report
depression. He said that he felt that the bank did not
assist him as it should have and did not always return his
calls for assistance. He also said that his situation had
changed in that he had employment that would enable
him to make some extra money and he wanted to make
an arrangement to pay off the debt.
The bank’s response
Following referral from BFSO, the bank reviewed Mr F’s
complaint. On further investigation by the bank, it became
clear that it had offered Mr F credit card limit increases
that he did not have the capacity to repay. The bank then
reviewed his file in accordance with BFSO’s guidelines on
maladministration in lending.
To resolve the dispute, the bank repurchased the debt
from the company and offered to reduce the credit card
debt to $10,000 and put in place a repayment plan of
$80 per month with no interest until the debt was cleared.
Mr F accepted this outcome.
Transfer of
money to
pay credit
card
Ms M owed a debt of $15,932 on a credit
card account with a limit of $13,000.
On 27 July 2006, Ms M’s bank took $983
out of her transaction account to reduce
the debt on her credit card account.
This was a surprise to Ms M who did not know that the
bank could combine her accounts and take money from her
savings account to pay her credit card debt. Ms M said she
did not receive any notification that it would occur.
Ms M rang the bank and explained that the money in her
transaction account was savings for utility bills and school
fees. She asked that the money be returned but the bank
refused. Ms M complained to BFSO, which then referred
the dispute to the bank for a response.
The bank’s response
The bank said that it had acted in accordance with the
terms and conditions of Ms M’s credit card when it
transferred the money from her savings account.
After speaking with Ms M, however, the bank concluded
that it had not properly assessed Ms M’s ability to repay
her account when, on several occasions, it had offered
her credit card limit increases.
It was also clear to the bank that Ms M was experiencing
financial hardship because she was struggling to pay her
credit card and she needed the money that had been
taken out of her account for bills and school fees.
On this basis, and taking into account BFSO’s guidelines
on maladministration in lending, the bank proposed to
waive $8,975 in interest and accept a fixed repayment
plan of $100 per month to clear the debt. The bank
agreed not to charge interest on the debt.
In addition, the bank reversed the transfer of $983. Ms M
was happy with the resolution proposed by the bank and
BFSO closed the file.
BFSO 2006–2007 Annual Report Page 37
Online
auction
sale
goes
wrong
Mr L sold goods on an online auction site
and used an account provided by a noncash payment facilitator to accept
payment for the goods from the buyer.
Sometime after the sale, the buyer complained to the
non-cash payment facilitator that the goods had not been
received. Mr L could not produce postage and tracking
information to prove that he had posted the goods to the
buyer so the non-cash payment facilitator decided the
complaint in favour of the buyer and issued a refund of
$435 from Mr L’s account.
Dispute lodged with BFSO
Mr L complained that the non-cash payment facilitator,
which was a member of BFSO, did not clearly disclose to
Mr L that he would be required to produce postage and
tracking information in the event of a dispute. Mr L also
claimed that the non-cash payment facilitator had
changed the user agreement and the Product Disclosure
Statement since the dispute had occurred making it
impossible for him to prove his claim.
Page 38 BFSO 2006–2007 Annual Report
BFSO’s investigation
BFSO reviewed the non-cash payment facilitator’s user
agreement that applied at the time that the dispute arose.
This stated that if the buyer claimed that an item was not
received, the seller must be able to prove that the goods
were posted by providing an on-line tracking number that
showed proof of delivery or a faxed proof of postage from
Australia Post Registered Post.
BFSO concluded that the non-cash payment facilitator had
acted appropriately in accordance with the user agreement
when it refunded the buyer because Mr L had not provided
the required postage and tracking information.
BFSO also found that the user agreement had been
disclosed on the website of the non-cash payment
facilitator at the time the dispute had occurred and
Mr L had accepted the terms and conditions. The user
agreement had not been updated since the dispute arose
so this could not have not affected Mr L’s claim.
Student
loan
issue
Mr N enrolled in an educational course
with a course provider and at the same
time applied for and obtained a student
loan from the bank through the course
provider, as part of the enrolment process.
Information about the loan was included in the tuition
information and was described as a student loan scheme
established by the course provider in conjunction with the
bank. The loan was co-branded by the bank and the
course provider.
The course provider goes into liquidation
The course provider went into liquidation part way through
Mr N’s course and he received none of the certificates
associated with the course. He was advised by the
liquidator that there would be no payment out of the
liquidation to him.
In addition, the Australian Council for Private Education and
Training advised that because the particular course was not
an accredited training course it was not covered by the
Australian Student Tuition Assistance Scheme, despite
written representations by the course provider in the tuition
information that it was a member of the scheme and that
the scheme protected the fees of students. The bank held
Mr N liable for repayment of the full amount of the loan.
The dispute
Mr N’s dispute was brought to BFSO by a community legal
service acting on his behalf, which argued that Mr N
should not be liable to repay the loan. It argued that the
bank was a linked credit provider within the terms of the
Uniform Consumer Credit Code (UCCC), that there had
been misrepresentations made to Mr N which were not
correct, that Mr N was entitled to rescind the tuition
contract and, under section 125 of the UCCC, was
entitled to terminate the loan contract.
Resolution
The bank did not admit that it was a linked credit provider
but the dispute was nevertheless resolved after the
second referral to the bank when agreement was reached
that Mr N and his parents, who were guarantors to the
loan, would be fully released from liability.
BFSO 2006–2007 Annual Report Page 39
Credit card
fraud
Mr R ran a crash repair and spare parts
business. His father was the director of
the company that had previously owned
the business and continued to assist Mr R
with the bookkeeping for Mr R’s company
which had taken over the business.
Page 40 BFSO 2006–2007 Annual Report
In March 2005, two customers purchased items from the
business and paid by credit card. In April, Mr R’s bank
wrote to him asking him to produce the credit card sales
vouchers because the credit card owners said that the
use of their credit cards was unauthorised and they
disputed that they had purchased goods from the
business. Mr R had 10 days to provide the vouchers.
Mr R’s father was away on holiday at the time the bank’s
letters arrived and Mr R did not open letters from the
bank. However, there were telephone conversations
between the bank and Mr R about the provision of the
sales vouchers and they were eventually provided to the
bank in June 2005. The bank said that it was then too late
to produce the sales vouchers and that under the terms of
the merchant agreement the business was liable for the
disputed transactions. Transactions totalling $3,800 were
charged back to Mr R’s company’s account.
Dispute
Recommendation
On behalf of Mr R’s company, Mr R’s father argued that
the bank was not entitled to charge back the transactions
to the business account and could not rely on the terms
of the merchant agreement that the bank referred to. He
argued that the only merchant agreement was the original
merchant agreement between the bank and his company
which did not bind the company for which Mr R was the
director. He also said that the bank had given Mr R an
extension of time to produce the sales vouchers and then
told Mr R that it was not necessary to provide copies of
the sales vouchers.
The Ombudsman reviewed the case manager’s decision,
the information provided by Mr R’s company and the
bank. The Ombudsman upheld the case manager’s
Finding and also found additional grounds that supported
the bank’s right to chargeback the transactions.
The bank provided copies of diary notes of the
conversations between it and Mr R and said that it had
not misled Mr R about extending the time for providing
vouchers or about the need to provide vouchers. It said
that the merchant agreement was an enforceable
contract between the bank and Mr R’s company because
since 2002 Mr R’s company operated as if the merchant
agreement was in place and in 2003 Mr R’s father signed
a merchant variation agreement agreeing to be bound by
the merchant agreement originally established in 1997.
BFSO’s investigation
Mr R’s recollection of the dates of telephone
conversations with the bank and the content of the
telephone conversations were not consistent with the
bank’s contemporaneous file notes of those
conversations. In the case manager’s view the available
information was insufficient to support a conclusion that
the bank gave Mr R an extension of time and/or told Mr R
that there was no need to send the transaction vouchers.
The Ombudsman found that there was an alternative basis
for concluding that Mr R’s company was bound by the
merchant agreement. The agreement itself provided for
the assignment of the agreement with the written consent
of the bank. Although the bank did not provide written
consent, the Ombudsman found there was an implied
consent for the assignment of the merchant agreement
arising from discussions Mr R had with a bank officer at
the time Mr R’s company took over the business.
The Ombudsman also found that, in accordance with the
merchant agreement, even if Mr R’s company had provided
the vouchers to the bank within the time frame specified,
or anytime within 12 months of the transaction occurring,
the merchant agreement still enabled the bank to charge
back a transaction where it had been justifiably disputed by
the cardholder. Therefore, it was immaterial whether the
bank officer had provided a two week extension or said not
to provide the transaction vouchers at all.
The Ombudsman upheld the case manager’s Finding
that no compensation should be paid by the bank to
Mr R’s company.
In relation to the question of the merchant agreement
being binding on Mr R’s company, the case manager
found that the conduct of both the bank and Mr R’s
company was such that they were acting under the
understanding that Mr R’s company used the merchant
facility established by his father’s company and that Mr
R’s company was therefore bound by the terms of the
merchant agreement. The case manager also said that it
was reasonable to conclude that by signing the merchant
variation agreement in 2003, Mr R’s company was
continuing with a course of conduct which confirmed an
understanding that Mr R’s company was using the
merchant facility and was bound by the terms of the
merchant agreement. Mr R’s father had, in the case
manager’s view, authority to sign the merchant variation
agreement on behalf of Mr R’s company.
The case manager issued a Finding in which she found that
the bank was justified in charging back the transactions to
Mr R’s company because it was bound by the terms of the
merchant agreement and because it had not provided the
transaction vouchers within the time specified.
Mr R’s company rejected the Finding and the file was
referred to the Ombudsman for a Recommendation.
BFSO 2006–2007 Annual Report Page 41
Progress
payment
problem
Mr and Mrs J were living in Germany
and entered into a building contract
with Z Pty Ltd to build a duplex on
vacant land in Queensland.
The bank’s response
Mr and Mrs J applied to the bank for finance to fund the
project which was approved. The bank paid the builder
a deposit of $14,000 and construction of the duplex
commenced.
It also said that under the terms and conditions for the
construction loan it was a customer’s responsibility to
ensure they were satisfied with the quality of construction.
Mr and Mrs J received the first progress payment request
from Z Pty Ltd and asked the bank what they should do.
They said that the bank advised them to sign and return
the request to Z Pty Ltd. Z Pty Ltd would then present the
request to the bank and the bank would inspect the
property and make the payment.
Conciliation conference
The bank made payments for the slab, frame, lock-up and
pre-paint stages of construction. These payments were
made on the basis of valuation reports provided to the
bank by a valuer which it appointed.
Z Pty Ltd subsequently went into liquidation and did not
complete the duplex.
Mr and Mrs J appointed another builder to finish the
project but discovered they had insufficient loan funds
available to cover the costs of completion.
Mr and Mrs J wrote to BFSO saying that they believed the
bank had overpaid around $60,000 to Z Pty Ltd. They
asked that the bank refund this amount plus interest.
Page 42 BFSO 2006–2007 Annual Report
The bank’s position was that each of the progress
payments made to Z Pty Ltd was authorised by Mr and
Mrs J. It said that the progress payments had been
released in accordance with the advice of its valuer and
the building contract.
The bank declined Mr and Mrs J’s request for compensation.
However, it agreed to convert the loan to a line of credit with
an increased limit to enable completion of the duplex.
Following her review of the file, the case manager noted
that the bank made progress payments to Z Pty Ltd for
the frame, lock-up and pre-paint stages even though the
total payments made exceeded the total value of the
completed work, as advised by the bank’s valuer, at the
relevant stages. This seemed contrary to the bank’s
position that the progress payments were released in
accordance with its valuer’s recommendations.
The case manager and the Ombudsman’s legal counsel
were of the view that a conciliation conference was
appropriate in this case. A conciliation conference is an
informal procedure in which this office assists a disputant
and a member to find a solution to the dispute.
The case was resolved by the parties with the assistance
of the Ombudsman’s Legal Counsel at the conciliation
conference. The bank agreed to pay Mr and Mrs J
$25,000 in full and final settlement of their dispute and
the case was closed.
The adviser
went on
holiday
After meeting with her accountant
Ms D decided to withdraw $300,000
from her investments to put into an
annuity. Ms D expected to begin receiving
payments from the annuity in early
January 2006.
Following a meeting with her financial adviser, the adviser
withdrew $300,000 from her investments on 9 December
2005 and deposited it into her passbook account. The funds
were withdrawn on 21 December 2005 for the purposes of
investing in the annuity.
Ms D went through the annuity documents with her adviser,
signed the necessary documentation and provided the
adviser with her tax file number.
No pension payment is made
When there were no payments in January 2006 Ms D called
the bank only to find that the adviser she had been dealing
with was on holiday. Another financial planner at the bank
found that the annuity had not been established and that Ms
D’s money had not been earning any interest.
The bank’s initial offer
The bank offered to pay Ms D $1,355.24 which represented
33 days interest at a standard rate of five per cent. This
calculation represented the number of days from the date
the funds were withdrawn from Ms D’s passbook account
until 23 January 2006 when the adviser told Mrs D about the
birth certificate.
Ms D complains to BFSO
Ms D complained that her money should not have been
withdrawn from her investments until the annuity was set
up. She said that if the financial adviser had waited until all
the requirements to establish the annuity were met she
would still have been earning interest at the rate of her
investment, 6.1 per cent. On this basis she said that the
compensation offered by the bank was inadequate.
Following referral by BFSO, the bank reviewed its offer. It
offered to pay Ms D interest for the whole period, from the
date of withdrawal from her investment until it was returned
to her bank account at the rate applicable to her original
investments. The bank also offered to refund $500
representing the fee Ms D had paid to the bank’s adviser.
In total, the offer was approximately $3,278. Ms D accepted
the offer and BFSO closed its file.
Ms D had not realised that she was required to provide a
certified copy of her birth certificate for the purpose of
establishing the annuity. The adviser was not aware that the
birth certificate was required and was informed by email
while he was on holiday. He did not advise Ms D to supply
a copy of her birth certificate until he returned from holiday
on 23 January 2006.
Following these events, Ms D changed her mind about
depositing her money into the annuity.
BFSO 2006–2007 Annual Report Page 43
financials
Financial Statements
Income Statement
for the financial year ended 31 March 2007
31 March 2007 $
31 March 2006
$
Revenue
6,150,632 5,469,224
Employee benefits expense
(4,109,601)
(3,681,826)
Depreciation and amortisation expense
(27,725)
(57,466)
Occupancy costs
(372,412)
(342,138)
Technology costs
(151,026)
(214,466)
Telephone expense
(147,039)
(102,662)
Directors’ fees
(119,228)
(113,955)
Consulting fees
(186,529)
(176,127)
Travel and accommodation expenses
(127,117)
(133,188)
Promotion and information expenses
(85,150)
(48,432)
Other expenses from ordinary activities
(506,772)
(435,873)
Profit before tax
318,033 163,091
Income tax expense
Profit for the year
Page 44 BFSO 2006–2007 Annual Report
- 318,033 163,091
Balance Sheet
as at 31 March 2007
31 March 2007 $
31 March 2006
$
Current Assets
Cash and cash equivalents
3,082,548 2,442,357
Trade and other receivables
342,696 270,503
Other
378,917 503,639
3,804,161 3,216,499
Total Current Assets
Non-Current Assets
Plant and Equipment
58,718 70,614
Total Non-Current Assets
58,718 70,614
3,862,879 3,287,113
Total Assets
Current Liabilities
Trade and other payables
752,638 753,405
Other liabilities
875,000 675,000
Provisions
Total Current Liabilities
684,000 630,200
2,311,638 2,058,605
Non-Current Liabilities
Payables
250,000 250,000
Provisions
102,500 97,800
Total Non-Current Liabilities
352,500 347,800
Total Liabilities
2,664,138 2,406,405
Net Assets
1,198,741 880,708
Accumulated Funds
1,198,741 880,708
Audited Financial Statements and Directors’ Report for Banking and Financial Services Ombudsman Limited have,
in accordance with legal requirements, been lodged with ASIC and are available for public scrutiny
BFSO 2006–2007 Annual Report Page 45
appendices
Appendix A: Definition of terms
ASIC: The Australian Securities and Investments
Commission
OTR: (Outside Terms of Reference) A dispute that is outside
the Ombudsman’s jurisdiction
BFSO: Banking and Financial Services Ombudsman Limited,
formerly Australian Banking Industry Ombudsman Limited
Problem: The term used by BFSO to describe the nature or
description of the complaint that the disputant has about a
financial service
Case Manager: Investigates unresolved disputes
Case Officer: Takes telephone calls from the public, processes
new disputes and investigates some unresolved disputes
Case Resolved: A dispute that is resolved after referral to
the financial institution
Conciliation Conference: A case conference conducted by
the Ombudsman or senior staff member
Customer: An individual or small business user of the
services of a financial services provider
Determination: A written decision issued by the
Ombudsman if the member rejects a Recommendation.
A Determination is binding on the member
Directors: The Directors of the BFSO Board
Discontinued: Cases that do not proceed to resolution
through BFSO, including disputes sent to BFSO for
information without a request to investigate, and disputes
subsequently withdrawn by the disputant
Disputant: An individual or small business bringing a dispute
before the Ombudsman
Dispute: A written request to resolve a disagreement
between a financial services provider and a customer
Early Resolution: Where a dispute is resolved after referral
to a member but prior to investigation by BFSO
Product: The term used by BFSO to categorise the various
financial products, services, accounts or facilities available
to customers from financial services providers
Provisionally Closed: The status of a case for the 30 day
period between BFSO seeking confirmation of the resolution
of the case and the date when the appeal period expires and
the case is closed
Recommendation: A decision made by the Ombudsman if
either the member or disputant rejects a case manager’s
Finding, or where resolution cannot be reached at a
Conciliation Conference
Related Body Corporate: A company that belongs to the
same group of companies as a member
Small Business:
For events occurring between 6 July 1998 and 10 March 2002:
An incorporated or unincorporated business with less than
15 employees and a turnover of less than $1 million, which is
independently owned and managed
For events occurring on or after 11 March 2002: An
incorporated or unincorporated business that employs less
than 100 full time equivalent employees if the business is
manufacturing, and less than 20 employees if the business is
of another nature
Finding: A written assessment of the merits of a dispute
after investigation of the dispute by BFSO staff
Serious Misconduct: A broad term that includes fraudulent
conduct, grossly negligent or inefficient conduct, and wilful
or flagrant breaches of relevant laws and codes of practice.
BFSO is obliged to report cases of serious misconduct to
ASIC
FOS: (Financial Ombudsman Service) A co-operative venture
between BFSO, Financial Industry Complaints Service (FICS)
and Insurance Ombudsman Service Limited (IOS) providing a
telephone referral service
Systemic Issue: An issue which has been raised in a
dispute or several disputes to BFSO which will affect a class
of people in addition to those who have complained to the
Scheme. BFSO is obliged to report systemic issues to ASIC
Guidelines: A manual published by BFSO which explains the
clauses of the Terms of Reference
Telephone Dispute: Details of a dispute recorded by a case
officer and referred directly to the member by BFSO
Member: A financial services provider that has agreed to
participate in the Scheme (see Appendix B)
Terms of Reference: A written document setting out the
powers, duties and obligations of BFSO
Negotiated Settlement: An investigation that is resolved by
way of a settlement that is acceptable to both parties.
Usually a case manager will facilitate the settlement
The Board: The governing body of the Scheme comprising
an independent chair, two consumer and one small business
representative, and three bank representatives
Enquiry: A telephone enquiry from a person
Financial Institution: A member of the BFSO Scheme
Page 46 BFSO 2006–2007 Annual Report
Appendix B: Full list of members as at 30 June 2007:
Bank Members
Non - Bank Members
Adelaide Bank Limited
Acclaim Management Group
Pty Limited
Michael McHugh Lawyers
(t/as Independent Finance)
Accumulus Capital Pty Limited
MidWinter Financial Services
Acreis Australia Pty Limited
Mortgage Choice Limited
(including its franchisees)
AMP Bank Limited
ANZ Banking Group Limited
Arab Bank Australia Limited
Bank of China
Bank of Cyprus Australia Pty Limited
Bank of Queensland Limited
Bank of Western Australia Limited
Bank SA (a division of St George
Bank Limited)
Bendigo Bank Limited
Citigroup Pty Limited
Commonwealth Bank of Australia
Elders Rural Bank Limited
GE Capital Finance Australia
(t/as GE Money)*
All-States Group
Mortgage Selection Services
Pty Limited
American Express Australia Limited
Anglican Community Fund
(Incorporated)
Mutual Care Pty Limited
Anglican Financial Services
Ares Capital Management Pty Limited
(t/as Rismark International)
Associated Foreign Exchange Australia
Pty Limited
Auspay Limited
Australian Postal Corporation
Australian Seniors Finance Limited
Olympus Financial Services
Pty Limited
Osborne Finance Pty Limited
(t/as City Pacific Finance Dubbo)
Pagasa Express
Pay Clear Services Pty Limited
Paymate Pty Limited
PayPal Australia Pty Limited
Automatic Data Processing Limited
PayPal Inc
Back 9 Capital Management
Pty Limited
PFG Pty Limited
PrincipleFocus Pty Limited
Bennetto Finance Pty Limited
ProLoan (Australia) Pty Limited
Macquarie Bank Limited
Benton Asset Management
Pty Limited
Prosolution Group Pty Limited
Mega International Commercial
Bank Co. Limited
BEO-Export Australia Pty Limited
(incorporating BEO-Finance)
RCP Finance Limited
Members Equity Bank Pty Limited
Bopo Cards (Australia) Pty Limited
Mizuho Corporate Bank Limited
Brammall Financial
MoneySwitch Limited*
Capel and Associates Pty Limited
National Australia Bank Limited
Collection House Limited
Rabobank Australia Limited
DNR AFSL Pty Limited
Royal Bank of Canada
eChoice Pty Limited
St George Bank Limited
Elders Limited
State Bank of India
EMerchants Australia Pty Limited
Suncorp-Metway Limited
Everforex Financial Pty Limited
Taiwan Business Bank
Financestore.com.au Pty Limited
The Bank of Tokyo - Mitsubishi
UFJ Limited
Forex Plus Australia Pty Limited
HBOS Treasury Services plc
HSBC Bank Australia Limited
ING Bank (Australia) Limited
Laiki Bank (Australia) Limited
The Royal Bank of Scotland
Pty Limited
United Overseas Bank Limited
Westpac Banking Corporation
Great Western Insurance Brokers
Pty Limited
Habib Finance (Australia) Limited
Hillcrest Litigation Services Limited
Home Loan Selection Services
(Australia) Pty Limited
IFM (Securities) Pty Limited
IMF (Australia) Limited
John Coombes and Company
Pty Limited
Prudential Term Deposits Limited
Real Financial Services Pty Limited
RIA Financial Services Australia
Pty Limited
RTP Group Pty Ltd (t/as City Pacific
Finance - Upper North Shore)
Ruesch International Australia
Pty Limited
Sherlock Home Loans (Aust)
Pty Limited
StrataPay Pty Limited
Sydney Capital Partners
Technocash Pty Limited
Telecheck Payment Systems Limited
The Meudon Service Trust
(t/as Meudon Financial Services)
The Rock Building Society
Trinity Mortgages Pty Limited
Veda Advantage Limited
WFD Management Services
Pty Limited (t/as CoverIT)
XAVAX Pty Limited
Yes Finance
Lachlan James Christie
Lift Capital Partners Pty Limited
Lion Finance Pty Limited
* authorised under the Banking Act
1959 to carry on a ‘banking
business’ as a specialist credit card
institution, but is not an authorised
deposit taking institution.
BFSO 2006–2007 Annual Report Page 47
Appendix C: Product categories
Category
Product
Deposit account Cash management
Foreign currency account
Mortgage offset
Passbook
Personal cheque account
Statement (no cheques)
Term deposit/bank bill
Financial planning Life insurance
Managed funds
Rollovers/superannuation
Shares/bonds
Housing finance Home loan fixed interest
Home loan variable rate
Investment property loan
Consumer finance Credit cards
Equity finance
Interest free finance
Hire purchase/lease
Margin lending
Personal loan
Line of credit personal overdraft
Business facility Bank guarantee
Business cheque account
Business loan fixed
Business loan variable
Business credit card
Commercial bill
Hedging facilities
Leasing/hire purchase
Merchant facility
Overdraft
Trade facility
Payment system ATM
Bank cheque
Cheque, including third-party cheque
Electronic/computer banking
Currency exchange/travellers cheques
Direct credits
EFTPOS
Non-cash payment facility
Periodic payments/direct debits
Stored value cards
Telegraphic transfer bank drafts
Telephone banking
Other products
Deposit to a third party account
Holding title deeds
Insurance
No products or services
Other products or services
Safe deposit
Page 48 BFSO 2006–2007 Annual Report
Category
Problem
Industry practice Breach of written authority/instruction /understanding
Oral instruction/understanding/ promise not carried out
Unilateral bank action
Service quality
Account balance
Administrative oversight/error
Breach of privacy/confidentiality
Delay
Failure to reply to correspondence/
enquiries
Inappropriate request for information
Inappropriate staff attitude to customer
Loss of document/safe custody items
Information Advertising/promotion
inadequate
Advice
/incorrect
Contracts
Fees and charges
Investment advice
Lending decision/reason
Product/service advice
Fees Fee excessive/inappropriate/wrong
Interest rates
Interest rate excessive/appropriate
Transaction/
Account credited/debited wrongly
calculationsCalculation errors
Unauthorised transaction
Incorrect cash given
Lost funds
Commercial
Cancelled/withdrawn/rejected facility
decisionDenied access to funds in account
Dishonoured transaction
Guarantees
Inappropriate collection activity
Maladministration in debt recovery
Maladministration in granting loan
Reporting to credit agency
Other
Features or eligibility restrictions
problemsInternet
Other problems
Request for indulgences
Balance transfers
Our year
1 Highlights
2 Message from the Chairman
4 Message from the Ombudsman
6 Our people
8 Industry and community involvement
10 Who uses the scheme
11 Our telephone service to the public
12 How we resolve disputes
14 Closed cases
18 About our disputes
24 Disputes we can’t consider
25 Systemic issues investigations
29 Case studies
44 Financial statements
46 Appendices
Our Purpose:
Our primary function is dispute resolution.
bfso:
fair
accessible
independent
We contribute to:
• raising industry standards
• increasing financial literacy of consumers
• better informed policy outcomes for
government, industry and the community
Workplace Values:
• Excellence in decision making
• A cooperative working environment
• Respect for all users of the Scheme
• Staff development – knowledge, skills, initiative
Thank You
BFSO
“
‘Thank you so much for your support and keeping me up to date
throughout the whole situation. I am very relieved and feel I can now
move on with my life.’
‘I would like to thank you for the thoroughness of your work and
detail you have presented in your findings. It is a great credit to
you and reflects most positively on the Ombudsman service.’
‘Thank you so very much for your quick response to my
complaint...the service that you provide is greatly appreciated.
Consumers would have no one to turn to, were it not for
yourself and others who work in your field.’
‘I thank you for your assistance in resolving this matter. It has been very
reassuring to have an agency such as this to find support and clarity in
these situations.’
‘We are writing to thank you for your effort in resolving a dispute that
we had recently… We felt that we had been unfairly treated by the
bank and charged several fees that we thought were not necessary.
Your involvement in this issue persuaded the bank to reimburse these
costs to us, which we were extremely grateful for. Your prompt
assistance with this matter was greatly appreciated and we just
wanted to thank you personally.’
‘Your organisation is providing an invaluable service to small
consumers like myself who otherwise will not be able to
exercise their rights in such matters. Thank you again.’
‘My wife and I are extremely grateful to the Ombudsman and to
you personally for the extreme diligence and compassionate way
in which you have taken up our case. We have no doubt that your
intervention has been the key to a positive result.’
‘Thank you for your help in this matter. As an individual one feels rather helpless when dealing with powerful organisations.’
”
Banking and Financial Services Ombudsman
2006–2007 Annual Report
Banking and Financial Services Ombudsman 2006–07 Annual Report
Banking and Financial Services Ombudsman
Level 5, 31 Queen Street
Melbourne 3000
GPO Box 3, Melbourne Vic 3001
Local Call 1300 780 808
Monday to Friday 9am to 5pm
TTY Facsimile 03 9613 7344
03 9613 7345
Email Website [email protected]
www.bfso.org.au
resolution
BFSO is a free and independent
dispute resolution service dealing
with disputes that individuals and
small business have with their
financial service providers.