Ramsay Report to simplify consumer disputes in financial services

By William Isdale

A new one-stop shop for financial services complaints, emerging from an inquiry chaired by MLS Professor Ian Ramsay, will speed up and simplify dispute resolution for consumers.

Most of us will take out a mortgage or receive some financial advice over the course of our lives. We trust that these financial products and services will be fit for purpose and, if not, then we’ll have recourse to an efficient and fair means to resolve our dispute.

About 40,000 such disputes are currently handled in Australia each year by three separate bodies. However, a recent Federal Government inquiry chaired by MLS Professor Ian Ramsay has recommended that this hydra-headed system be replaced with a single dispute resolution service.

Charged with reviewing how consumer disputes are handled in Australian financial service industries, and considering the merits of different models for dispute resolution, the inquiry panel delivered its report in May. Dubbed the ‘Ramsay Report’, it made 11 recommendations for change, all of which the Government has accepted.

“The context for the report was a recognition that dispute resolution in the financial sector is critically important,” Professor Ramsay says.

More specifically, we were on notice of some significant problems – for instance, that it was taking an average of 800 days for disputes about superannuation to be resolved by the Superannuation Complaints Tribunal where the Tribunal issues a determination.

Efficiency and access to justice were two of the principal considerations for Professor Ramsay and the review panel, which also included Productivity Commission Commissioner Julie Abramson and CHOICE Chief Executive Officer Alan Kirkland.

Ultimately, the panel recommended that the three current dispute resolution services – two industry ombudsmen and one tribunal – be merged into one ombudsman service.

According to Professor Ramsay, the notion of an ombudsman has grown extraordinarily over the past 20 years or so, but at its heart, “it is the concept of an independent specialist decision-maker designed to resolve disputes as quickly and efficiently as possible, in order to advantage consumers who otherwise do not have the resources to go to court”.

Other recommendations in the report include making the new ombudsman more accessible by increasing the monetary limit that applies to disputes so that more disputes can be heard; increasing the amount of compensation that the ombudsman can award to a consumer; making use of expert panels when resolving complex or novel disputes; and referring matters back to financial service providers for a final opportunity to resolve the matter within a set timeframe. Further, as Professor Ramsay notes, under the panel’s recommendations, “firms can have a strong financial incentive to minimise disputes, since the fees they pay to the ombudsman are partially based on the number of disputes they are involved in”.

The Federal Government has now circulated draft legislation to implement the reforms and is working to an implementation date of 1 July 2018. The ‘one-stop shop’ for financial disputes that will replace the existing bodies has been dubbed by the Treasurer as the ‘Australian Financial Complaints Authority’.

Gerard Brody (BA, LLB 2002, MPPM 2012), CEO of the Consumer Action Law Centre, welcomes the review’s recommendations. Consumer Action is a community legal centre and financial counselling organisation that helps consumers with credit and debt problems.

“Our centre helps hundreds, if not thousands, of people to make their complaints to the ombudsman services,” Brody says.

We’ve been concerned for some time that providers are able to choose which dispute resolution service to be a member of, while consumers don’t have that choice.

Consumer Action led a coalition of consumer groups in drafting a joint submission to the review. Besides arguing for a unified dispute body, they also raised concerns about the existing jurisdictional limits, which prevent disputes involving more than $500,000 going to the ombudsman. As Brody points out, “many mortgages are much larger than that these days”. He says he is pleased Consumer Action’s position on this issue was accepted in the Ramsay Report.

While the bulk of the panel’s work is complete, there is still one issue to be addressed. The panel has now been asked by the Minister to make recommendations “on the establishment, merits and design of a compensation scheme of last resort”.

There is currently about $14 million in outstanding unpaid determinations from financial disputes. Determinations for compensation often go unpaid when an ombudsman upholds a complaint against a provider that has subsequently become insolvent. Sometimes the provider’s insurance does not cover the relevant circumstances – for example, where the provider had committed fraud – and consumers are left out of pocket and without a remedy.

Brody says the Consumer Action Law Centre hopes the supplementary report will recommend a compensation scheme of last resort that includes retrospective cover for those who have received a determination in their favour.

Professor Ramsay says the issue of whether compensation should be available retrospectively is  currently under consideration, and the panel is consulting on it. The supplementary report will be delivered later this year.

Being involved in high-level government policy work is a unique opportunity, Professor Ramsay says.

“I found it an extraordinarily interesting and rewarding experience. You meet a lot of talented people, and there are many intellectual issues to be resolved.

“There are so many stakeholders, the issues are very important for consumers and industry, and opinion is not uniform on the decisions that need to be made.”

This article originally appeared in MLS News, Issue 18, November 2017