Systemic issues

Systemic issues

BFSO’s workload in relation to systemic issues has increased again during the year. During the reporting period BFSO concluded 44 systemic issue investigations into possible and confirmed systemic issues.

What are systemic issues?

Systemic issues are those that are raised in a dispute with 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.

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.

Possible systemic issues are referred to the systemic issues manager when:

Case officers notice a number of disputes about the same issue;
Case officers or reviewing legal counsel believe that an issue raised in a single dispute could affect other customers in a similar way to the disputant; or
A disputant claims that the issue they have raised in their complaint is systemic in nature.

The member is given an opportunity to respond to BFSO before a decision is made as to whether a possible systemic issue is confirmed as a definite systemic issue.

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 aspects to the resolution of any systemic issue:

Ensuring that the source of the problem is fixed; 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.

The reports do not identify the member, but include details of the nature of the problem and the manner in which it was resolved. A member is only identified to ASIC if it does not rectify the matter to the Ombudsman’s satisfaction.

During the course of this year:

19 definite systemic issues were identified and resolved to the satisfaction of the Ombudsman; and
25 possible systemic were identified but determined not to be systemic.

At the end of the year there were ongoing investigations into 10 possible and 10 definite systemic issues.

Systemic issues case studies

Here are five examples of some systemic issues that BFSO investigated and resolved over the last year.

Linked internet accounts

Issue

As a result of a dispute received by BFSO, it became apparent that there was a difference in processing times when transferring funds between linked accounts on one member’s internet banking system. This resulted in a delay between withdrawing the money from one account and the money arriving in the second account, despite the transfer appearing to be instantaneous over the internet.

A further dispute illustrated that the difference in processing times resulted in overdrawn fees being charged despite a credit transfer having been made to the account prior to the debit transfer.

Resolution

The member agreed to introduce changes to its internet banking system to align all cut-off times for transactions. The member completed a complex filtered data extract process resulting in the identification of 4,795 customers who had been charged an overdrawn fee as a result of the difference in processing times.

These customers were refunded the overdrawn fee. The total refund due was $119,202.

Unsolicited credit limit increases in ACT

Issue

One dispute illustrated that a member had made unsolicited credit limit increase offers to customers in the ACT without conducting a satisfactory credit assessment. This was in contravention of the Fair Trading Act (ACT).

The member confirmed that the offers had been made in error and reported that 61 customers had accepted the offers. The member explained that its system had failed to delete all ACT post codes from the program which generated the offers.

Resolution

The member agreed to contact all affected customers and provide them with a Statement of Financial Position to be completed as at the date of the credit increase offer. Once the customers had returned the Statement of Financial Position, an assessment was made of their financial position on the basis of the member’s internal credit assessment process.

The member agreed that:

those customers who were assessed as being able to service their increased credit limit would be allowed to retain those limits;
those customers who failed the assessment would be offered an interest free repayment arrangement for that part of the debt which exceeded the prior limit; and
those customers who failed to return the Statement of Financial Position would be contacted again by the member to establish the reason for the lack of response.

If the member was unable to determine whether the increased limit was appropriate because the customer failed to respond, the member had the option to deny access to the account if the debt exceeded the original credit limit. However, no “over limit” fees or penalty interest would be charged to these accounts.

Representations contained in term deposit renewal notices

Issue

A number of BFSO disputes illustrated that a member’s term deposit renewal letter failed to adequately disclose the applicable interest rate when term deposits were automatically renewed on maturity, that is, when the customer did not give instructions to withdraw or change their term deposits.

In each case, the disputants said that they assumed that, upon renewal, the rate would be at least comparable to the previous rate and they had not been sufficiently warned that the rate which applied on renewal would be much lower than the rate which previously applied.

Resolution

Amend the wording in its term deposit renewal notice to clearly highlight to the customer that the rate upon renewal may differ significantly from the interest rate offered to new customers; and
Pay affected customers the interest differential between the rate received and the rate they would have received had they contacted the member prior to renewal.

Combination of accounts

Issue

A dispute illustrated that a member had set-off a customer’s credit card balance with their savings account balance in the absence of an express provision in the terms and conditions of each account permitting such a set-off.

“Set-off” describes a process where a member takes money deposited in one of a customer’s accounts to repay arrears in another of the customer’s accounts. This is also referred to as “combining” accounts.

Resolution

It was resolved that the member would:

Cease the practice of combining transaction and credit accounts in the future; and
Confirm that the practice will not be re-introduced until the inclusion of a specific contractual entitlement to do so is effected.

Dealing with customers in financial difficulty

Issue

BFSO received disputes in relation to a number of banks that had subscribed to the Code of Banking Practice (the Code). The disputes illustrated that the banks were not complying with their obligations under the Code to:

Work with customers, with their agreement, to try to help them overcome their financial difficulties with any credit facility they have with the bank; and
If, at the time, the hardship provision of the Uniform Consumer Credit Code (UCCC) could apply to the customer’s circumstances, inform the customer about those provisions.

BFSO considered the breach of the Code to be a systemic problem in each of the cases.

Resolution

Depending on the existing procedures of each member in respect of customers in financial difficulty, different measures were adopted to ensure compliance with Code requirements.

Amendments to systems or procedures included:

Updating procedures to ensure the bank gave genuine consideration to customers in financial difficulty;
Revising correspondence to inform customers of their rights under the UCCC;
Providing written reasons to customers for declining a hardship application; and
Training staff to recognise when customers are experiencing financial hardship.