Systemic issues investigations
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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.
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What are systemic issues?
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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.
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Identification of systemic issues
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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.
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Investigation and resolution
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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:
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- 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.
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Reporting
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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:
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- 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.
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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.
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Case studies
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The following are examples of some systemic issues that BFSO considered over the last year:
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Bank guarantee establishment fee
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Issue
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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.
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Resolution
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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.
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Incorrect calculation of withholding tax
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Issue
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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).
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 non-resident withholding tax.
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Resolution
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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.
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Refund of lender’s mortgage insurance premium
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Issue
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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.
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Resolution
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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.
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Refusal to pay in accordance with promotion
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Issue
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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.
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.
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Resolution
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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.
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Credit listing transaction accounts
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Issue
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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.
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.
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Resolution
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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.
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.
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Communication with a debtor
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Issue
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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.
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Resolution
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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 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.
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