Banks in compo squeeze
Industry bracing for new ‘mega ombudsman’
BANKS could be forced to fully compensate customers for any loss and harm caused by dodgy loans — including in some cases wiping away a customer’s debt — under a suite of measures being considered by the Morrison Government.
It can be revealed financial industry insiders are increasingly preparing for the new mega ombudsman to be handed more wide-ranging powers to force banks and other money lenders to fully compensate Australians for the hardship caused wrongdoing.
Asked whether the government was considering the new powers for the Australian Financial Complaints Authority, Treasurer Josh Frydenberg said he “was committed to taking strong action” but looked forward to receiving the banking royal commission’s final report.
The proposed beefing up of consumer laws comes in the wake of Royal Commissioner Kenneth Hayne delivering a by their scathing interim report which lashed the greed of banks and impotence of regulators.
While the body AFCA replaces — the Financial Ombudsman Service — was viewed as effective, it was limited to only compensating borrowers back to where they were before a loan was made.
Under a move canvassed by Mr Hayne, AFCA would be given more powers including the ability to make banks pay compensation for “losses or harm caused” and waiving a customer’s debt.
It is understood the Morrison Government does not want to commit to giving the extra powers to the new body until it receives Commissioner Hayne’s final report.
But the Government wants to show it is taking a stick to the banks and a more robust consumer advocate would be a good sign, according to industry insiders.
One industry source yesterday said that “having seen the interim report” it was an “easy thing” for the government “to give AFCA more powers”.
“You might have someone who lost their job and their car and their house,” one source said. “They will want compensation or settlement for harm caused. If you have powers in the body to do that — it is a deterrent in itself.”
Last May, then treasurer Scott Morrison revealed FOS was being merged with the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal to create a “mega ombudsman” for the sector called the Australian Financial Complaints Authority.
AFCA, which will begin taking complains on November 1, has a compensation cap of $500,000, double the maximum figure FOS could offer.
Mr Frydenberg said AFCA would offer a “free, fast and binding” dispute-resolution service for consumers and small businesses.
An Australian Banking Association spokesperson said the industry would announce its positition in a formal submission to the Commissioner Hayne’s interim report.