The Credit and Investments Ombudsman has slammed the big four banks and the Financial Ombudsman Service for calling for the creation of a single industry EDR scheme in the financial services sector.
The federal government has established a panel to advise on the possible consolidation of external dispute resolution (EDR) schemes. The panel will release its interim report later this month, with the final report due in March 2017.
Financial services businesses are required by law to join an Ombudsman scheme approved by ASIC. The Credit Investment Ombudsman (CIO) and Financial Ombudsman Service (FOS) are the only two Ombudsman schemes currently approved by ASIC. Neither are statutory schemes.
The CIO’s Raj Venga believes a single ombudsman scheme would mean that about 37,000 licensed businesses would be forced by law to join and pay membership and service fees to a single private sector provider.
“No other provider would be allowed to operate in the sector," said Mr Venga said. “This would be a bizarre outcome. It’s like legislating that compulsory superannuation contributions should only be made to a named industry super fund. Or that a person can receive the government’s private health insurance rebate only if they take out private health insurance with a named mutual health fund (both of these are not-for-profits, like CIO and FOS).
“It would be extraordinary for any government to mandate that its citizens and businesses financially contribute to, and comply with the requirements imposed by, a private sector provider operating to the exclusion of all other providers," Mr Venga said.
“Apart from being completely unacceptable and offensive to Australian norms, one wonders what its legal and constitutional basis is.”
Mr Venga says having two EDR schemes allow each scheme to benchmark its performance against the other. In his opinion, this produces better outcomes for brokers, lenders and consumers as the schemes are forced to adopt best practice and improve their service offering.
“This cannot be achieved under a single EDR scheme model,” he said.
“Without this competitive tension, turnaround times, service levels, innovation and continuous improvement would suffer, and there would be less incentive to keep costs in check and run the scheme efficiently.”
The CIO currently has 23,000 members, more than 90 per cent of which are brokers. Other members include aggregators, non-banks, credit unions and building societies. Mr Venga warned that a single merged EDR scheme would be beholden to “the big end of town”, namely the major lenders, which he says generate the most number complaints and pay the most fees.
“Who’s looking out for the small guy? It tends to be forgotten that these small businesses are also consumers,” he said.
“The paradox in all this is that the proposed solution to address the sins of the major banks is a measure which will do nothing more than entrench their dominant position to the detriment of consumers, businesses and the economy.”
The CIO says a single ombudsman scheme proposed by, and beholden to, the major banks will serve their interests in maintaining the status quo in the Australian financial sector.
“Imposing a ‘big end of town’ solution on smaller and more innovative financial services providers will damage their ability to compete with the major banks and will continue to leave Australian consumers and businesses with an uncompetitive financial system,” Mr Venga said.
“A statutory scheme or tribunal is not the answer either because a large bureaucracy would be legalistic, less flexible and substantially less consumer-friendly, and this would have a negative effect on turnaround times, service levels and innovation,” he said.
The CIO was formed in 2003 and has been the “natural home” for brokers for more than 10 years, Mr Venga said.
“CIO understands the non-bank sector well, and those who operate in it, from one-man finance brokers to large aggregators, to time-share operators to small amount lenders to finance companies and to building societies and credit unions.”
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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