AFCA targets complaints without merit in new reform

The body’s early merit assessment, which will take place during the initial case management stage in the complaints process, will aim to stop “unmeritorious complaints – those where there is clearly no error or financial loss” before they travel further down the line.

If AFCA concludes that a complaint has sufficient information to show that it is without merit, it now has discretion to exclude the complaint under its rules.

Complaints that raise more complex issues, with significant documentation involved, would still require an investigation to reach a view on what has most likely occurred.

The process was tested in a three-month pilot in 2021, where AFCA found it halved the time to solve selected cases against comparable claims, and that the fee charged to firms was as much as 75 per cent lower.

AFCA has decided it will apply the process to certain complaint types that it found worked fairly during the pilot.

When asked by The Adviser what would constitute a complaint that would require a merit assessment, a spokesperson for the body said it was “usually one where there was no cost”.

"Every case is different, but an example of where a complaint against a broker might be excluded after an early merit assessment could be when both a broker and a lender are involved in a dispute brought by a consumer," the spokesperson said.

"It may be possible to establish quite quickly that the broker hasn’t made an error and the dispute has arisen because of circumstances that occurred once the application reached the lender and that these circumstances were outside the broker’s control.

"A simple example of where a complaint might be excluded because there was 'no loss' could be around a broker making a 'typo' in an email. Although the typo is an error, and the complainant is unhappy, an early assessment could establish quickly that the complainant suffered no loss as a result of the typo and the complaint can be excluded."

AFCA chief operating officer Justin Untersteiner commented the pilot was in direct response to industry feedback, with companies reporting the costs of some determinations could outweigh the value of the initial service or product that was provided.

“Firms told us this meant they sometimes made a commercial decision to concede the complaint on the basis of costs, regardless of the merits of the case,” Mr Untersteiner said.

He added the issue had been exacerbated by the conduct of some third-party paid representatives (agents who represent consumers in the AFCA process), who used questionable tactics or had complainants refuse a reasonable resolution in the earlier stages of the mediation process.

An independent review of AFCA had recommended it address poor conduct by paid advocates and ensure its funding model does not deter firms from defending against complaints.

“The balancing act is to ensure we are not closing complaints that do have merit,” Mr Untersteiner said.

“Sometimes the only way to determine this is through further investigation.”

AFCA reported that around 77 per cent of complaints are resolved at the registration and case management stages, allowing firms to first address claims with consumers directly, before advancing to more formal resolution methods.

Recently, the body held an industry consultation on a proposed user-pays funding model, which it claimed would reduce costs for small broker and financial adviser firms.

The proposed model included a single registration fee, a simplified complaints fee structure and five free complaints per year for all financial firms that are obliged to be members under the complaints scheme.

If adopted, it would be effective from July.

[Related: Labor open to discussing clawback]