The broking industry has among the fewest complaints of any segment in the financial services space, with just 0.4 per cent of all banking and finance complaints being about brokers in the financial year 2022. But what is it like to actually go through the process? In the second part of the AFCA: A common complaint series, Annie Kane takes a look at the broker experience
It’s a testament to the service that brokers provide that only a handful of banking finance complaints are about mortgage brokers. According to the Australian Financial Complaints Authority’s Datacube, just 60 complaints were made against mortgage brokers in the financial year ended June 2022 (the most recent full financial year data available at the time of writing). Of these, 39 progressed to case management (where AFCA determines whether it’s within their rules and something they can consider).
As outlined in part 1 of this series (see July 2023 edition), it’s much more common for AFCA to work with the financial firm and the complainant to come to an agreement and reach a resolution that way. Indeed, AFCA’s Datacube outlines that the body will ‘generally try to first resolve a complaint by informal methods and reach a settlement between the parties through negotiation or conciliation” and shows that 20 complaints were resolved by agreement at this stage in FY22.
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In fact, only three of the 60 mortgage broker complaints reached the final decision stage (where AFCA issues a formal determination) and all of them were found in favour of the financial firm, not the complainant (see part 3 of this series, in the September edition, to hear from AFCA on how it has been evolving its complaints process).
While AFCA works to resolve complaints, the process can have a profound impact on brokers emotionally and mentally as well as financially.
In a candid interview with The Adviser, Loan Market Geelong broker Sarah Thomson stated that over her 20 years of broking she had “never heard” from her credit ombudsman service (because “if you looked after your client, you wouldn’t hear from them”). However, once AFCA launched, there was “a ripple” through the industry where, suddenly, many brokers found disputes had been lodged against them. She was one of them.
“The credit ombudsman was really quiet – you didn’t hear from them but AFCA has been this tiger,” she told The Adviser, particularly lamenting that the body seems to actively seek out complaints from the public.
Ms Thomson said that the first she knew about the complaint was when her aggregator had notified her that AFCA had received a complaint against her and asked for her file notes. The complaint focused on two clients who had broken a five-year fixed rate on a joint loan after their relationship had ended. The complainants sought to have the $19,000 break costs reimbursed, arguing that they had not known that break costs could occur.
She then had to contact her professional indemnity insurance (P&I) provider and hand over relevant information to their lawyers. Ms Thomson said she had expected that the dispute would not go any further as she believed there were no grounds (telling The Adviser that the complainants had broken a fixed term before and been charged fees for doing so and that she supplied emails with the full application with a disclaimer about fixed rates, the aggregator’s product comparisons for fixed rates, and break costs).
But, six months later, the dispute was still being worked through. During this time, Ms Thomson said she had submitted several references of character and had spent “weeks on end” gathering evidence showing her loan writing process to showcase that she had followed the book.
“After about five or six months, they still haven’t found that we’d done anything wrong but the lawyer asked if we would be happy paying the complainants out $1,000 to make it go away.
“I remember thinking, after all that time, ‘If that’s what it took from the start, I would have paid it’. But had they asked me at the beginning of the process, I probably wouldn’t have wanted to give the complainant $1,000 because I hadn’t done anything wrong.
“So, even if we haven’t done anything wrong, we’re still asked to make a payout to make it go away. That is unfair, and unsustainable as a small business owner.”
Indeed, Ms Thomson said that while larger financial institutions, like banks, might have the budget to pay $1,000 in settlements to close a dispute, small businesses don't have that kind of budget. Moreover, she highlighted that this also has an impact on the cost of professional indemnity insurance (P&I).
According to P&I provider Scott & Broad, most brokers would look to resolve or settle a matter for less than the cost of their excess. But, if a claim is made, a broker’s PI policy will increase, with loading typically being between 25 and 200 per cent on the normal rate that would be applied to a claims-free policy (depending on the nature of the claim). However, this would still typically be much less than the full cost of legal fees in defending a claim.
But it wasn’t just the financial aspect that most concerned Ms Thomson. The award-winning broker said that she had initially kept the complaint to herself but decided to speak out about the experience given its impact on her mental health and to let other brokers know that they are not alone.
“This whole process really made me question my career as a broker for the first time. I felt isolated, upset and unfairly targeted. But, after six months of this consuming my thoughts, I did pay [the $1,000],” she told The Adviser, adding that she “felt sick about it”, because “you’ve been accused of something that you haven’t done and it feels unfair”.
“It was one of the most disgusting experiences I’ve been through, because it was as though you were guilty the entire time. And you don’t know what they’re doing. The length of time it took to get it sorted; it dragging out for that period of time was what made it even worse,” she said.
It was only by speaking about the issue with other brokers and realising that others had gone through similar experiences that Ms Thomson began to regain her confidence and feel as though she could move on.
However, she adds that she now operates with more caution, is careful to document every stage of her dealings with clients, and is much more selective when taking on new clients than she was previously.
Ms Thomson said she hoped that by sharing her experience brokers who may be going through a complaints process themselves will realise that they are not alone. She added that she hoped that the industry, associations, and regulators could work together to provide more support and transparent communications with brokers about how complaints are progressing when they’re being dealt with and ensure that brokers aren’t being asked to pay out complainants when there is no fault found.
Stay tuned for part 3 of AFCA: A common complaint in the September edition of The Adviser to find out how AFCA manages the complaints process, top tips for brokers in protecting their businesses, and how the ombudsman has been working with industry to reduce the cost burden to members.
Seek help
If you require mental health support and want to talk to a counsellor, free, confidential counselling is available from Beyond Blue on 1300 22 4636.
If you are concerned for your immediate safety or the safety of others, call Triple Zero (000).
