ASIC has released guidance on repaying wrongly charged customers, proposing that the seven-year minimum time frame to start consumer remediation and $20 compensation limit be removed.
Yesterday ASIC released a consultation paper noting that licensees should “apply best endeavours” to find and pay consumers, listing a raft of guidance on remediation and repayment.
Announcing the consultation, acting ASIC Chair Karen Chester said that “putting money back in Australian consumers’ hands has never been more important.”
“Ensuring that the processes for returning this money are efficient and fair is central to consumer confidence and trust in financial products and services and in the firms themselves,” said Ms Chester.
The consultation proposes to remove the “low-value compensation threshold” of $20 so that consumers must be compensated “as closely as possible to the position they would have otherwise been in regardless of value.”
This means that companies will have to chase down customers who are owed less than $20.
“We are proposing to remove the broad low-value compensation threshold of $20 because we think it is a one-size-fits-all solution that is not going to be appropriate for all remediations. It also does not align with some of the positive industry practices that we have seen,” said ASIC.
ASIC is also proposing to scrap the seven-year time frame for companies to start remediation and should instead start “on the date a licensee reasonably suspects the failure first caused loss to a consumer.”
“If licensees have proper governance and risk management frameworks in place, then review periods for remediations should rarely exceed seven years,” said ASIC.
“If a licensee’s poor systems and governance frameworks result in delays to the identification of failures, it may not be efficient, honest and fair to rely on the late identification to limit the scope of consumers in a remediation.
“We do not want to create any possible incentives for licensees to avoid proactively identifying and remediating problems as they occur.”
For instance, ASIC cites examples where companies failed to rectify the full extent of their misdemeanours or even used the seven year period as a starting point to begin remediation, regardless of the circumstances.
Cheques a “last resort”
ASIC warns that cheques should be a “last resort”, amidst fears that consumers would not cash in the repayments.
“The use of cheques in Australia has been declining by more than 20 per cent each year since 2016,” said ASIC.
“The effective cashing rates of cheques have been very low in remediations and require considerable follow-up communications with consumers, which can be costly for the licensee, for the cashing rates to increase.”
ASIC lists electronic funds transfer as the most effective way to compensate consumers.
Companies cannot profit from failure to repay
Where remediation money cannot be returned, licensees cannot profit from their failure to compensate.
If consumers are unresponsive, the licensee should give the consumer a “final opportunity to respond and claim the compensation” by communicating the remediation outcome and reasons for it.
However if “best endeavours are made” and the consumer is unresponsive, the funds should be send to any relevant state or federal unclaimed money regime or, as a last resort, paid as a residual remediation payment to a registered charity or not-for-profit organisation.
About $1.68 billion has already been returned to consumers from both finalised and ongoing financial system remediations since October 2019.
ASIC is currently monitoring over 100 remediations which could see another $3.55 billion returned to over 3.6 million consumers.
“There are opportunities for firms to not only identify the issues that can lead to remediations earlier, but also to make sure that they have arrangements and systems in place to return money to affected consumer as fast and as fairly as possible,” said Ms Chester.
“We are also seeing some positive signs from firms who are looking at ways to fast track remediations, including through the use of beneficial assumptions.”