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News Analysis: The first year of AFCA

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    Despite the heavy scrutiny amid talk of removing broker remuneration, mortgage brokers are proving their value, and the figures from AFCA’s first year in operation speak for themselves

    The new dispute resolution scheme has completed its first year in action and the figures paint a pretty picture for the mortgage broking industry.

    Over its first 12 months, just 0.35% of complaints lodged with the Australian Financial Complaints Authority (AFCA) were related to mortgage brokers. Of 73,272 complaints lodged by Australians against their insurer, superannuation fund, bank or other financial service provider, only 254 were against brokers.

    These figures back up the message that associations like the MFAA have been sharing with key decision-makers on behalf of the industry, said MFAA CEO Mike Felton.

    “The extremely small number of complaints demonstrates again that mortgage brokers value their customers and are highly focused on the customer outcomes they produce – and we can see the result of this in continuous market share growth,” he said.

    “Customers are voting with their feet. We place great value in independent data like this, as it provides an objective look at the immense value brokers are providing for customers and for the entire home lending industry.”

    Greater transparency of complaints

    AFCA replaced three other dispute resolution schemes towards the end of last year and began to take complaints on 1 November 2018. The number of complaints it received in its first year was 40% higher than the complaints received by its predecessors in the 2017/18 financial year. Of the complaints made, 56,420 have been resolved, with the majority resolved in 60 days or less.

    However, research conducted in July this year showed that only 3% of Australians actually know that AFCA exists. Despite that, they are making almost 200 complaints a day.

    AFCA also released a new online tool last month called the ‘Datacube’. It allows anyone to go in and search to see how their insurer, superannuation fund, bank or other financial service provider has responded to customer complaints brought to the authority

    “We place great value in independent data like this, as it provides an objective look at the immense value brokers are providing” Mike Felton, MFAA

    According to the Datacube, in the period from 1 November 2018 to 30 June 2019 there were only 33 complaints made against mortgage brokers and 16 of these were closed.

    Looking more broadly at the industry, there were 103 complaints progressed in relation to fintechs, while nearly 8,000 related to banks and just 58 to finance brokers. There were 29 complaints against mortgage aggregators with 56% of these in relation to housing finance and 10% to business loans.

    AFCA’s CEO and chief ombudsman, David Locke, said he was proud of the significant milestones the group had achieved in its first year.

    “Establishing AFCA as a new organisation and handling a 40% increase in complaints was never going to be easy, and we are still improving the way we operate,” he said.

    “I am very proud of the AFCA team and what has been achieved so far. I am fortunate to work with a great team of people who are professional, passionate about fairness and independence, and who care about our customers.”

    Problems with the system

    Not everyone is so positive about the dispute resolution scheme, however. While brokers have clearly not been too affected by any complaints, one broker said the system was too heavily weighted towards the customer.

    “I am very proud of the AFCA team and what has been achieved so far” David Locke, AFCA

    Daniel O’Brien, director of PFS Financial Services, said there were no consequences for clients who lied or deceived. He said that apart from two free complaints per year, brokers had to pay a complaint process fee for each complaint filed against them, but the customer could file a complaint with no evidence of wrongdoing.

    Brokers could only get the complaint process fee rebated once AFCA handed down a final decision. However, if AFCA informed the consumer that the situation was turning against them, the consumer could cancel at the last minute and stop a decision from happening. That meant that if the complaint cost $12,000, the broker would have to pay for it.

    “In AFCA’s current process, in whose best interest is it to cancel the complaint before it gets finalised? AFCA gets that fee income if the client cancels,” O’Brien said. “If a client knows this information, they can use it against a broker.”

    O’Brien believes that AFCA should move to a model where the loser pays, and the only time consumers should be ordered to pay is when they have been proven to be lying or not fulfilling a fee agreement.

    This model would put more onus on clients to justify their complaints, especially with the amount of paperwork and email exchanges loan applications generate these days.

    O’Brien’s concern is not so much about AFCA exploiting him but about clients exploiting AFCA. Over 15 years, he has settled more than 4,200 loans and received no ombudsman complaints about service or advice – only a few from clients trying to avoid fees they agreed to pay.

    “We need to even the scales. Maybe the way to do that is by doubling the fees for brokers ruled to be ‘at fault’ and waiving the fees for brokers ruled to be ‘not at fault’,” O’Brien said.

    An AFCA spokesperson said that in situations where a complainant was unable to provide any evidence of wrongdoing, it did not progress very far.

    “Approximately 15% of complaints closed by AFCA are found to be outside our rules, and this would include complaints without evidence or foundation. Financial firms may feel a complaint has no basis, but we are legally required to investigate all complaints,” they said.

    Original Article