The bill we’re debating today, the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017, arises from the Turnbull government’s policy to set up a one-stop shop for consumers’ complaints about financial services. In doing so, the bill combines three existing external dispute resolution schemes, the Financial Ombudsman Service, FOS; the Credit and Investments Ombudsman, CIO; and the Superannuation Complaints Tribunal, SCT. The new body will be known as the Australian Financial Complaints Authority, AFCA. For the FOS and CIO, this is simply a merging and rebranding of the two existing services.
We, of course, welcome higher monetary thresholds for disputes that can be heard. But the government is not proposing any new or additional powers that the existing dispute resolution bodies don’t already have. The bill also purports to copy the powers of the SCT into the AFCA. However, as the AFCA will be a private company limited by guarantee, this bill will result in reduced consumer protections for superannuation disputes. The chair of the Superannuation Complaints Tribunal, Helen Davis, said:
I don’t think it would be true to say, in relation to super, that it’s a rebranding exercise. Arguably, it’s quite a significant change for superannuation, specifically in terms of the external dispute resolution. It goes from a statutory body to a non-statutory body. It moved from a specialist body to a one-stop-shop body.
There are many important differences between the SCT and the proposed AFCA that stakeholders say will result in reduced protections. Their bill does not retain appeal rights that are currently available for the administrative decisions of the SCT. The SCT has the power to require information shared at the initial review stage to be kept confidential, which can include highly sensitive personal information. The SCT has an explicit statutory power to cancel the membership of a life policy fund if it finds the conduct relating to the selling of that fund was unfair or unreasonable. There is no limit on the value of the claim that the SCT is allowed to hear and, as a private body, the AFCA is not subject to freedom-of-information claims.
The government claims its reason for shutting down the SCT is due to delays in its resolution of complaints, but this is somewhat hypocritical when the delays have clearly been caused by the funding and staff cuts, at the SCT, inflicted by this government. Another good argument to retain the SCT is that it is a specialist body with skilled and professional staff. Superannuation can be a very complex area, requiring specialists and technical skills. While there is a significant overlap in the types of complaints received by the FOS and the CIO, this is not true of the complaints dealt with by these bodies and the SCT.
To back up my comments about the retention of the SCT as a separate body, I refer to the additional comments of Labor senators submitted to the Senate inquiry into this bill. As well as outlining the arguments I just mentioned, Labor senators said:
No persuasive evidence was received during this inquiry that demonstrated that the SCT’s arrangement was unsuitable, apart from its funding level.
So, I’ve yet to hear a persuasive argument from those opposite about why the SCT should not be retained in its present form, albeit with the funding cuts reversed, so it can deal with the current backlog of complaints.
Labor does not support the abolition of the SCT, and we will be moving an amendment to this bill to retain the SCT as a separate statutory body. Should Labor’s amendments to retain the SCT be supported, we are left with a bill that, as I said, will essentially be a rebranding exercise. It is certainly no substitute for re-election on addressing the poor conduct of the banks. It is no substitute for the royal commission, for which Labor has been calling for 18 months and which this government has now belatedly announced. And, while the government claimed to be taking action to address the numerous examples of inappropriate financial advice, insurance claims that are unfairly declined, loan fraud, irresponsible lending and cover-ups, more stories continue to emerge from victims and whistleblowers even now. I’m sure every member and senator in this place would have at least one story, if not several, of a constituent who has fallen victim to misconduct by banks or financial institutions.
Let me tell you just one of my stories. This is a story about a Tasmanian couple who approached my office for help. Rather than use their real names, I’ll call them John and Mary. John and Mary applied for a loan through a mortgage lender. When the lender met with them at their home, he appeared to be in a hurry and did not ask for any financial details. He just sought personal details such as names, dates of birth and driver’s licence numbers. When John and Mary asked the lender about including their financial details on the form they were told that they would fill in the rest later. A few years after being granted the loan, they obtained copies of their application forms, only to find their financial information had been completely manufactured. The application stated that the couple owned a small business and also showed that they were both drawing an income from the business. John and Mary had actually stopped working in the business four years prior, when the business they leased was sold. Even when the business had been performing well, they had only ever drawn half the salary that was reported on their form. The application form also significantly overinflated the equity in their business. In total, John and Mary counted 78 fabricated facts that were added to the forms without their consent or knowledge after their signatures were obtained.
This is a clear breach of the Code of Banking Practice, which provides that:
Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.
John and Mary lodged a complaint with the Financial Ombudsman Service, but their complaint was dismissed. Without the protection of the FOS their only option was to seek legal redress. But as low-income earners—one doing casual work and another one on a pension—they could not afford a lawyer. As for legal aid, John recently told my office, ‘No legal aid lawyer in their right mind would take on the banks.’
The mortgage lending industry may claim that the issues faced by victims like John and Mary have been addressed by the industry, and this is something we’re continually told by the financial services industry. But time and time again, new claims arise. The Australian reported just last week that the Australian Securities and Investments Commission, or ASIC, is investigating several large and small lenders for fabrication of documents. The week before that, National Australia Bank sacked 20 bankers and disciplined a further 32 after it was discovered that false information had been used in around 2,300 loan applications.
Loan fraud is just one of many examples of misconduct in the industry. As Labor has said time and time again—for month after month, in fact—we need a royal commission to get to the bottom of the rorts and rip-offs and to restore confidence in Australia’s financial services industry. I find it incredible that Mr Turnbull and his government would spend 18 months fighting a royal commission only to do one of the biggest backflips we have ever seen and capitulate now. They rejected Labor’s call for a royal commission and they rejected the call of families and small businesses who had been hurt by the bank’s bad behaviour. They even refused to call a royal commission despite the numerous reports of whistleblowers. But when the banks themselves wrote to Mr Turnbull and accepted the need for a royal commission, it took him one day to finally fold. Mr Turnbull waiting on permission from the banks to call a royal commission is like saying he needs a note from his mum—and I don’t mean in the Senator Canavan way.
The banks’ letter to the government make for interesting reading. Here are a few extracts from that letter. In three instances, the banks refer to the need to act:
… it is now imperative for the Australian Government to act decisively to deliver certainty to Australia’s financial services sector.
… … …
… it is now in the national interest for the political uncertainty to end …
… … …
We now ask you and your government to act to ensure a properly constituted inquiry into the financial services sector is established to put an end to the uncertainty …
I think all of those comments can be read as, ‘We know an inquiry is inevitable, so we give you permission to get on with it, get it over with and get it done with.’ In their letter, the banks’ CEOs also said:
In our view, a properly constituted inquiry must have several significant characteristics.
In other words, ‘Let us explain to you how we want this thing to be run.’
The letter said:
Its terms of reference should be thoughtfully drafted and free of political influence.
In other words, ‘Give us a call. We’ll tell you what we want the terms of reference to be and then you can draft it.’
Another quote is:
It is also important that any inquiry reports back in a timely manner so that we can have certainty about the findings and move forward to implement any recommendations.
Once again they’re saying, ‘Let’s get this over and done with ASAP.’
Was the banks’ call for a royal commission, and this government’s acceptance of that call, done in the spirit of public interest? I think not. It’s as clear as day to every Australian that the banks and the government saw the writing on the wall. They knew the pressure was on, they knew the pressure was growing and they knew that an inquiry was inevitable. Rather than accepting the need for a royal commission, after months of holding out against public pressure and pressure from the Labor Party, this government has been dragged kicking and screaming to this new position. It was a backflip of epic proportions, one that would impress an Olympic gymnast. Only on Tuesday of last week, Mr Turnbull was still insisting that his government would not call a royal commission. Two days later, he was announcing one. I think Senator O’Sullivan’s comment that the Prime Minister had been dragged to the table is quite apt. In fact, my earlier description of him being dragged kicking and screaming is not that original; it’s the same description used by Mr Christensen, a member of the coalition’s own backbench, to describe what has recently transpired. And just to show what an extraordinary backflip this was, let’s examine what the government had to say about a royal commission previously. Mr Turnbull said:
The only beneficiaries from a royal commission would be, frankly, the legal profession.
He also described a royal commission as something that would go on for years, cost hundreds of millions of dollars and not tell us anything new. Mr Turnbull’s Treasurer, Mr Morrison, described Labor’s calls for a royal commission as ‘a cynical political exercise’ which sought to cynically exploit people’s genuine concerns and politicise their pain. Mr Morrison also described it as a ‘crass populist approach’ to the issue.
After such a humiliating backflip, this government will no doubt be choking on their words. This is clearly another desperate tactic by this Prime Minister to hold on to his leadership. It’s an attempt to hold off a backbench revolt, just like Mr Turnbull’s decision to cancel a week of sitting of the House of Representatives was. Whichever way this government tries to spin it, these decisions are about Mr Turnbull’s political interests, not Australia’s national interest.
If Mr Turnbull were a decisive leader, a leader who was governing in the national interest, he would not be lurching from crisis to crisis. He would not be belatedly bowing to public pressure. Instead, he would have called a royal commission months or even years ago, and the commission could have handed down its report by now. We could be debating and implementing the recommendations right now if he’d called it even 18 months ago. A royal commission into the banks is in the national interest, but the national interest is not what Mr Turnbull and his government are motivated by. While we welcome this announcement, we would prefer it be done for the right reasons. Let’s hope it’s not a token exercise, which is what it appears to be, given the rushed manner in which it has been announced.
We know from evidence recently given by ASIC’s deputy president, Peter Kell, that the government did not consult ASIC on their decision to launch a royal commission or on the terms of reference. We also know, from groups representing the victims of banking scandals, that the victims weren’t consulted either. The government certainly didn’t consult with the opposition. We’ll just have to wait and see how effective this inquiry is, because we know the terms of reference could be much stronger.
It’s cold comfort to the victims of many banking scandals over the years that the government have finally called a royal commission not because they thought it was actually necessary but because their mates in the banks told them to do it. One of the clauses in the terms of reference provides that the royal commission is not required to inquire into ‘macro-prudential policy, regulation or oversight’. This basically means it will not be looking at whether the regulatory framework for our financial system is effective and up to date. It also appears that the government, in a partisan fashion, is using this royal commission as a cynical opportunity to attack industry superannuation funds.
The lack of consultation over the terms of reference is disappointing. We on this side will be doing our best to improve them. Labor is working with the government to ensure we have a royal commission that has real teeth, one that can provide some comfort and confidence for the millions of Australians who rely on banks to take care of their borrowings and savings. We certainly want a stronger response to misconduct in the financial services industry, something stronger than just the rebranding exercise in this bill.
There are a few positives in this bill, such as the lifting of the threshold for disputes that can be heard, removing the competition between the FOS and the CIO for the membership of financial services firms, and additional oversight powers for ASIC. However, I refer to my earlier arguments and I once again emphasise that the Superannuation Complaints Tribunal should be retained in its present form. As such, I urge all senators to support Labor’s amendments when they come to the Senate.