Australia's Financial Ombudsman Service: An Analysis of Its Role in the Resolution of Financial Hardship Disputes

• Author: Joseph Horbec,Evgenia Bourova,Paul Ali,Ian Ramsay
• DOI: http://doi.org/10.1002/crq.21187
• Published date: 01 December 2016
• Date: 01 December 2016

C R Q, vol. 34, no. 2, Winter 2016 163

© 2016 Association for Confl ict Resolution and Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) • DOI: 10.1002/crq.21187

Australia ’ s Financial Ombudsman Service:

An Analysis of Its Role in the Resolution of Financial

Hardship Disputes

Paul Ali

Evgenia Bourova

Joseph Horbec

Ian Ramsay

 e Financial Ombudsman Service ( FOS ) was established in 2008

to resolve disputes between Australian consumers and fi nancial service

providers.  is article outlines the role of FOS in resolving disputes

under the statutory protections for Australians in fi nancial hardship.

 is article also sets out the results of a study of data collected by FOS

in relation to fi nancial hardship disputes resolved between 2010

and 2014.  is data highlights the importance of FOS in a context

where most disputes are resolved outside the courts, particularly in the

aftermath of the global fi nancial crisis, when the number of fi nancial

hardship disputes rose signifi cantly.

S ince 2009, Australia has had a national set of protections for consumers

in fi nancial hardship, defi ned as where a person is willing, but unable,

to meet their debt obligations when they fall due.  ese protections are cen-

tered on section 72 of the National Credit Code, which is scheduled to the

National Consumer Credit Protection (NCCP) Act 2009 (Commonwealth of

Australia 2009 ). Section 72 allows consumers in fi nancial hardship to apply to

 is research is supported under the Australian Research Council ’ s Discovery Projects funding

scheme (project number DP140101031). We are grateful to FOS for supporting this research

and providing us with the data that forms the subject of this article. We also thank the

anonymous reviewers for their comments.

164 ALI, BOUROVA, HORBEC, RAMSAY

C R Q • DOI: 10.1002/crq

their credit provider for a variation of their credit contract, and requires credit

providers to respond to such an application within prescribed timeframes.

Disputes in relation to this provision can arise for a variety of reasons; for

example, the credit provider may not respond to the application, or may refuse

to vary the contract, or may not suspend enforcement proceedings against the

consumer. Usually, the fi rst step for the consumer in these situations is to initi-

ate the credit provider ’ s own internal dispute resolution process by making a

complaint to their complaints offi cer, either over the phone or in writing, and

awaiting a response. If the dispute is not resolved internally, the primary forums

to which the consumer may make a complaint against the credit provider are

the two independent external dispute resolution (EDR) schemes provided by

the Financial Ombudsman Service (FOS) and the Credit and Investments

Ombudsman (CIO). Most Australian banks are members of FOS, while many

credit societies and credit unions are members of CIO (Malbon 2013, 252).

 ese schemes—together with other industry-funded ombudsman services

established in the Australian telecommunication, energy, and water sectors—

have the aim of providing an accessible avenue for the resolution of consumer

disputes with a minimum of formality and technicality (see, e.g., FOS 2010c,

clause 1.2). While these schemes focus primarily on alternative dispute resolu-

tion methods such as negotiation and conciliation, Rhoda James and Philip

Morris (2003, 168) suggest that in this context, the term “alternative dispute

resolution” is something of a misnomer: for consumers in fi nancial hardship

seeking to make a complaint against their credit provider, the free-of-charge

service provided by an industry-funded ombudsman is usually “the only viable

means of redress, not so much an alternative to the courts.”

In this article, we examine the role played by FOS in the resolution of

fi nancial hardship disputes—referred to by FOS as “fi nancial diffi culty dis-

putes”—the majority of which arise under the National Credit Code. FOS

is a company limited by guarantee that was established on July 1, 2008, to

resolve disputes between fi nancial service providers (FSPs) and consumers

(and qualifying small businesses). It is funded by membership and dispute

resolution fees paid by its member FSPs. Annual reviews published by FOS

between 2008–09 and 2013–14 reveal that from when it fi rst commenced

operations until July 2014, FOS has received approximately 176,550 dis-

putes (FOS 2010b , 2011 , 2012 , 2013a , 2014 ). Of these, between 17 and

19 percent comprised fi nancial diffi culty disputes. Other types of disputes

resolved by FOS include disputes in relation to advice provided by an

FSP; fees and charges; disclosure of information about a product or service

provided by an FSP; denial of a claim; or a failure to follow instructions