Tuesday, 5 December 2017
Treasury Laws Amendment (Putting Consumers First — Establishment of the Australian Financial Complaints Authority) Bill 2017; Second Reading
In October last year, under pressure to respond to Labor's call for a banking royal commission and to his own backbench, the Prime Minister promised to establish a new tribunal to deal with financial services complaints and disputes. So it's with some irony that the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 is the bill the government is putting forward to deliver on that promise, because this bill does not create a tribunal. Instead of creating a tribunal, this legislation actually abolishes a tribunal already in place. This bill was all about this government distracting attention from the urgent need for a royal commission into the banks. It comes out of a review that was announced by the Turnbull government precisely 12 days after Labor began calling for a royal commission.
It's astonishing that, for all the rhetoric we have heard about the government's 'take action now' approach to the banks, what we have here is not a significant change at all in improving consumers' rights against the banks. We have had a lot of rhetoric from the government implying that this dispute resolution scheme is something new or suggesting that the idea of going to an ombudsman to get your dispute with a bank resolved is some revolutionary idea. On 1 November 2017, the Treasurer said:
You can create a new financial complaints system which is binding on the banks and you don't need an army of lawyers to get your case heard. That's what Kelly O'Dwyer has done.
The reality is that we already have existing external dispute resolution schemes that already provide no-cost accessible dispute resolution for those who have a financial services dispute. These are the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. The AFCA is not some whiz-bang new idea; it was part of a confected, piecemeal and cynical response to the problems in the banks from a government hell-bent on protecting their mates in the banks from the independent, thorough and transparent investigation that only a royal commission can deliver.
This new scheme is called the Australian Financial Complaints Authority. We know from responses to questions on notice that the name was first suggested by the office of the Minister for Revenue and Financial Services. But what we also know is that it is not a tribunal, like the Prime Minister promised. It's not even a government authority at all. The word 'authority' in the AFCA's name is a misnomer. The explanatory memorandum to the bill confirms that the AFCA is just another ombudsman scheme in the form of a private company limited by guarantee. This is straight out of an episode of Utopia. The government wanted to keep protecting the banks from the scrutiny and investigation powers of a royal commission, but they wanted to somehow look tough on the banks. So we end up with another ombudsman scheme but with a grander sounding name.
ASIC has confirmed that the new Australian Financial Complaints Authority will have no new powers to resolve disputes that the existing bodies do not already have—that is, after everything that has gone into creating it, the Australian Financial Complaints Authority will have no new powers. In particular, it will not have any new powers in relation to disputes with banks that the FOS does not already have. There are no new powers to compel documents from banks or to join third parties in disputes with banks. The Australian Small Business and Family Enterprise Ombudsman was very concerned with this. Officers from the Australian Small Business and Family Enterprise Ombudsman were asked at the Senate inquiry into this bill:
And there has been some criticism that, potentially, AFCA has been designed for the benefit of big business as opposed to the benefit of small business. What would you say to that contention?
The response was:
AFCA's been designed for the needs of the banks.
That says it all about this government. They have a royal commission that is designed 'for the 'needs of the banks', and they have this proposition that was designed 'for the needs of the banks'. Unfortunately, when it comes to this government, the needs of the banks take precedent over the needs of the consumers, over the needs of the Australian public, who are getting ripped off day in and day out by these banks.
The one part of the AFCA that could deliver benefits is the prospect of increased monetary limits and the value of disputes that can be heard compared to the caps on disputes at the Financial Ombudsman Service and the Credit and Investments Ombudsman. However, we are concerned that the government has not committed to the detail on the increased thresholds in this bill. The government is still consulting on the limits on the value of disputes that can be heard, so they won't actually be put into the bill.
The government is replacing the Financial Ombudsman Service and the Credit and Investments Ombudsman with a private company limited by guarantee ombudsman service and the AFCA—a merger and rebranding. ASIC has confirmed that, aside from the potential increases in the value of disputes that can be heard, the new Australian Financial Complaints Authority will not have any new powers to resolve consumer disputes that the first two bodies do not already have. However, in abolishing the third body—the Superannuation Complaints Tribunal—the bill is much more than a rebranding exercise, and Labor believes this will weaken protections and outcomes for consumers. This rabble of a government hate the superannuation industry so much that they're prepared to diminish protections and outcomes for consumers.
Unlike the first two bodies, the Superannuation Complaints Tribunal was established as a government statutory tribunal with special powers and expertise to deal with superannuation disputes. It was established in 1993 with the introduction of the Labor government's universal compulsory superannuation arrangements. Whilst the Liberals have never supported universal super, Labor understands that superannuation is not simply another financial service and shouldn't be treated as such. The compulsory nature of savings and the long-term investment horizon mean that special care must be taken when considering policies for superannuation dispute resolution. Under this legislation, disputes over an individual's superannuation will now be lumped in with those from the banks, insurers, payday lenders—of all people—and others. Chairperson of the Superannuation Complaints Tribunal, Helen Davis, told the Senate hearings into this bill:
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.
Labor's overriding concern with the proposed abolition of the SCT is that no evidence has been produced to demonstrate that the abolition of the SCT and its replacement by an ombudsman scheme will result in more efficient and better outcomes for superannuation fund members and their beneficiaries. The parliament should be clear what is happening here. By abolishing the Superannuation Complaints Tribunal the government is handing superannuation complaints to AFCA and it is replacing a statutory tribunal body with a private company limited by guarantee. It's replacing a public body that is accountable to the government and the parliament with a private body that is accountable to the financial firms that are its members, albeit with some ASIC oversight. It's replacing a specialised professional body, adept at handling complicated and sometimes heated superannuation disputes where substantial sums of money are involved, with a generic, broad, one-stop-shop body. It's replacing a body whose chairperson and members are appointed by the government with a body where the government will only have the right to appoint a minority of the inaugural board and nothing further. On top of all that, it's abolishing an important part of the architecture of Australia's superannuation system. The reality is that, if this government had its way, it would abolish superannuation completely and it would attack the superannuation rights of workers in this country.
The SCT was established as part of the suite of reforms in 1993 to establish the universal compulsory superannuation system. Labor is proud of its record when it comes to superannuation, enabling people to retire with a higher standard of living and taking pressure off the federal budget. The design of the SCT recognises that superannuation is not just a regular financial service based on a contractual relationship. The design of the SCT recognises that superannuation trustees are custodians of the retirement savings of millions of Australians. They have obligations to all their members. Indeed, it's telling that through the process that has led to this bill being debated today, there has been a failure to properly grapple with the unique nature of super disputes, and the specific powers in consumer protections that are required to resolve them, in a way that is fair, free and accessible for Australians who have complaints regarding their super—and, in a way that, just as importantly, upholds the integrity of the superannuation system more broadly.
This process started with the government wanting a nice announceable of a one-stop shop so it could look like it was doing something about the bad behaviour of the banks. It was initially thought that super disputes could sit alongside all the other disputes and could be seamlessly folded into a private-company-ombudsman scheme. The Superannuation Complaints Tribunal was criticised for its statutory structure. The government argued that the same dispute system that is applied to generic financial service complaints against banks and insurers would work for Australia's superannuation system. But bit by bit, step by step, the value of the Superannuation Complaints Tribunal model and its structure, processes, powers and consumer protections have gradually dawned upon the government. As the serious problems with taking super disputes out of a statutory tribunal kept coming to light, the government started rapidly stitching on more and more powers to AFCA, desperately scrambling to patch up the holes. The result can only be described as a Frankenstein-type body. On the one hand, we have this private company based on contract law; on the other hand, it has statutory government powers for superannuation awkwardly grafted onto it. It's a private ombudsman scheme with statutory powers being progressively transplanted onto it—powers that should rightly belong to a statutory tribunal.
This whole process has been a tacit admission by this government of what should have been clear from the start: that the structure, processes, powers and consumer protections of the Superannuation Complaints Tribunal are the best way to resolve superannuation disputes; that the idea of trying to fold superannuation complaints from a statutory tribunal into a general ombudsman scheme was fundamentally flawed from the start; and that a strong mechanism for the resolution of superannuation complaints, and the upholding of the integrity of the super system, should not have been sacrificed on the altar of this government's desperate need for announceables about the banks so it could continue to protect them from a royal commission.
What has also become clear through this process, and what became even more apparent during the Senate inquiry into this bill, is that there is nothing significantly wrong with the Superannuation Complaints Tribunal that a sustainable funding model wouldn't fix. The only criticism that has been made of the Superannuation Complaints Tribunal is its delays in resolving some disputes. But it's clear that this is the result of a lack of funding and staff cuts. It's worth noting that when looking at all of the disputes that the Superannuation Complaints Tribunal resolves, the average time frame is around 145 days. Nevertheless, there are currently unacceptable delays particularly for the 10 per cent of disputes that go to the final stage—that is, the determination stage. It's clear that the funding shortfalls are the main contributor to these delays. The Ramsay report acknowledged this, as have most stakeholders involved in the consultation over AFCA. Staff cuts and funding reductions have occurred in recent years at the Superannuation Complaints Tribunal. This is despite the fact that the Superannuation Complaints Tribunal funding is already charged to industry by the APRA levy and the increasing size of Australia's superannuation savings.
This government's willingness to oversee a reduction in staff by over 30 per cent at the SCT is an astonishing act of neglect. It is unacceptable for this government to oversee such a dramatic reduction in staff and then to turn around and complain that the Superannuation Complaints Tribunal is too slow in resolving disputes. It's even more unacceptable for this government to then use this as an excuse to abolish the body and transfer its functions to a non-government body, reducing consumer protections in the process.
I foreshadow that Labor will be moving an amendment to retain the SCT as it currently is. This amendment would keep superannuation out of the AFCA. We hope that we'll be able to get senators' support for this amendment, which will protect the integrity of superannuation dispute resolution.
Serious concerns have been raised about the transition arrangements to the AFCA as currently outlined in the bill. The Turnbull government has no plans to ensure that AFCA will have the professional expertise to resolve superannuation disputes. This expertise currently resides in the Superannuation Complaints Tribunal, and it will have to stay there because, under the government's plans, the SCT will stay in operation for a number of years to work through existing superannuation disputes.
We have some further concerns with the issue of moving the handling of superannuation disputes from the Superannuation Complaints Tribunal to AFCA. There are real concerns that there will be little, or possibly no, superannuation expertise on the AFCA board, which will leave superannuation members in a worse position. There have been concerns raised by stakeholders that determinations by AFCA may not even be enforceable against superannuation trustees, who have an overriding duty in common law and under the SI(S) Act.
This bill is more about politics than policy. It's about a government that desperately wants to distract attention from the need for a royal commission into the banks. Aside from increased monetary thresholds, which are still not settled and are not in the bill, there is very little change in this bill for customers who have had a dispute with the banks. They can go to an ombudsman scheme now. AFCA will be an ombudsman scheme as well, and AFCA will have no new powers to deal with these disputes.
As foreshadowed, Labor will move amendments to stop the abolition of the Superannuation Complaints Tribunal to ensure that the quality of superannuation dispute resolution is maintained. I hope the National Party and the crossbench recognise that this is a rushed job by this government to attack superannuation. It will be a problem for superannuation members, and this government is simply displaying its ideological opposition to superannuation for workers in this country. (Time expired)
The purpose of the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 is to amend the Corporations Act 2001 and other related legislation to implement the central recommendation of the Ramsay review. What was that? You've probably heard this from the minister several times. It was for the establishment of a new one-stop-shop external dispute resolution, or EDR, framework—the Australian Financial Complaints Authority.
The Australian Financial Complaints Authority will replace the Superannuation Complaints Tribunal, SCT, the Financial Ombudsman Service, which we know as FOS, and the Credit and Investments Ombudsman, CIO, in the existing EDR schemes approved by the Australian Securities and Investments Commission. It will also provide an enhanced internal dispute resolution, or IDR, framework. Basically it's about dealing with all customer financial disputes about products and services provided by any financial services firms, including superannuation disputes.
What is EDR, or external dispute resolution? EDR schemes are designed to provide a cost-free, relatively quick and independent service to resolve disputes between consumers and providers of financial services or credit. EDR schemes represent an alternative to the often costly and time-consuming effort of going to court. They may assist in resolving complaints through the use of negotiation or conciliation and requests for further information in order to help a complainant deal with a dispute.
The outcome of an EDR process may be a decision that is binding on the financial services or credit provider, if it is accepted by the consumer. This may include ordering that compensation be paid to a consumer, if they have suffered a loss, or a dispute may be resolved in some other way. As mentioned before, there are two EDR schemes, FOS and the CIO.
The FOS is an independent dispute resolution service for individuals and small-business holders. Those of us who have been working with the victims of financial crime for some years now are very familiar with FOS. It is governed by an independent board of consumer representatives and financial service industry representatives. It is typically the larger banks and their insurance arms which are members of FOS. Basically, FOS can generally hear disputes if: the dispute is between an individual or small business and a bank or financial institution, including credit unions; the financial services provider is a member of FOS; or the dispute relates to an act or omission by a financial services provider in relation to a financial service in Australia; a claim whose monetary limit does not exceed $500,000; a dispute involving a claim for more than $500,000, if all parties in FOS agree; and the event to which the dispute relates occurred no more than six years earlier. I note that the bill before us under the new AFCA structure improves outcomes in relation to FOS's current powers and limits on disputes on claims, which is a good thing.
The Credit and Investments Ombudsman, CIO, operates in a similar manner to FOS. Its key goal is to provide consumers with a cost-free alternative to legal proceedings for resolving disputes they may have with their financial service provider. Participants in the scheme include credit unions, building societies, non-bank lenders, mortgage and finance brokers, financial planners, investment managers, debt services and a wide range of other financial services and product providers. CIO operates mainly in the credit sector. Its member profile consists of nearly 24,000 members, about 97 per cent of which are sole traders and small businesses. That membership is mainly comprised of the group that I've just mentioned.
Lastly, the Superannuation Complaints Tribunal is an independent statutory tribunal. It's not subject to ASIC's approval, and only deals with complaints against trustees and certain insurers in relation to superannuation funds, annuities, deferred annuities and retirement savings, by virtue under the relevant provisions of the Superannuation (Resolution of Complaints) Act 1993. As explained by the industry super funds in submissions to this legislation, complaints about superannuation that are dealt with by the SCT are different to complaints about the financial products and services dealt with by other financial service external dispute resolution schemes.
That is the basic background on what we're dealing with here tonight. We're dealing with legislation that merges all three entities. The intent of that legislation is to improve outcomes for consumers, to make things quicker, to have a new funding model, to provide a one-stop shop and to get through a backlog of complaints and disputes in this country. I want to acknowledge Minister O'Dwyer and the work she has done to bring this legislation forward. The Greens have had constructive discussions and conversations with the minister over recent weeks. While we haven't yet reached a satisfactory accommodation on the inclusion of the SCT in this new AFCA, we do support the intent of merging the CIO and the FOS and improving outcomes for consumers.
We support the merger of the Financial Ombudsman Service, FOS, with the Credit and Investments Ombudsman, CIO, but we're still not convinced of the need to bring in the Superannuation Complaints Tribunal under the umbrella of the merged authority. We acknowledge—indeed, others opposed to the inclusion of the SCT in this new body, such as the CPSU themselves, also acknowledge—the need for the SCT to be reformed and to have better resourcing and funding. But a number of important stakeholders throughout the consultation process—indeed, even in the hours and days leading up to this legislation—still disagree that the inclusion of the SCT in the AFCA model is the way to solve problems with the SCT, and I will come back to that later.
This legislation can be related directly to the Ramsay review, as I mentioned earlier, but the origin of this bill stems from the government's unwillingness over this term of government to call for a royal commission into the banks and financial services sector. It was brought together quickly to reduce the volume of calls for a royal commission. In fact, the new AFCA was first floated as an idea to head off demands from Liberal MP Warren Entsch, to satisfy his concerns and prevent him publicly supporting a royal commission. It has since been spun, including by a large number of Liberals in this chamber, in debates and in the media, as an important part of their frame and a reason for not having a royal commission—or at least as a reason for the government not acting on implementing their own royal commission.
I often say that good legislation is a bit like baking a cake. We have the politics and we have the policy. The policy includes the ingredients that you need to make the cake edible, but the politics is what sets the oven at the right temperature to actually bake the cake. I think the government was hoping that they would get widespread support for this scheme as a substitute for having a full, in-depth royal commission looking at misconduct, but, as we know now, that changed after the Prime Minister's magnificent double-twist with a full pike backflip, which we saw last week. We now actually have an in-depth inquiry into financial misconduct in this country.
I want to talk a little bit about the royal commission and the terms of reference. It is very clear in the terms of reference. Item 1e) states that the commissioner will examine
the effectiveness of mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by a financial service entity.
We know that other aspects of the industry super bodies will be looked at by the royal commission. As I've said in here before, the Greens' bill that passed this place, which had the support of Senator Williams and the support of Labor in the House, also had broad enough terms of reference to have a similar inquiry by the commissioner. This issue will be looked at by the royal commission. We're now dealing with legislation before us which has been in train for some time, and since only a few days ago we have a commissioner looking at similar issues relating to disputes and the same body that was looking to merge into the AFCA.
The government has also been talking recently about a last-resort compensation scheme. It has been said—indeed, this was hinted at in the Ramsey review—that this would be ideally bolted onto the Australian Financial Complaints Authority. I haven't been involved in discussions with anyone about a last-resort scheme. I know that Senator Xenophon certainly talked a lot about that when he was in this place, and Senator Williams may have some light to shed on this. We know it was a live option for the government. There were active discussions on this until recent days. I don't know if it's still active and still under consideration. If a royal commission does recommend compensation or grounds for compensation for victims of financial crime, as I hope it will, then this scheme is going to be really important. If the royal commission is going to last only 12 months, why aren't we dealing with that in the legislation here tonight? That is clearly going to be an important part of any new financial complaints authority.
I'm not really sure that we've got the ingredients right here tonight. I don't believe that the SCT, the Superannuation Complaints Tribunal, should go into this body at the moment and I don't believe that the politics of this has set the temperature right for this to pass the Senate. I may be proved wrong in just a few minutes. What we have, when you think about it, is a confusing spaghetti bowl of ideas, policies, legislation and spin around financial complaints.
The spaghetti got you excited, Senator? Yes—you probably haven't had dinner yet. It's a quarter to seven. We aren't quite sure how it's all going to fit together at this stage, yet we're dealing with putting architecture in place to set up a one-stop shop, a super mechanism for dealing with victims of financial crime and financial complaints.
Let's talk a little bit about superannuation. We know that complaints are significantly lower in number than those about banking or other financial advice, and there is a chance that superannuation oversight could be pushed off to the side in relation to the avalanche of banking complaints. That's certainly been one of the key issues that's been raised in relation to this. We also know that there's a different subculture in relation to superannuation and other financial services. There are some fundamental differences in the products and their nature, and we're not convinced that due consideration has been given to the merging of the different cultures and stakeholders at this stage. We are concerned about job losses and whether the merger is driven purely by wanting to get more efficiencies and cost savings than necessarily driving through a larger mountain of complaints, and we haven't been able to secure any guarantees that there won't be job losses, especially from the SCT when it's merged into the new entity.
We have some really basic legislation here tonight, but we actually don't have any detail. There is considerable uncertainty around this legislation because there is no detail around the terms of reference. The minister herself has been quite open that they are under negotiation and they may take some time. She wanted to get the legislation in place before the terms of reference were sorted out, but that's one of the key reasons that we have such uncertainty on this legislation, especially in relation to the superannuation scheme.
Very quickly, I want to talk a little bit about the SCT. I want to acknowledge that I got a letter from Choice. Choice are a stakeholder that I've worked very closely with since I've been a senator on issues like the watering-down of the FOFA laws. Choice were brilliant, as they were in providing a lot of good advocacy work around the dangers of the Trans-Pacific Partnership Agreement. They are an organisation I respect. They have made it very clear to me, as they have to other senators, that they don't want to see the SCT removed from AFCA. They say the goal of a properly-functioning external dispute resolution scheme is to provide fast, fair and free resolution. On these grounds, the case for moving away from a rigid tribunal structure, which they believe the SCT is, to a more responsive ombudsman-style scheme is clear.
As outlined in the report of the Ramsay review, it took an average of 796 days for disputes that reached determination to be resolved by the existing Superannuation Complaints Tribunal, the SCT. This contrasts with an average of 62 days for the Financial Ombudsman Service, the FOS, in 2015-16. They highlight that some stakeholders have argued that these delays could be addressed through more funding, but repeated funding injections have failed to have any impact on delays. This is due to the inherent limitations of the tribunal model, where processes are determined by legislation, appointments of tribunal members are often delayed and any change to funding is dependent on the government cycle. They talk about the contrast of the flexibility around the ombudsman schemes. So they are a clear supporter of the government's legislation.
As I said earlier, I don't believe that Industry Super Australia or other stakeholders, like ASFA, the voice of super, which is for both the retail and the industry super funds, have the same clear view, and nor do the union, the CPSU, that represent the workers. I have a letter from them as well, with the signatures of the workers who currently work for the SCT. They believe the current bill actually weakens current appeal rights and protections for complainants, specifically around appeal rights and privacy. They have raised these issues in numerous letters, and they don't believe there has been anywhere near enough consultation. They agree the SCT is not perfect. They believe it has been chronically underfunded for years, a fact that has been universally acknowledged by both friends and critics of the SCT: 'Over the last year, we've seen just under a third of our workmates made redundant, and those of us who have remained have struggled with a growing backlog of complaints. An increase in funding would be welcome and would ameliorate our current problems. However, a permanent solution is needed.' They don't believe merging into the AFCA is the permanent solution that they need. They go on to say: 'The current industry funding model for the SCT is opaque and indirect. The money received by the SCT is determined by government and then recouped from industry membership fees and regulated by APRA. The funding needs to be transparent and linked to the number of complaints we receive.'
They have been constructive as well, saying there is a better way forward for them, and they have also questioned why the minister has made sure that AFCA has very similar statutory powers to resolve disputes in superannuation, which was the reason that they were set up and that they were different. They are saying that, by default, the minister has admitted that they are unique, they deal with different issues to the FOS and the CIO and they should remain separate.
I've got a number of issues that have been raised with me by groups such as Industry Super. They say they have expressed concerns about the new arrangements and how they could result in superannuation trustees or members of these funds subsidising an EDR process primarily used by non-superannuation financial providers, and this would be in conflict with trustee obligations, including their obligation to act in the interests of all members. They believe this legislation will be tested in the Federal Court if it's passed. They've also talked about funding issues. They prosecute the case that superannuation fund members should not, and legally cannot, subsidise other financial service disputes and, further, that self-managed super funds must contribute to the scheme or pay on a cost-plus basis when utilising the scheme.
In relation to governance, they say they will argue that there should be a separate AFCA superannuation panel with expert representation, which, most importantly for them, must include not-for-profit representation, a debate that we've been having in this chamber on other superannuation bills in recent days. That is the beauty of their model. They believe it works and it gets good results for their members. They also highlight that there's no detail in this bill. The terms of reference haven't been sorted out. We've seen criticism around that.
Finally, that leads me to talk about ASFA. ASFA's position is quite interesting. They step out the key reforms. They talk about their positions. They agree the minister has worked to meet many of their concerns, but they still have many key concerns. I'd like to read one of them because it relates directly to the commencement and transition period. ASFA is concerned that the implementation process has been rushed because the government was trying to get legislation in place to ward off a royal commission. They're my words, but they do believe this has been rushed.
ASFA considers it preferable that the Bill nominates a specific commencement date – no earlier than 1 January 2019.
The commencement date in front of us is July next year. They don't believe that this can be done effectively with SCT in that time period. There hasn't been the consultation and this has been rushed. This is coming from the retail end of the superannuation market as well as from the industry super funds. They go on to talk about how the wind-down period is not sufficient and that the merging of the two entities should occur over a longer period of time.
When we get to looking at some of the key stakeholders in the super industry, they're clearly not happy with this bill. My advice to the minister would be: let's pass the merging of FOS and CIA tonight. Let's get the architecture in place for a new tribunal that looks at both those entities and delivers better results for consumers, as I believe it should. I support that and the Greens support that. But, given the uncertainty around the terms of reference and the need for extensive consultation, I'd suggest a way forward would be to talk with the industry body about a potential phase-out of the SCT or a merger over a longer period of time. That should be considered as an option. It's obvious to me there's no confidence or trust between super industry stakeholders and this government. This government has totally politicised the industry super issue. We talked about it this week. Minister Dutton was talking about it around the royal commission. There's no trust. There has to be a process that builds trust between superannuation stakeholders and any government before the SCT is merged into any AFCA. There's a process here for going forward— (Time expired)
I will be brief. I'm not going to speak for 20 minutes. In relation to what has been put forward, I totally support the formation of AFCA. I say to everyone who comes into my office, if they've got a dispute with a bank, a credit union—which is very rare, of course—or a financial planner: stay out of court. Why stay out of court? If you get into the commercial division you might have your case heard in two years.
Senator Dodson interjecting—
That's the fast lane, Senator Dodson—a two-year court case. It'll probably cost you $300,000, $400,000, $500,000. You'll wait six to 12 months for a decision of the court, and then you'll face an appeal, which will be another couple of years. A dispute with a bank or a financial institution could end up being five years in the courtroom and a lot of stress, a huge amount of cost, a lot of worry, a lot of pressure on families et cetera. So my advice to everyone is always: stay out of the courtrooms. I think the only sure winners in a court case are the solicitors involved.
This legislation enables the Australian Financial Complaints Authority to be established from 1 July next year. I know that's not far off. We've just completed an inquiry into lending to primary industries—to farmers—which will report very soon. The problem is that you need somewhere to seek justice when you don't have any money. Even if you think you've been hard done by and you think you have a strong case, you can't go to court. It's really David and Goliath stuff if you think you're going to go to the courtroom on your own and fight the best solicitors, barristers and QCs. The playing field is just not level. However, AFCA establishes that level playing field as a one-stop shop where people can seek justice when they do not have money. Now, people might take a claim: they might be in small business and the bank has sold them up. They might think they've been treated very unfairly and they put a case to AFCA. AFCA might rule: 'Look, yours is a silly, vexatious claim. You have no claim. Don't come back to us.' Or they might say: 'You have a strong argument. We'd encourage the bank to have a mediation with you.' If that doesn't work they might say, 'We are going to make a decision and that decision is binding.' They can award up to $1 million for small business, and small business and farmers who have loans of up to $5 million can go to AFCA. At the moment, it is limited to $2 million for the Financial Ombudsman Service with a limit of $309,000 compensation, from memory. So it widens the scope and gives us a one-stop shop.
Earlier this year, the Carnell report recommended the establishment of an industry-funded, external-dispute-resolution network, which is a one-stop shop to hear disputes related to credit facilities of up to $5 million. Kate Carnell reviewed a number of cases that came before the parliamentary inquiry into the impairment of loans, which I was involved in on the committee. Ms Carnell said that about one-third of these cases were simply poor business decisions where the banks appear to have acted reasonably, a third were a mixture of poor business decisions and poor bank practice, and about a third were very real issues where the bank conduct is unacceptable and possibly unconscionable.
From that report came a recommendation that the banking industry must fund an external dispute-resolution one-stop shop, a dedicated small business unit that has appropriate expertise to resolve disputes relating to a credit facility of up to $5 million. Senators Whish-Wilson and Cameron made points about superannuation and the SCT. Surely if you are going to have the AFCA, the people involved in it, the people investigating the claims and the complaints, are going to be hugely experienced in that field of superannuation. Then you might have people in the specialist fields of financial planning and financial advice where you can take a complaint, then in investments, where you might think you have been dudded with a bank or financial institution, and then in lending. So a broad centre that can handle all complaints is essential. As I said, in a specialist field you've got to actually have specialist people to review the complaint and make a decision or recommendation.
The 2016 report Parliamentary Joint Committee on Corporations and Financial Services: Impairment of Customer Loans said:
The committee has no powers to investigate or resolve individual disputes, however the committee has used the cases presented to it to understand the practices of banks and makes the following observations:
How true that was. However:
The main allegations raised by submitters and witnesses from the inquiry were the use of non-monetary defaults, including loan-to-value ratios. Philip Ruddock, a very respected person, had many, many years in the House—I think about 41 years. He led this inquiry. He basically pushed it. The report continued with:
These are just some of the things. Surely, if the bank has lent money to a customer and they are in financial trouble and the bank wants to get them off the books, at least give them some time to renegotiate a loan with another institution. You can't get a loan overnight, especially if you're talking about the upper end of loan-to-value ratios et cetera.
I hope politics doesn't get involved in this because, as I said, my advice to everyone always is to stay out of the courtrooms. I hope this goes ahead. I'm very glad we've got the royal commission. Senator Whish-Wilson knew exactly where I stood on this before he even came to this place. It will do its job. The point is with AFCA, it should take a lot of relief off the court system. I have a friend, John Viscariello, who had a horrible time through the court system in South Australia. He is still waiting for his appeal case. The case was heard years ago—it was a long time back—and the decision hasn't been handed down. We'll leave it to the judges to make that decision. The courts seem to be very clogged up throughout the states, especially in South Australia. This should relieve a lot of pressure from the court system and hopefully take some costs off the state governments running their court systems. It should give that facility the one-stop shop where people can seek justice if they think they've been hard done by. It's not a place to go looking for compensation from vexatious and stupid claims. The people there, no doubt, will have expertise in their various fields. I think it's a good thing for all Australians.
Let's be fair dinkum: if the institutions do the right thing, then in a couple of years time AFCA won't have work to do. There won't be complaints. Perhaps that's a bit of wishful thinking. There will always be some complaints in the financial world, but, hopefully as the culture changes in the financial sector and the banking sector, we will see fewer and fewer disputes in the future. We will see that things are done right and that people are treated fairly. With a bit of luck AFCA might not have a big workload in years to come. It is essential that we have this one-stop shop somewhere—I repeat for the third time—where people can seek justice without having to be a multimillionaire.
In one case I remember a liquidator we dealt with who went to jail for three years. He was a rogue liquidator. He was liquidating a company and the company took him to court. It cost the company $1.8 million to have that liquidator removed. Those changes have been in place from September last year. That won't have to happen again, hopefully.
I hope the parliament supports this. Sure, for anything like this, there will be teething problems. You never get it perfect first up. We spend a lot of time in this place correcting legislation, even from the Howard government and from the Rudd government et cetera, where things don't work out as planned. There's going to be some fine-tuning and some modification, but let's get it underway so that people, come 1 July next year, can seek that justice and get a good, binding decision, hopefully, in a quick period of time without huge costs.
It's a pleasure to follow Senator Williams in this contribution. I acknowledge his longstanding interest and advocacy in this area, but, I must say, I can't share his confidence in the new authority that's been set up as a result of this bill. Whilst I hope that it does work for consumers, there are some signs here that we are going to see some difficulties.
I rise to make a contribution on the debate on the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017. I want to put on the record, at the outset, my disappointment about the real reason we are debating this bill today. It's because the Prime Minister, for so long, resisted Labor's call for a royal commission into the banks. After 601 days of pressure from the Australian community and from Labor, the government has finally accepted the reality that there needs to be a banking royal commission. The Prime Minister has been dragged, kicking and screaming, to that conclusion at the behest of the banks. He has even described it as a 'regrettable' outcome. If the Prime Minister had listened to us earlier, we might now be discussing the findings of a royal commission, which could have been running for the last couple of years. We could have been looking at the findings today instead of debating another part of the piecemeal approach, which has been used as a foil against a royal commission, which is his attempt to look at consumer protection in the financial sector.
It's not just the Prime Minister's legislation agenda that is in pieces, as we close out 2017. We can see from the events of last week, in the wake of the LNP's dismal performance in the Queensland state election, that this coalition is deeply divided. As Senator Canavan keeps pointing out, they keep separate party rooms and have separate meetings. Now we hear the Queensland Nationals want to run a separate campaign in the Sunshine State. They do not want the Prime Minister anywhere near them. I see that the federal member for Flynn is on board with that strategy. The Gladstone The Observer reported, on 29 November, Mr O'Dowd as saying:
I can see us becoming irrelevant if we keep heading down the path we're headed.
It seems he also agrees with Liberal Senator Ian Macdonald that the Prime Minister isn't representing regional Queenslanders, saying:
We're becoming, in the eyes of the public, more city-orientated than rural and regional.
So there is something that they agree on, but the divisions run deep—so deep that the news headlines last week proclaimed an LNP divorce. Again I refer to the federal member—
To assist, I will come back to the issue. These were important scene-setting comments to be made in relation to my contribution. Even though the Prime Minister has now finally seen sense and announced a banking royal commission, he still wants to keep running this protection racket for the banks. Let's not consult the banking victims on the draft terms of reference and let's try to distract from the conduct of the big banks by targeting industry super funds. How predictable it is that this government, which has for so long acted at the behest of the major banks, would find it irresistible to take the opportunity to get square with the banks' major competitors in the occupational superannuation space.
The fact that the union and worker reps are participating equally with employers on the boards of industry super funds and that those funds are outperforming the major banks with returns and lower fees doesn't stop the government's ideological war on unions and its slavish support for the big banks. It's little wonder that on 1 December the Gladstone Observer reported the member for Flynn as 'remaining cautious about whether he will back the establishment of a $75 million Royal Commission into the banking sector'. It's clear to me that National Party members have given up on the Liberal Party because they know deep down that the government wants to stand up for the big banks, not ordinary Australians. The ad hoc, piecemeal legislative approach by this government has been heavy on politics but light on policy, with no real outcomes for banking victims.
Now, we have a royal commission. We need to make sure we get the terms of reference right. The government needs to stop running its protection racket for big banks. We know that the Australian public are sick of hearing about the big banks' huge profits and million-dollar bonuses for CEOs, while the little people get ripped off. In fact, the Prime Minister all but acknowledged this when he said on radio last year:
We will get a low-cost, speedy tribunal to deal with these types of consumer complaints, customer complaints against banks, and this will be real action.
But it seems that this statement was more about paying lip-service to his backbench, trying to hold off the inevitable, and less about new action. In fact, rather than establishing a new tribunal to deal with consumer complaints, through this bill the government is actually proposing to scrap the tribunal that we do have.
We need a fair dinkum royal commission to provide a transparent, thorough investigation into the banking sector, a process that the public can have confidence in. That's why we have been calling so long for a royal commission. We want to see action and recompense for consumers who have been ripped off. I know Senator Williams has been at a number of the hearings that I have been at, where too many times we heard examples of ordinary people being mistreated by the major banks and their subsidiaries. But, all the while, we've seen the Prime Minister coming up with thought bubbles to deal with this pressing public policy issue.
I talked last week about the Prime Minister's thought bubbles on a range of issues—things that pop up out of the Prime Minister's head—and then he backs away from them, and they disappear without a trace. We all remember the propositions of states levying income tax, Commonwealth funding for Catholic and private schools but state funds for state schools, increasing the GST, reining in negative gearing excesses. The Prime Minister floated all of these propositions and backed away from them. I encourage the Prime Minister now to see sense and back away from scrapping the Superannuation Complaints Tribunal.
In September this year this bill was referred to the Senate Economics Legislation Committee, of which I am the deputy chair. The committee examined the Ramsay review in detail, along with another 31 written submissions. We heard evidence from stakeholders at two public hearings, on 9 and 10 October in Canberra and Sydney. In its report tabled in October the committee was in agreement that parts of the AFCA bill have merit, and I will come back to that. However, Labor strongly disagree with the government when it comes to the abolition of the SCT. We are seeking amendments to the bill to ensure that the tribunal and its important functions are retained.
First, let's just recap briefly why the government has introduced this bill, apart from the obvious reason of trying to quell demand for a royal commission. The government acknowledges that consumer protection in the banking and financial sector is a mess. The current system offers two different ombudsman services: the Financial Ombudsman Service and the Credit and Investments Ombudsman, both overseen by ASIC. Unfortunately, after myriad minimergers and reforms, the system has broken down to the detriment of consumer protection in the financial services industry. Currently the funding model is not working properly. Consumers are confused about where to go for dispute resolution. Financial providers are confused about which dispute resolution service they should be a member of—some are so confused they have joined both. Other providers—namely, debt management schemes—are not members of either. Further, the financial threshold at which claims can be brought by consumers is outdated, because the average mortgage has grown considerably in recent years, and the current threshold precludes many small businesses accessing free dispute resolution because the value of their claims falls just outside the limits.
For these reasons the bill proposes to merge the FOS and the CIO into a one-stop-shop for consumer complaints. On the face of it Labor have no problem with this element of the bill. Our dissent relates to the SCT. The committee's inquiry has clearly shown that the new one-stop-shop authority will not have any new or additional powers that the existing dispute resolution bodies don't already have. Remember the Prime Minister trumpeted that there would be real action for consumers. The truth is that, in relation to non-superannuation disputes, this bill is really just a rebranding exercise. The committee noted concerns from submitters and those who gave evidence at hearings that amalgamating the ombudsman services would lead to bigger organisations taking control and affordability issues for small operators. I take the opportunity here to acknowledge constituents in Queensland and local businesses who wrote to my office about this aspect of the AFCA bill. While Labor does not oppose the merger of the ombudsman services, I do encourage those constituents who have contacted me to take every opportunity to provide their input again when any new arrangements are reviewed in the future.
As I've just said, despite the way that the government has wasted time and resources going about this, Labor is not opposed to the government's rebranding exercise. It's clear that the Nationals are putting a lot of effort into rebranding at the moment, so perhaps the Prime Minister could get some advice from them about that and the rebranding of the dispute resolution procedures. But, as I said, what we're strongly opposed to is the proposal to abolish the SCT as part of this bill. The tribunal was legislated by the Keating government following the Labor government's historic introduction of a superannuation guarantee in the early 1990s. In my first speech to this parliament I pointed to our world-class occupational superannuation system as a crowning achievement of Labor's industrial and political wins and I pledged to continue supporting improvements to enhance the capacity of Australian workers to retire with financial security and dignity.
Today we fight to stop the government from taking us backwards through abolishing the key consumer protection body for free dispute resolution of superannuation complaints. Instead of strengthening consumer protection for superannuation complaints and getting real action, the government wants to water it down by lumping it in with the ombudsman merger. As it stands, the Superannuation Complaints Tribunal is a statutory body and it operates with a couple of key differences to the ombudsman model. The funding, for example, comes through the government rather than directly through industry. The types of disputes put before the tribunal are often complicated and require a high degree of specialist technical knowledge to resolve. The tribunal also has regard for the legality of disputes, not just fairness.
In making the case to tear apart the tribunal, the government points to the findings of the Ramsey review: that it is chronically underfunded, it's outdated, inflexible and takes too long to resolve disputes. These are some of the conclusions. These findings should come as no surprise, though, since, under the Abbott-Turnbull governments, the tribunal has seen its funding cut and staffing levels slashed. It is no wonder the timeliness of resolutions has suffered as a result and this is at a time as one of our biggest cohorts, the baby boomers, are entering their retirement phase and about to start drawing down on superannuation funds. You would now think it's about time to invest in consumer protection measures around superannuation, not to destroy them. It's not just the baby boomers who are interacting more with their superannuation funds.
The Ramsey review identified that over 14.8 million Australians have at least one superannuation account, with assets across the system totalling $2.2 trillion. With most super funds offering members opportunity to track their super balances online these days, consumer understanding about superannuation products is likely to grow and with it complaints and the need for dispute resolution. We need to encourage consumers to take an active part in the superannuation system and their individual fund or funds. This includes education about when to question a product's validity. If we don't have a clear-cut complaints process for superannuation to stand alone, we risk decreasing consumer understanding and thus access to free advice and dispute resolution services.
The tribunal, as it stands, also deals with complaints about superannuation related life insurance, which can be particularly emotive where complaints are concerned. In these cases, the tribunal not only draws on its technical expertise but on the sensitivity of the issues as understood by the experts and its enshrined confidentiality provisions around the hearing and collection of evidence. I have had some experience in my former life in this area of disputes in relation to superannuation, particularly life insurance entitlements. As an alternative director of the REST Industry Super, we came across many heart-wrenching cases of young members of the superannuation fund who tragically passed away in motor vehicle accidents, for example. With separated families, we found there was contest over who was to be the beneficiary of the life insurance policy held by the deceased member of the superannuation fund. So these are highly complicated matters and they're very much emotive issues.
If this tribunal is abolished and superannuation complaints are directed to the one-stop shop, it's likely that the specialist knowledge of the tribunal model will be lost or, at best, diluted. There is absolutely no guarantee that confidentiality will be respected in the same way. Merging the tribunal into a non-statutory ombudsman service also strips it of other features, namely the enshrined appeal rights for both process or administrative issues and judgements. Only judgements would be able to be appealed under the government's proposal, leaving consumers no recourse if their case was refused for hearing in the first instance. The tribunal can compel parties currently to attend hearings and produce documents. The tribunal can also attach a third party to a dispute.
The government says it will take some of these powers and give them to AFCA for use only in superannuation matters, effectively saying, 'This is a one-stop shop; hang on, actually, a third of it operates differently.' Surely, it would be simpler to leave the tribunal as it is and start funding it properly. The government's argument for merging the FOS and CIO is that consumers are confused about where to go for help. To be fair, we did hear from the consumer organisation Choice, who did offer some support for that proposition. I argue that this works in reverse, though, where superannuation is concerned. It is much more difficult for a consumer to figure out they should present their superannuation complaint to something called the Australian Financial Complaints Authority than—