Dare you challenge a decision from the Financial Ombudsman Service?

Every day Princeville Credit Advocates advises clients on their options when they have a dispute with a Financial Services Provider (FSP). Where they have the basis to pursue their complaint with an ASIC-approved External Dispute Resolution (EDR) Scheme - the FOS or CIO - we typically advise our client not to do this on their own. This is not done on the basis of inclination or personal preference. Our advocates have a specific responsibility to put our client’s interests first.

Based on nine years of experience making complaints to the FOS and CIO it is clear these schemes are in urgent need of reform. A primary reason that reform is needed is that the FOS and CIO place too great a burden on aggrieved consumers to prove they haven’t been treated fairly, while offering no aid to consumers to develop and articulate their complaints before being put to FSP’s for their response and rebuttal if they deem it appropriate.

Although we understand the concept of “user friendly” EDR schemes which assumes consumers are unrepresented and are therefore largely costs neutral, the hobbling of consumer representation does not work in practice because it creates an inherent resource imbalance: FSP’s are routinely directly represented by articulate advocates with legal training. Unlike FSP’s (particularly Banks and insurers), consumers do not have a battery of corporate lawyers on the payroll.

What a consumer may not understanding when engaging an EDR is that the basis of the relationship between the consumer and the EDR is contractual. The terms of the contract are found in the Terms of Reference (TOR’s) of the EDR. Consumers usually enter this contract with no understanding of the TOR’s or their effect, or the relevant case law. Nor do they understand the limited scope for review of a FOS or CIO Determination. Determinations are final (the contract stipulates this) which makes it vital that consumers submit a well-constructed complaint in the first instance.

Over the past decade, the Courts have afforded the FOS broad discretion when making Decisions, and the process by which these Decisions are made is not easily challenged in the Courts. FOS Decisions are susceptible to judicial review only if there is an error of law. Or the Decision was affected by fraud or dishonesty or lack of good faith. Or the Decision was not carried out in accordance with the contract between the consumer or member and the EDR. Or if Wednesbury unreasonableness is proven – namely that the decision was one to which no reasonable decision-maker could properly arrive at on the evidence. This is a very high threshold.

One example of the breadth of discretion afforded to FOS is the recent decision in Goldie Marketing and Ors v FOS and ANZ [2015] VSC where it was held appropriate FOS' exclusion of a dispute based on a current lack of qualified staff.

The FOS and CIO are not bound by precedent as Courts are so one Determination can differ significantly from another. This variance is no basis for challenging a Determination however; unless fraud, dishonesty or a lack of good faith is proven, or the high threshold of Wednesbury unreasonableness, a Determination will stand. If these are proven, the Court will order the EDR to review the Determination. Courts will not change a Determination unless there is an error of statutory or judge-made law.

The FOS and CIO are incorporated bodies funded by a base and user pays levy on industry. This model has its own pros and cons; however, we observe that non-government bodies may be perceived as being too closely connected to industry, from whom they recruit many of their staff and Board members, and are therefore too susceptible to influence. That risks undermining the presentation of the schemes as independent. Furthermore, the Board structure is inconsistent with public perceptions of independent tribunals and courts. 

In conclusion, reform of the FOS and CIO must address the imbalance between the consumers who make complaints and the Financial Services Providers (FSP’s) who defend them. Consumers are encouraged to make complaints to FOS “for free” but are not assisted by FOS in the preparation of their complaint or in understanding the case law. The FSP’s on the other hand are often corporations who have large teams of lawyers who understand FOS’s processes and TOR’s, and the applicable case law. Reform should also address the perceived lack of independence of these schemes.

Given the finality of a FOS or CIO Determination, and the lack of judicial review options available to challenge these decisions, it is imperative that consumers have the assistance of skilled representatives to prepare complaints and argue the merits of the case. We are regularly able to change a EDR Review Decision based on the evidence, in favour of a consumer, prior to Determination. Once a case is Determined, it cannot be re-opened. It is therefore vital that the complaint put to the EDR is well-constructed and argued in the first instance, to achieve the best result for the consumer.

Bio: Dr Merrilyn Mansfield is a consumer advocate at Princeville Credit Advocates. At Princeville, she heads the advocacy team, and works on complex cases for consumers and companies with negative, and potentially incorrect, information on their credit files. Dr Merrilyn is in her third year of Law. To contact Merrilyn please call 1300 93 63 63. 

Note: This article is based in part on the Maurice Blackburn Submission to the review of the financial system External Dispute Resolution framework - http://bit.ly/2jb4m9s