How can the Government in Australia fully protect consumers against fraud by wrongdoers in the financial sector?

Following the passage of the Future of Financial Advice (FOFA) reforms through the House of Representatives, the Government asked Mr. Richard St. John to prepare a report into Compensation arrangement for consumers of financial services following consultation with industry, consumer representatives and other interested parties.

The report was commissioned in response to the 2009 Parliamentary Joint Committee on Corporations and Financial Services report into financial products and services in Australia. It examines the existing compensation arrangements available to consumers of financial services and evaluates the need for the introduction of a statutory compensation scheme. Mr. St. John concluded that,

“If the current arrangements are reinforced then it would be open to round them out in due course with a more comprehensive scheme of last resort but recommends that it would be inappropriate and possibly counter-productive to introduce a last resort compensation scheme at this stage. Introducing a last resort scheme without strengthening the existing arrangements first would have the effect of imposing on better capitalized and more responsibly managed licensees the cost of bailing out the obligations of failed licensees.”

Unfortunately, Mr. St. John when compiling his report into Compensation arrangement for consumers of financial services didn’t have the benefit of having a Royal Commission enlighten him about what was really going on in the financial services sector. If he had known then what we all know now, he would surely have had a change of heart because it is abundantly clear that a last resort compensation scheme is absolutely essential! I believe that I speak for the majority of consumers in this country when I say that there has never been a more pressing need for the introduction of a statutory compensation scheme than right now. I also believe that a Government Consumer Protection Insurance scheme along the lines I and Russell Cousins (the founder of Bankvictims P/L) have proposed in our Petition to the House of Representatives and in our submission to the Royal Commission is the only solution that will deliver a satisfactory outcome for all consumers moving forward.

In the following pages, I will discuss the major obstacles that currently exist which act as impediments to consumers obtaining adequate and prompt compensation when they have been wronged. Then, I will outline our ideas for a government consumer protection insurance scheme and list the benefits that would flow on from such.

We are convinced that such a scheme would produce the best outcome for consumers because it would provide justice and equity where none currently exists. It will also ensure that all parties are playing on a level playing field rather than one that is tilted heavily in favour of the banking and finance sector.

INTRODUCTION

The Commission has done a remarkable job to date in uncovering the corruptive nature of the banking and finance industry. There is little doubt that the injurious impact the conduct of the major banks and some financial advisory services has had on the lives of thousands of Australians has been catastrophic. Millions of people place their trust in these institutions only to find now that such is sadly misplaced. The people of Australia have not only been betrayed by unscrupulous bankers, but also by a regulatory regime that has clearly failed to protect them.

The Bankvictims' web site https://bankvictims.com.au/ (and the many others of similar vein here in Australia) are places where the victims of the rogue elements in the financial sector come to vent their feels and their frustrations. They provide such an outlet because those that have been wounded by banks and financial advisers have nowhere else to go.

It seems to us, the past victims of Banks and financial advisory firms, that this and past governments have simply put the problem of recalcitrant banks in the ‘too hard basket’ until now, that is, because public outrage had finally bubbled over and a long awaited Royal Commission has resulted.

The misconduct in the banking industry, that the Royal Commission’s findings have revealed, has at last woken this government up to a fact that “the banks are out of control and something has to be done now to curb their excesses before the situation becomes terminal for thousands, if not millions more Australians!” Indeed, many thousands have already been washed away in this madness.

For too long now, one inquiry after another has taken place, one hearing after another has occurred, one paper after another has been written and they all revolve around the same question, “How can the consumers in this country be fully protected from wrongdoers in the financial sector?” Millions of dollars have been spent trying to solve a problem which appears to be insurmountable. Yet, the answer has been staring the government in the face all along. The fact that they have been looking outwardly at the problem rather than inwardly hasn’t helped.

What we have proposed in our submission is for the government to supply a buffer between consumers and the financial sector. This buffer would be in the form of consumer protection insurance. Under the system we propose, a government body would be set up to offer: (1) consumer protection insurance cover to all those that are consumers of banks and financial advisers and (2) process and pay out all compensation claims to claimants where claims are found to be valid.

This would put an end to consumer uncertainty and restore order to the banking and financial advice industry that has been absent for far too long.

We believe that our proposed consumer protection insurance scheme in principle offers the only viable solution to a raft of problems that have been plaguing the financial sector since the deregulation of the banks. It certainly provides the answer for consumers that value the safety of their capital above all else. We hope that you see it this way too and validate our proposal in your final recommendations.

PATHWAYS TO COMPENSATION AS THEY CURRENTLY EXIST

When a consumer has been deceived by a financial adviser or advisory firm, the obvious place to go to when making a claim is the insurer for that financial adviser or advisory firm. After all that person or corporation must have arrangements for compensating clients for loss or damage suffered because of breaches of their relevant obligations under the Corporations Act. Unfortunately, there is an anomaly in the Corporations Act with regard to professional indemnity insurance that has still not been addressed.

SECT 912B of the Corporations Act – ‘Compensation arrangements if financial services provided to persons as retail clients’ states:

(1) If a financial services licensee provides a financial service to persons as retail clients, the licensee must have arrangements for compensating those persons for loss or damage suffered because of breaches of the relevant obligations under this Chapter by the licensee or its representatives. The arrangements must meet the requirements of subsection (2).

(2) The arrangements must:

(a) If the regulations specify requirements that are applicable to all arrangements, or to arrangements of that kind that satisfy those requirements; or

(b) Be approved in writing by ASIC.

(3) Before approving arrangements under paragraph (2) (b), ASIC must have regard to:

(a) The financial services covered by the license; and

(b)  whether the arrangements will continue to cover persons after the licensee ceases carrying on the business of providing financial services, and the length of time for which that cover will continue; and

(c) Any other matters that are prescribed by regulations made for the purposes of this paragraph.

(4) Regulations made for the purposes of paragraph (3)(c) may, in particular, prescribe additional details in relation to the matters to which ASIC must have regard under paragraphs (3)(a) and (b).”

This is all well and good if a financial adviser is still in business and the claim by the client is lodged within the life of the policy, but it provides no compensation whatsoever if the financial adviser or financial advisory firm folds up. The Storm Financial collapse in early 2009 is a case in point. We, Helen and I, lost $1.6 million in this financial debacle. When I lodged a claim some 18 months after the event (we couldn't obtain the name of Storm's insurers before then due to government bureaucracy ) we found that Storm’s professional indemnity cover had run out. Furthermore, Storm’s PI insurance policy was conditioned in such a way that it could not be rolled over. It turned out that Storm Financial did not comply with Section 912B of the Corporations Act because its PI insurance did not have the capacity to compensate Storm’s clients for their losses.

ASIC has an obligation under the Corporations Act to ensure that financial advisory firms and individuals have adequate PI insurance that will compensate their clients fully if fraud should occur. In SECT 912B of the Corporations Act, it states at sub-section (3) (b) “Before approving arrangements under paragraph (2) (b), ASIC must have regard to: whether the arrangements will continue to cover persons after the licensee ceases carrying on the business of providing financial services, and the length of time for which that cover will continue…”

Recently, financial planning group Dover Financial Advisers abruptly pulled the pin on its advice services just weeks after its founder collapsed on the stand at the Royal Commission. Dover Financial was one of the 10 biggest financial planning outfits in Australia with more than 400 planners operating under its license around the country. Where do Dover’s customers now go if they want to pursue Dover for compensation? Like Storm’s clients before them, they are now also in limbo.

One of the reasons that ASIC compromises with licensees where PI insurance is concerned is because the insurance industry does not offer the type of cover that would protect consumers fully if financial advisers do the wrong thing by them. Rather, they offer one that provides that insurer with less risk. In so doing, it extends the risk to financial advisers’ clients. Furthermore, this type of insurance does not meet the requirements of the Corporations Act as set out in ASIC REGULATORY GUIDE 126: ‘Compensation and insurance arrangements for AFS licensee – 2010’

“RG 126.45 If exclusions in a PI insurance policy undermine the policy objective, it is hard to see how the cover can be adequate. This applies especially to exclusions that relate directly to the minimum scope of cover described above.”

Here’s part of an article by ‘FindLaw Australia’s Michael Gill entitled, ‘Section 54 Review of the Insurance Contracts Act which explains the situation more fully:

“Particular problems have emerged in relation to the operation of section 54 of the Insurance Contracts Act upon claims made and claims made and notified policies. The benefits extended to insureds by section 54 have been gradually extended by the courts. In particular, in the 2001 case of FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd, the High Court applied section 54 to a deeming clause in a professional indemnity policy. A deeming clause can extend an insured's cover even if no claim is made against the insured during the period of insurance. It extends cover provided that the insured gives written notice during the period of insurance if it becomes aware of any occurrence which might subsequently give rise to a claim against it. An insurer has been obliged to indemnify an insured who failed to notify circumstances discovered during the currency of a policy unless prejudice could be proved.

Since Australian Hospital Care, insurers writing claims made and claims made and notified policies have tended to omit deeming clauses from their policies. This leaves the insured to rely on the statutory right given by section 40(3) of the Act. It has been held by the New South Wales Court of Appeal in Gosford Council v GIO General Limited that section 54 does not apply in relation to the statutory right provided by section 40(3) but, as the Report rightly points out, 'there is still some uncertainty because the High Court may well reverse the effect of the decision in Gosford Council v GIO General Limited'.

The Report indicates that there was strong evidence that the judicial interpretation of section 54 was a factor having material impact on the professional indemnity insurance market in Australia. Some insurers, particularly London insurers, had withdrawn from the market, or had altered their policies in an effort to reduce the impact of the decisions. Others made it clear that they would withdraw if those alterations were found by subsequent judicial decisions to be ineffective. The reviewers also report that even where cover remained, the cost was increasing alarmingly and the comprehensiveness of the cover was declining.

The Report concludes that legislative reform is necessary in relation to the operation of section 54 on claims made and claims made and notified insurance. It recommends that section 54 be amended so as not to apply to a failure to notify circumstances that might give rise to a claim. This would amount to a statutory reversal of the High Court decision in Australian Hospital Care Pty Ltd.

Section 40(3) only gives a statutory protection to an insured where notice of facts that might give rise to a claim is made as soon as was reasonably practical but in any event before the insurance cover provided by the contract expired. The Panel has recognized that this could give rise to unfair results and has recommended an extended reporting period of 45 days after expiry of the insurance policy. There is also a recommendation that insurers provide a pre-expiry notice to insured of their need to notify circumstances, unless there is, to the insurer's knowledge, a broker involved.”

This loophole has existed for a number of years now and it is totally unacceptable. If the insurance market cannot offer the type of insurance cover that will fully protect consumers, then this one fact alone suggests that the government must step in and provide such protection. This Government and ASIC have a responsibility under the Corporations Act to do just that. At the moment, ASIC is allowing the market to dictate terms when it should be the other way around.

The Government is answerable to the Australian people because we elected it. By its failure to ensure that the financial sector is being regulated in accordance with the consumer laws that have been enacted to protect consumers, it has failed in its duty. It’s time that the Government acknowledged this fact and did something constructive to rectify the situation. Thousands have perished so far. How many more must go under before something is done to give us the protection we deserve. The protection we demand!

BANKS – COMPENSATION

The Banks hold sway over the financial sector and dictate to rather than contract with consumers. They are allowed to do this because they have fooled our politicians into believing they abide by a ‘Code’ (code of banking). They do but it’s their Code, not ours, because they have rewritten it to suit their purposes, not ours.

Since deregulation and the introduction of this Code, there have been many reviews that have highlighted major flaws in the ‘Code’ but nothing is ever done to bring the Code into line with common law and equity. Instead, in consumer contracts, the banks insert their own conditions even though these conditions are neither in the spirit of the Code as it was first envisioned or in tune with our consumer laws. Evidence of this has already emerged during the Royal Commission hearings.

There have been individuals over the years that have written at length about the unfairness of the Code but their warnings have gone unheeded. One such individual is Mr. Archer Field BEc, MBA, who has written two papers entitled ‘THE AUSTRALIAN BANKERS’ PROBLEMATIC CODE’ which are required reading for anyone that wants to understand why the codes of banking are no more than smoke and mirrors, intended to lull us into believing that the banks have our interests at heart. The reality is that the banks contract with their consumer customers on their terms and then proceed to breach them when it is convenient for them to do so. The Commissioner has already evidenced this for himself when the banks’ nominees have testified.

The following information has been extracted from Mr. Archer Field’s reports:

Between 2004 and 2012, 2.5 million complaints had been made under the Code of Banking Practice. Of these, only 200 complaints were fully investigated. While it is unlikely that all 2.5 million complaints would have involved legitimate instances of bank breaches, a regulatory system that investigates such a minute fraction of complaints has clearly failed.

The CCMC (Banking Code Compliance Monitoring Committee), in its 2014 annual report, stated that in the 2013-2014 financial year, the 18 banks that adopted the Code investigated 1,099,272 disputes, under their internal dispute resolution schemes. Of these disputes, the banks reported to have found that they had breached the Code only 5,762 times. This number is simply too low to warrant the view that the banking regulatory system in Australia adequately protects its customers.

The lack of protection afforded to small businesses and individuals can be further blamed on two main factors; firstly, bank customers are not adequately informed of their right to take complaints to the CCMC, and secondly, the constitution of the CCMC, hidden from the public, seriously restricts the cases which the CCMC can investigate.

The CCMC, in its 2014 Annual Report, stated:

“The small number of allegations received from consumers and small businesses for investigation each year remains a concern”.

Of the 1,093,510 disputes lodged with code-subscribing banks, only 42 were referred to the CCMC. Meanwhile, the CCMC reports that there were only 4,854 visitors to its website in 2013-14. With regard to these figures, it is clear that the CCMC and its compliance functions lack public awareness.

One of the major causes of this is that the Code does not require banks to inform customers of the CCMC’s existence, or of their right to lodge breaches of the Code and complaints with the CCMC. As a result, the major banks in Australia only publicize customers’ right to lodge complaints with the CCMC in an extremely minimal way. It is of no surprise, then, that the CCMC does not receive more complaints.

Clause 34(b) (ii) of the Code notes that CCMC’s functions are:

“To investigate, and to make a determination on, any allegation from any person that we have breached this Code.”

Although this clause seems to require the CCMC to investigate any and all allegations that a bank has breached the Code, the CCMC is also bound by a constitution placed upon it by the ABA in 2004 that is contrary to the spirit and intention of the Code as it was laid down. A question mark remains as to whether the ABA’s constitution is in violation of the conditions laid down in the banking codes that materially affect the contractual rights of the banks’ consumer.

This constitution was first made available to the public in July 2012, and then it was only to a group calling itself the JMA Parties. The constitution is still not readily provided to consumers. Under it, the CCMC’s powers to investigate are seriously restricted.

Clause 8.1 of the Constitution restricts the CCMC from investigating a dispute, if the CCMC is, or becomes aware that the complaint is being, or will be, heard by another forum.

Thus, where a dispute is, or will be, heard in another ‘forum’, the CCMC no longer has the power or the responsibility to consider the complaint.

For the purposes of Clause 8.1, a ‘forum’ is classified as:

“Any court, tribunal, arbitrator, mediator, independent conciliation body, dispute resolution body, complaint resolution scheme (including, for the avoidance of doubt, the BFSO scheme) or statutory Ombudsman, in any jurisdiction.”

This means, that where a bank chooses to escalate a complaint to another ‘forum’, the consumer is stripped of the right to have the matter referred to the CCMC. Further, as the constitution is not disclosed to the customer, they are stripped of this right without being informed that this is the case.

Complainants are not given any explanation as to why the CCMC will not investigate a complaint, other than that it has a ‘conflict of interest’.

Further restrictions placed on the CCMC by its constitution were highlighted in its submission to the independent review of the Code in 2007-08.

Specifically, the CCMC members revealed that its ability to “name and shame” banks who breach the Code is limited, since it must receive approval from the ABA Chair before making any public statements, other than in its annual report. The CCMC also noted it can only name banks which have repeatedly breached the Code and failed to rectify issues raised by the CCMC. This significantly undermines the core role of the CCMC as envisioned by the Martin Review.

The CCMC has also questioned the authority the ABA Chair has over its funding, and the fact that due to budget constraints its annual reports have very limited circulation.

In its submission, the CCMC ultimately calls its constitution “problematic” and the governance arrangements “inadequate”. However, following publication of the 2007-08 review these opinions outlined in its submission were not addressed, causing the three members of the CCMC to resign shortly after its release.

In 2013, the ‘CCMC Mandate’ replaced the constitution. Unlike the constitution, the mandate has been made publically available. Little appears to have changed however, and the CCMC is still restricted in investigating complaints.

In fact, as outlined in the CCMC’s 2014 annual report, the mandate further restricts the CCMC by denying it the authority to investigate those complaints involving initial clauses of the Code. The current version of the Code appears to be an attempt at ‘cleaning up’ the dishonest period of banking in the light of sustained criticism.

The major Australian banks claim that they are bound by a ‘world class’ Code, monitored by the CCMC, supported by the Financial Ombudsman Service (FOS), and approved by ASIC. It is evident, however, that the Code of Banking Practices is unclear and ambiguous. The Code Compliance Monitoring Committee is unknown, unused, and ineffective, severely restricted by a hidden constitution and damningly criticized by its own staff.

The Financial Ombudsman Service (FOS) in its role as regulator, has failed to protect consumers from dishonest bank practices.

As a private company, the Financial Ombudsman Service Limited is unaccountable for its decisions. As was ruled in Mickovski v Financial Ombudsman Service Limited & Anor [2012] VSCA, FOS decisions cannot be subjected to judicial review. As a result, a complainant is left with no avenue for redress even if the FOS rules incorrectly or unfairly in its’ arbitration of a dispute. The FOS, funded by Australian financial institutions, is lacking in transparency and independence. The Financial Ombudsman Service Limited is an unaccountable, bank-reliant, private company that is limited by its Terms of Reference to the detriment of small businesses, farmers, and individual customers.

ASIC, which refers bank complaints to the FOS, has abrogated its regulatory role to a private company funded and staffed by the Australian financial institutions. That ASIC has approved of this arrangement is indicative of the degree to which banking regulation in Australia is a bank-run affair. Banks set the rules of their own game and have the financial resources to outgun any legal efforts made by consumers to bring the banks to account for their abuse of power.

Both the Campbell Review and Martin Committee endorsed deregulation of financial markets on the precondition that consumer protections were put in place to protect individuals and small business.

The Martin Committee stated that government must ensure: “Adequacy of redress available to consumers in cases of dispute with their bank”. The government has failed abjectly to do that and thousands have suffered as a consequence.

By limiting alternative dispute resolution mechanisms and the power of compliance monitors, the Australian banks have denied individuals, farmers, and small businesses necessary consumer protections. Banking regulation in Australia has failed, despite recommendations made in both the Campbell Review and Martin Committee. Both reviews endorsed stronger alternatives to court action for breaches of the Code. However, under the present self- regulation system, there is no alternative for the majority of bank customers than to go to court to bring banks to account.

The irony is that the Code was actually introduced as an alternative to the Courts system with a supposed cheap, speedy, fair and accessible alternative for customers where complaints could be resolved justly? That aspiration has never materialized because the Code has been enfeebled by the banks who now use it to justify inserting contractual conditions that are unfair and dishonest.

Consumers who look for compensation through FOS, or the ABA, face an uphill, protracted and often futile struggle for the reasons I have mentioned.

LEGAL SYSTEM – COMPENSATION

Litigation in this country is beyond most consumers because it is just too expensive. Ask anyone that has chosen this route to compensation. Better still, ask the experts. Two spring to mind immediately.

Former Attorney-General, the Hon. George Brandis MP, stated that:

“Unless you are a millionaire or a pauper, the cost of going to court to protect your rights is beyond you… the costs of legal representation and court fees mean that ordinary Australians are forced either to abandon their legitimate claims or enter the minefield of self- representation.” He should know!

His view was shared by former High Court Justice, Sir Ninian Stephen, who said in 1991

“On my salary I could not possibly afford to litigate in my own court”.

It’s a sad indictment of our legal system that the only ones that can afford the legal costs of going to court these days are the offenders who have obtained the money to do so from people they have preyed upon. The laws of this country are meant to protect people from malefactors in our society, but if access to our justice system is then denied because people have become impoverished, where’s the sense or, for that matter, the justice in that? The Law has become neutered because our legal system is now out of reach for all but the wealthy.

Of course, some will argue that if enough individuals have a similar case against the same offender, then they may have the opportunity of joining a class action if one is available. But where does that leave the individual who is on his or her own? How do they obtain compensation bearing in mind that the ABA, FOS and the offender’s insurer, if they happen to be a financial adviser, are tenuous paths to compensation at best?

Then again, even if someone were able to join a class action, they would not be out of the woods yet! Class actions are both a blessing and a curse. The class action concept whilst having some merit also has a number of serious flaws. One of them is that it provides an escape route for the wrongdoers because the emphasis by the courts is on “compensation”. Therefore, suitable punishment is not meted out to the offenders.

Further, financial institutions such as banks always settle before a judgment is made for a compensatory amount of money that is woefully inadequate. Bearing in mind the profits that banks make every year, these settlements have little impact on their balance sheets. For instance, the Macquarie Bank actually stated that the Levitt Robinson, Macquarie Bank settlement amount in the Storm Financial case made little difference to its yearly profit. This is true of most banks.

Of course, the lure for penniless consumers is that class actions provide a cheap avenue for compensation. The downside is that they only return a fraction of what has been lost. An analysis done in 2010 of six shareholder class actions concluded that returns varied from a lowly 1 cent to 17 cents in the dollar.

The aim of compensation should be to restore an injured party to their former position. Our legal system compounds the fault of this and past governments by failing abysmally in this regard. Class action compensation payouts fall well below acceptable community standards, or anyone’s standards for that matter.

To add insult to injury, the culprits when settling require the class action members to sign ‘draconian’ confidentiality agreements, so preventing their wrongdoings from getting out. No! Class actions are not the answer unless you happen to be in the legal profession. Then, it becomes an ‘open sesame” for making a lot of money.

Before I now outline our proposal for a comprehensive consumer protection compensation scheme that will provide a safe path for all future consumers, we might reflect on the findings of Mr. St. John’s (whom we mentioned earlier) in his final report to the Government into Compensation arrangement for consumers of financial services:

He found that ''retail clients are generally able to recover compensation for losses attributable to misconduct by licensees'' except where the licensee lacks the resources to meet those claims.

 No doubt, he obtained this information from the banks? He certainly wouldn’t have received it from the thousands of consumers that have been left penniless over the years because they couldn’t obtain compensation, even though their cause was just?

He concluded that it would be inappropriate at this point in time, to introduce a "last resort" compensation scheme, without first strengthening the existing compensation arrangements.

 You can’t strengthen something that is not real. The compensation arrangements for people that have been wronged by rogue elements within our financial sector are chimerical which means highly improbable or illusory for the reasons given.

He recommended strengthening the existing compensation arrangements. In particular the holding of adequate professional indemnity insurance cover, greater ASIC monitoring and capital adequacy requirements to ensure that licensees have the financial resources to meet compensation liabilities.

Adequate professional indemnity insurance is not possible whilst ASIC maintains its current attitude of letting the insurance market dictate policy. With the limited resources at ASIC’s disposal, its past inability to identify the wrongdoings taking place in the financial sector and its policy of appeasement, this goal remains a pipe-dream.

He suggested that consideration be given to the merits of product issuers being required to take greater responsibility for protecting consumers of their products and recommended a more detailed and targeted review into these arrangements.

 Again, this is not a practical solution because the culture that exist in the banking industry and it approach to consumers is driven by the bottom line. Further, the banks in general have been snubbing their noses at ASIC for a very long time now, and have become accustomed to having things their own way. We need a system that will bring them back into line. We need something that will work!

We believe the one we are about to propose will do just that and more!

For this to work, the Government would have to stop standing by and become a major player. A government department would need be set up that will have overall control of all aspects dealing with consumer protection insurance.

For want of a better title, we propose that this new Government Department be called, ‘THE CONSUMER PROTECTION INSURANCE AND COMPENSATION DEPARTMENT’.

This Department would provide a “Consumer Protection Insurance Cover to all those that are consumers of the banks and financial advisers and it would process all claims.

We see it working this way:

1.  This Government Department would handle all aspects of Consumer Protection Insurance including providing “consumer protection insurance” cover and handling all claims relating to such.

It could be an off-shoot of ASIC or stand alone. Either way, it would relieve ASIC of a great deal of its current workload.

2.  The Department would be funded in part by the fees it charges for providing consumer protection insurance cover. It could also be funded by penalties imposed on the financial sector and the banking industry by the Government.

Fines such as the $700 million dollars the CBA has to pay out could be allocated to the set-up costs of this Department and future fines and penalties for misconduct by the banking industry and financial sector (financial advisers) could also go towards this Department’s operating costs.

3.  The fees that this Department would impose for issuing a consumer protection insurance cover would be split between the consumer and the banking industry or financial sector on, say a 50/50 basis, or a split to be agreed.

The cost would be a fair one for both the consumers and the financial sector.

 4.  The Department would issue a ‘Government Consumer Protection Insurance Cover’ to all consumer credit customers of banks and clients of financial advisers.

If an individual or a business is the victim of any deceptive, fraudulent business practice, or contractual breach that takes place during a financial transaction, that individual or business could then lodge a claim with this Department.

5.   The Department’s legal experts would consider the merits of any claim it received and be empowered under the law to decide whether compensation should be paid and the amount of that compensation.

The department’s legal team would be permanent staff members rather than being seconded in from outside legal firms. They would also be experts in consumer laws, if not at the start of their tenure, certainly at the end of such.

 6.  The claimant would be paid the amount determined by the Department’s legal team after handing down its Decision if that Decision were favorable.

This means that the claimant would not have to wait for an outcome through the courts if the alleged offender opted to go to Court rather than abide by the Decision of the Department’s legal team. If the Department were then awarded by the Court, on behalf of the claimant, an amount of compensation greater than the sum they had already paid out to the claimant, the difference between the amount already paid and the amount subsequently awarded would be paid retrospectively to the claimant.

7.  The Decision by the Department would be made and the claimant informed within 6 months of the complaint having been lodged with the Department.

One of the key issues at the moment is the amount of time it takes to process claims through the normal channels. In most cases, we are talking years rather than months and this is completely unacceptable.

8.  If the offending party did decide to Appeal the Department’s decision, all costs from that point would be for the account of the Department, the offender or both depending upon the Court’s decision

The Department’s legal team would have two main functions: (1) to establish the merits in law of each individual claim that the Department received and decide on a compensation sum, (2) to prosecute every case to finality through the courts, where the alleged offender did not agree with their Decision, in order to establish legal precedents for the future. By so doing, this would strengthen consumer laws or identify weaknesses or loopholes in our consumer laws that need re-drafting. Settlements, once legal action has commenced, would not be countenanced for these reasons.

 9.  If the alleged offender successfully Appeals the Decision of the Department, then all legal costs, including the original payout to the claimant, will be absorbed by the Department.

That is a risk that any underwriter takes although the government, for the most part, will recover most of what it lays out and make a tidy profit besides. On the other hand, if the alleged offender loses their Appeal, then that person or organization will have to pay a set sum for the costs incurred by the Department plus the amount of the compensation that was awarded by the Court to the client.

What would such a system achieve for both the consumer and the taxpayers that will ultimately be paying for such a service? A great deal as it turns out.

BENEFITS

Whilst the government is effectively acting as an underwriter by accepting the risk, it is also functioning as a recovery agent for itself. Outright losses will be few and far between because in most cases, full recovery will be possible. The consumers on the other hand would benefit greatly from such a system. These are some of the overall benefits that would flow on from such a system:

* It would offer a fair, reasonable, free-of-charge, independent, and speedy determination for any consumer that has a genuine complaint.

* It would reduce the number of cases of this nature that are being litigated every year through the court system, thereby alleviating the burden on our legal system.

* It would stop banks with their power and money from being able to bully consumers into submission.

* It would ensure that consumer laws would be entrenched in law through precedent rather than remaining uncertain because offenders (mostly banks) have settled beforehand to avoid just that.

* It would force the offenders (mostly banks) to comply with our consumer laws because they would have the government to reckon with rather than their own consumers if they didn’t.

 * It would provide additional revenue to the government because insurance of this kind always generates a profit due to it being a blanket cover paid by many but only a few will ultimately claim against.

* It would ensure that justice is dispensed to all rather than the few that can afford to take legal action.

* It would obviate the need for consumers to rely on the professional indemnity insurance that financial advisers need to take out.

 * It would dry up litigation because fewer banks would be willing to go to court, knowing that the monetary clout they had in the past, that forced claimants to settle, would now count for nothing.

* It would ensure that thousands of consumers in this country, many of whom are elderly self-funded retirees, would not be left destitute. No longer would they be left in a position of helplessness; not having the money to sue the reprobates in our society that target them because they are seen as easy marks.

 * It would mean that the control the banks now exert over consumers through the ABA and the banking codes would be negated because banks would now have to argue their case with the Government rather than a bunch of disgruntled consumers.

* It would remove the need for consumers with a complaint to employ lawyers because the Department would be recovering the amount of their claim, not them.

 * It would restore public confidence in our financial institutions.

 I would go so far as to say that if this type of compensation system were introduced, it would change the financial landscape in this country forever. The onus would then be squarely on the banks, the financial sector in general and the government to carry the costs of legal action if any, and wear the delays before disputes are settled in court, if matters were to proceed that far.

In fact, the benefits of such a system to the consumers in this country would be enormous with no downside unless you happen to be a banker, a lawyer or an insurance company. Consumers would no longer be victimized by the system, but rather be placed at the front of the line as they should have been all along.

We expect that any opposition to this scheme will come from the banks, the financial advisers and the lawyers because they have the most to lose if this scheme were implemented. However, if something like this is not introduced, we, the consumers in this country, will continue to be the losers..

Thanks to the Royal Commission, the whole of Australia now knows just how far the banks have slipped in integrity, honesty and uprightness. If this government wants to restore probity in the banking sector and restore confidence in the eyes of the public, then this is the way to do it.

It should also be borne in mind that the tax payers in this country are footing the bill for all these financial scandals. The Royal Commission alone will cost some fifty-two million dollars. The Storm Financial disaster cost investors (75% of whom were elderly self- funded retirees) three billion dollars. How much more of our wealth must go down the drain before we put an end to all this? How many more lives will be destroyed before we awake to the dangers our banking system in its current mode poses to our future financial well-being?

 The Royal Commission has done a commendable job so far in revealing to the Australian public the deep rooted culture of greed that exists in the banking industry. However, nothing will change unless the government adopts a scheme along the lines we have suggested that will ensure a ’fair go' for all future consumers.

This scheme will be an advantageous one for both the consumers and the government. The consumers will feel secure in the knowledge that they are protected at long last from the rogues that ply our financial sector, and the government will be free of these bank scandals that have been plaguing it for many years now. A government consumer protection insurance scheme will also add to the government coffers because it will be a revenue earner in the long run, once the banks have been brought to task.

A favorable recommendation by the Royal Commission and a positive response by the House of Representatives to our proposal will go a long way towards persuading this government that a compensation scheme of this nature is long overdue. For our part, we will continue to lobby this government with the support of consumers around Australia until something is done to protect us in real terms.

 Frank Ainslie

For BANKVICTIMS bankvictims.com.au