- About this Annual Review
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- About us
- Strategic plan
- Year in review – strategic initiatives
- Year at a glance
- Who complained to AFCA?
- Overview of complaints
- Open cases
- Complaints closed by AFCA
- Banking and finance complaints
- General insurance complaints
- Superannuation complaints
- Investments and advice complaints
- Life insurance complaints
- Financial difficulty complaints
- Small business complaints
- Complaints lodged by consumer advocates
- Legacy complaints
- Complaints outside the Rules
- Systemic issues
- Naming financial firms
- Significant events
- Stakeholder engagement
- People and culture
- Feedback about our service
- Independent Assessor Report
- Corporate information
- AFCA General Purpose Financial Report 2021
- Code compliance and monitoring
- Previous schemes
- Appendix 1
Small business complaints
Between 1 July 2020 and 30 June 2021
3,562 complaints received
27% resolved at Registration and Referral stage
Top five small business complaints received by product 1
|Business transaction accounts||641|
|Commercial property insurance||230|
|Business credit card||192|
|Loss of profits/business interruption insurance||170|
Top five small business complaints received by issue 2
|Financial firm failure to respond to request for assistance||326|
|Denial of claim – exclusion/ condition||227|
|Decline of Financial Difficulty Request||159|
4,712 complaints closed 3
Average time to close a complaint 244 days 4
Stage at which small business complaints closed
|At Case Management||2,030|
|At Rules Review||568|
Average time taken to close small business complaints 5
|Closed 0–30 days||13%|
|Closed 31–60 days||19%|
|Closed 61–180 days||32%|
|Closed 181–365 days||10%|
|Closed greater than 365 days||25%|
About AFCA’s small business jurisdiction
Under the AFCA Rules, a small business is defined as an organisation with fewer than 100 employees.
This can be a partnership, incorporated trustee or a company (whether a primary production business or otherwise).
We also consider complaints from not-for-profit organisations, or clubs that are not registered charities, if they carry on a business and have less than 100 employees.
If you are a registered charity, we can consider your complaint regardless of how many people you employ and whether or not you carry on a business.
AFCA cannot consider some small business loan complaints received after 25 April 2020, if they arise from COVID-19 relief measures. The AFCA Rules were amended following the issue of a notifiable instrument made by the Australian Government Treasurer on 24 April 2020.
The AFCA Rules now:
- limit the matters AFCA may take into account when considering a complaint about a loan provided under the Coronavirus SME Guarantee Scheme. The scheme is a Commonwealth Government initiative to provide small- and medium- sized businesses with access to working capital to help them get through the impact of COVID-19
- require AFCA to exclude complaints about repayment deferrals provided to small business borrowers for existing loans where the deferral is provided between 25 April 2020 and 24 April 2021.
From 1 July 2020 to 30 June 2021, we received 3,562 complaints from small businesses.
During the year 4,712 small business complaints were closed, including 2,154 received before 1 July 2020.
The most complained about product was business loans (1,419), followed by business transaction accounts (641) and commercial property (230).
Of the complaints AFCA closed, 27% (1,250) were resolved at Registration and Referral, while more than half (2,030) complaints were resolved at Case Management. Around one in 10 small business complaints (11%) reached the Decision stage.
The average time of 244 days for a complaint to be closed was significantly inflated by a batch of almost 1,000 complex complaints arising from the collapse of a consumer leasing scheme. The bulk of these complaints were resolved by agreement in late 2020. Excluding these batch complaints, the average time for a complaint to close was 122 days.
AFCA considered claims about a range of issues from small businesses including claims about inappropriate lending, guarantees, misleading conduct and financial difficulty. AFCA also considered complaints about lease equipment finance for small businesses and consumers, although a number of these complaints were primarily about the conduct of the underlying asset or asset provider that AFCA is unable to consider.
AFCA has two dedicated teams for small business complaints assisting in banking and finance and a number of ombudsmen providing their expertise.
Specialists within other product areas in AFCA also deal with small business complaints such as insurance, and investments and advice.
A bank provided a company with a business loan of $250,000 to purchase a food franchise business. The bank provided extra funding in the following years with loan increases of $50,000 and $100,000. The directors of the company provided guarantees to secure the business loan.
The business failed, and the company went into liquidation before being de-registered. The guarantors lodged a complaint saying the bank should never have provided the loan and increases because the financial projections underpinning the bank’s approval were unattainable and the bank should have conducted due diligence on the business proposal.
Findings and outcome
The AFCA investigation found that the bank assessed the overall business proposal with due care and skill and reasonably considered the initial loan could be repaid by the borrower in due course from available resources. The information the directors supplied to the bank for the original loan showed the loan was affordable and the directors had the capacity to manage the business.
However, AFCA found the bank did not act appropriately in approving the increases of $50,000 and $100,000, as it did not properly consider the borrower’s financial position and ability to repay at the time of each increase. This was in circumstances where the company had disclosed unpaid tax liabilities to the bank, and a review of the company’s loan facility and transaction account held with the bank showed:
- the company was missing repayments to the loan and became evasive about its financial position
- the average monthly deposits into the transaction account were deteriorating.
On the available information, there were sufficient warning signs that the credit risk of the borrower was increasing. However, the bank provided the loan increases without further enquiry.
AFCA decided that a diligent and prudent banker should have appreciated that loan increases were not an appropriate solution for the borrower, without fully understanding the financial position of the business. If the bank had conducted further enquiries, it would not have provided the loan increases.
AFCA decided the bank could rely on the guarantees for the initial loan amount plus interest, but should release the directors from liability under their guarantees in relation to the loan increases and any relevant interest.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
1 One complaint can have multiple products.
2 One complaint can have multiple issues.
3 This includes 2,154 complaints received before 1 July 2020, and 2,558 received from 1 July 2020 to 30 June 2021.
4 The average time for a complaint to be closed was significantly inflated by a batch of almost 1,000 complex complaints arising from the collapse of a consumer leasing scheme. The bulk of these complaints were resolved by agreement in late 2020. Excluding these batch complaints, the average time for a complaint to close was 122 days.
5 Percentages have been rounded and, as a result, do not total to 100%.