Annual Review 2021–22
Contents
- About this Annual Review
- Year at a glance
- Acknowledgement of country
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- Organisational overview
- AFCA Independent Review
- Complaints
- Who complained to AFCA?
- Overview of complaints
- Open cases
- Closed cases
- Banking and finance complaints
- Buy now pay later
- Financial difficulty complaints
- Scams
- Small business complaints
- General insurance complaints
- Significant events
- Life insurance complaints
- Superannuation complaints
- Investments and advice complaints
- Cryptocurrency
- Complaints lodged by consumer advocates and financial counsellors
- Legacy complaints
- Complaints outside AFCA’s Rules
- Systemic issues
- Code compliance and monitoring
- Previous schemes
- Engagement, awareness and accessibility
- Corporate information
- AFCA General Purpose Financial Report 2021–22
- Appendix 1
- Glossary
Small business complaints
Between 1 July 2021 and 30 June 2022
3,490 complaints received
36% resolved at Registration and Referral stage
Small business complaints received
Percentage of small business complaints resolved at Registration and Referral stage
Top five small business complaints received by product
|
Product |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Business loans |
847 |
1,544 |
1,419 |
1,441 |
|
Business transaction accounts |
313 |
507 |
641 |
800 |
|
Commercial property |
146 |
221 |
230 |
276 |
|
Business credit card |
128 |
207 |
192 |
201 |
|
Loss of profits/Business Interruption |
24 |
69 |
170 |
200 |
Top five small business complaints received by issue
|
Issue |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Service quality |
93 |
170 |
300 |
389 |
|
Financial firm failure to respond to request for assistance |
166 |
320 |
326 |
282 |
|
Interpretation of product terms and conditions |
69 |
123 |
150 |
271 |
|
Denial of claim |
69 |
111 |
133 |
204 |
|
Default listing |
N/A |
N/A |
167 |
198 |
1 AFCA commenced on 1 November 2018. The 2018–19 financial year covers an 8-month period (from 1 Nov 2018 to 30 Jun 2019). Year-on-year changes between 18–19 and 19–20 have been calculated pro rata using monthly averages.
2 There was an error in the Annual Review 2019–20 and this figure was incorrectly reported as 28%.
3,653 complaints closed
Average time to close a complaint 105 days
Small business complaints closed
Average time to close a small business complaint in days
Stage at which small business complaints closed
|
Stage |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
At Registration |
594 |
1,143 |
1,250 |
1,316 |
|
At Case Management |
399 |
1,253 |
2,030 |
1,008 |
|
At Rules Review |
388 |
752 |
568 |
629 |
|
Preliminary Assessment |
79 |
376 |
342 |
261 |
|
Decision |
39 |
409 |
522 |
439 |
Average time taken to close small business complaints
|
Time |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Closed in 0–30 days |
407 |
780 |
624 |
771 |
|
Closed in 31–60 days |
530 |
1,079 |
903 |
942 |
|
Closed in 61–180 days |
543 |
1,556 |
1,509 |
1,331 |
|
Closed in 181–365 days |
19 |
449 |
488 |
392 |
|
Closed in in more than 365 days |
0 |
69 |
1,188 |
217 |
1 AFCA commenced on 1 November 2018. The 2018–19 financial year covers an 8-month period (from 1 Nov 2018 to 30 Jun 2019). Year-on-year changes between 18–19 and 19–20 have been calculated pro rata using monthly averages.
About AFCA’s small business jurisdiction
Under the AFCA Rules, a small business is defined as an organisation with fewer than 100 employees at the time the act, or omission, of the financial firm being complained about occurred.
This can be a sole trader, 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.
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.
Key insights:
- Over the past year we have seen a slight reduction in the number of complaints involving small businesses.
- We have also seen the complaint type shift from allegations of inappropriate lending to service complaints. These include the time taken to provide credit or review loan applications and the suitability of the product provided.
- Surprisingly, as government support has come to an end, we have not seen the increase in financial difficulty complaints anticipated.
From 1 July 2021 to 30 June 2022, we received 3,490 complaints from small businesses.
AFCA has two dedicated Case Management teams for small business complaints. There are also a number of dedicated ombudsmen who specialise in these claims.
Specialists in other product areas in AFCA also deal with small business complaints such as insurance, investments and advice.
The most complained about issue was service quality (389), followed by financial firm failure to respond to a request for assistance (282), and interpretation of product terms and conditions (271).
Of the complaints AFCA closed, 36% (1,316) were resolved at Registration and Referral, while 28% (1,008) of complaints were resolved at Case Management. Around one in 10 small business complaints (12%) reached the Decision stage.
The average time for a small business complaint to close was 105 days.
We have seen an 18% increase in Business Interruption complaints. The main issue is claim denial and disruption to business due to the COVID-19 pandemic. The increase is due to the Business Interruption Insurance Test cases. You can read more about the Business Interruption Test cases here.
In an environment of rising interest rates and increased costs for small business, we have been pleased to see financial firms continuing to work with those small business customers that are likely to recover, to help them overcome financial difficulty. We hope to see this response continue.
We also support the work financial firms are doing to resolve disputes earlier. We consider this demonstrates the willingness of financial firms to work towards a solution in difficult economic times. We would like to see this continue and we particularly support the use of negotiation and conciliation conferences to resolve disputes.
Buy now pay later is extending into the small business space and we are concerned that we will see the same issue of over-commitment that has occurred in the consumer space.
We are currently preparing the AFCA Approach on appropriate lending, which we plan to consult publicly on at the end of this year, with a view to releasing it in 2023.
Case study
Background
Company X runs a popular bakery in a country town. A bank refinanced its business loan of $1 million and provided funding of $500,000 for it to buy out a competitor
The director of Company X provided a director’s guarantee for the loan secured over his investment shareholdings. He asked his wife, Mrs M, to become a guarantor. Mrs M’s guarantee was secured by a mortgage over the principal place of residence.
Company X purchased the competitor. Unfortunately, due to COVID-19 lockdowns and a downturn in passing trade, the businesses struggled, and Company X wanted to sell the businesses as a going concern.
Company X lodged a complaint at AFCA saying:
- the bank should not have provided the business loan as it must have known enough about the competitor bakery to know it would struggle to survive
- the bank did not assist the company during the COVID-19 lockdown period.
Mrs M also lodged a complaint alleging the bank should not have sought a guarantee from her and she didn’t understand the nature of her obligations.
AFCA investigated the complaint by Company X
As a subscriber to the Banking Code of Practice, the bank was required to exercise the care and skill of a diligent and prudent banker in assessing the loan application, to ensure it had a reasonable basis to consider the loan could be repaid from resources available to the borrower.
The director provided a profit and loss statement from the vendor’s accountant for the competitor bakery. The bank had once been the competitor’s bank. The complainants were not able to provide any information to support the claim the bank should have known the competitor was not in good financial shape.
When AFCA reviewed all the available information, it found that the bank had reasonably relied on the financials provided with the loan application. There were no red flags to indicate that the competitor bakery was struggling financially or that the vendor’s financials were fabricated. All the information supporting the loan application showed that the loan was affordable.
AFCA concluded that the bank assessed the proposal with the care and skill of a diligent and prudent banker.
During the COVID-19 period, the bank provided Company X with deferred payments for eight months and waived 50% of the accrued interest. The claim that the bank had not met its financial difficulty obligations could not be supported.
AFCA reviewed how Mrs M’s guarantee was obtained
A review of the events that led to the signing of Mrs M’s guarantee showed that the bank had not met its obligations under the Banking Code of Practice. This included ensuring the guarantor obtained the documents independently of the borrower and had sufficient time to consider them.
Further, AFCA found that the bank had not ensured Mrs M was provided with an opportunity to protect her own interests by obtaining legal advice in circumstances where she placed trust and confidence in her husband for financial decisions. Mrs M has always trusted her husband in financial matters and signed when he asked.
Findings and outcome
AFCA decided that the bank should not be able to rely on Mrs M’s guarantee. The bank could rely on the director’s guarantee if the sale of the businesses produced a shortfall.
A bank should ensure it meets its obligations to a potential guarantor, including the requirements under the Banking Code of Practice and under Australian law. A failure to do so may mean that the guarantee is unenforceable.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
“We need more people like you and AFCA to be there to help innocent, hard-working Australians who are being taken every day by scamming companies.”
