Annual Review 2023-24
Contents
- About this Annual Review
- Year at a glance
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- Organisational overview
- Complaints
- Who complained to AFCA in 2023–24?
- AFCA Engagement with First Nations peoples
- Overview of complaints
- Open cases
- Closed cases
- Banking and finance complaints
- Buy now pay later
- Scam complaints
- Financial difficulty complaints
- 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
- Complaints outside AFCA’s Rules
- Systemic issues
- AFCA’s Code compliance and monitoring function
- Engagement, awareness and accessibility
- Corporate information
- AFCA General Purpose Financial Report
- Glossary
Between 1 July 2023 and 30 June 2024
Small business complaints received
Top five small business complaints received by product
|
Product |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Business loans |
1,544 |
1,419 |
1,441 |
1,347 |
1,569 |
|
Business transaction accounts |
507 |
641 |
800 |
1,002 |
1,271 |
|
Commercial property |
221 |
230 |
276 |
374 |
376 |
|
Business credit cards |
207 |
192 |
201 |
304 |
333 |
|
Commercial vehicles |
145 |
101 |
120 |
153 |
195 |
Top five small business complaints received by issue
|
Issue |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Unauthorised transactions |
176 |
194 |
185 |
299 |
354 |
|
Interpretation of product terms and conditions |
123 |
150 |
271 |
161 |
297 |
|
Financial firm failure to respond to request for assistance |
320 |
326 |
282 |
268 |
293 |
|
Service quality |
170 |
300 |
389 |
309 |
235 |
|
Failure to follow instructions/agreement |
152 |
124 |
170 |
167 |
233 |
Small business complaints closed
Average time to close a small business complaint in days¹
Stage at which small business complaints closed
|
Stage |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
At registration |
1,143 |
1,250 |
1,316 |
1,546 |
1,875 |
|
At case management |
1,629 |
2,372 |
1,269 |
1,393 |
1,530 |
|
At rules review |
752 |
568 |
629 |
424 |
613 |
|
Decision |
409 |
522 |
439 |
338 |
362 |
Time taken to close small business complaints
|
Time |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Closed in 0-30 days |
780 |
624 |
771 |
827 |
1,043 |
|
Closed in 31-60 days |
1,079 |
903 |
942 |
981 |
1,075 |
|
Closed in 61-180 days |
1,556 |
1,509 |
1,331 |
1,240 |
1,440 |
|
Closed in 181-365 days |
449 |
488 |
392 |
374 |
661 |
|
Closed in more than 365 days |
69 |
1,188 |
217 |
279 |
161 |
¹ This excludes complaints that were inactive for an extended period, for example, complaints that were paused because the financial firm was insolvent or due to court proceedings, and complaints that were previously closed and then re-opened.
Key complaint trends
Increase in small business complaints
AFCA received 4,466 complaints from small businesses in 2023-24, a 17% increase from the previous year. Key issues included unaffordable loans, incorrect interest rates and improper business purpose declarations.
Rising complaints in specific areas
Complaints about business loans increased by 16% to 1,569, while business transaction accounts saw a 27% rise to 1,271. Complaints about commercial vehicles also increased by 27% to 195.
Surge in product terms and interpretation issues
Issues with interpreting product terms and conditions jumped 84% to 297, although the overall number is still low. Complaints about financial firms failing to respond to requests for assistance rose by 9% to 293.
Resolution and timeframes
Increased complaint closures
AFCA closed 4,380 small business complaints, marking an 18% increase from 2022-23. Notably,
1,875 complaints were resolved at the registration stage, a 21% rise, which suggests financial firms are more closely working with their small business customers to resolve a complaint. The rules review stage saw a 45% increase to 613 complaints, with the most common reason being the financial firm did not provide the complainant with a financial service.
Improved resolution time
The average time to close a complaint decreased to 101 days in 2023-24, down from 112 days the previous year.
Significant improvements in closing older complaints
Complaints resolved within 0-30 days rose by 26% to 1,043, while complaints exceeding 365 days decreased by 42%, indicating a significant improvement in resolving complaints more swiftly.
Industry trends and challenges
New approach to small business lending
AFCA has introduced its first approach to Lending to Small Business after extensive consultation with regulators and industry. This new framework aims to provide transparency and certainty, benefiting both small businesses and financial firms.
Rising financial difficulty and complaints
There is an anticipated increase in financial difficulty complaints, with a notable rise in issues related to business loans and transaction accounts. Small businesses face challenges such as delays in application processing and reluctance to offer personal security. AFCA expects all financial firms, including those not bound by industry codes, to address requests for financial assistance.
Growing insolvency rates
ASIC data reveals a 39% increase in companies entering external administration in 2023-24 compared to the previous year, surpassing pre-COVID levels. This rise is mirrored by an increase in companies appointing small business restructuring practitioners. Given the current economic pressures, including high interest rates and increased costs, AFCA anticipates continued growth in small business financial difficulty complaints.
Case study – Extended grace periods and asset sale
Background
In 2016, a small business refinanced its existing loans with a bank, securing a total of $2,058,016 in loans. This included a $1,005,000 investment loan, a $215,000 line of credit, and an $838,016 business overdraft, all secured by two properties and guaranteed by the company’s director, Mr C.
Complaint
The small business filed a complaint, claiming financial hardship due to the impacts of COVID-19, a marital dispute involving Mr C and unrelated litigation. They sought assistance with meeting their repayment obligations.
Outcome
The loans had accumulated significant arrears, around $500,000. The bank had given the small business two years to sell its security properties to resolve the financial difficulty, with negotiations continuing during the AFCA investigation. Mr C planned to sell a property but failed to do so within the bank’s grace periods. Despite multiple extensions and no enforcement actions, the properties remained unsold for two and a half years.
AFCA found that the bank had met its financial difficulty obligations. It had maintained ongoing contact with Mr C since 2020, explored options, and requested an updated statement of financial position. However, due to a large servicing deficit, the bank could not restructure the loans.
AFCA determined that selling one or both security properties was the appropriate solution, giving the small business three months to do so under the terms of the final determination.
Case study – The importance of recognising financial distress in small business lending
Background
In April and May 2021, a small business leased five vehicles for its car rental operations. Each lease was for five years, and while the lessor was a member of the Australian Finance Industry Association, it was neither a bank nor bound by an industry code. By September 2021, the business had fallen behind on all five leases.
In October 2021, the complainant and the lender discussed the impact of the COVID-19 lockdowns on the business. The conversation included a request for payout figures, as the complainant was considering selling the vehicles to repay the contracts early. They also discussed the complainant’s director, who had been hospitalised and was soon to be discharged, and requested a waiver of fees and a pause on direct debits due to the business’s financial difficulties. The company’s financial struggles were compounded by the pandemic and medical expenses.
Complaint
The complainant argued that the lender failed to acknowledge or address their financial hardship, despite clear signs of difficulty. They contended that the lender should have acted fairly and reasonably by offering assistance or alternative arrangements, rather than issuing default notices without first obtaining updated information on the business’s financial situation.
The outcome
AFCA determined that, even though the complainant did not specifically mention ‘financial difficulty’, it was evident that they were unable to meet their repayments. The lender should have recognised this and treated the situation as a case of financial hardship. While the lender had internal processes for assisting small business customers, consistent with its consumer hardship practices under the NCC, these processes were not applied in this case.
AFCA’s decision was based on previous rulings that stated a lender, even in the absence of the NCC or an industry code, should act fairly and reasonably when a business customer proposes repayment alternatives. The lender should have requested updated financial information before issuing default notices, rather than immediately taking enforcement action.
