14 September 2017
New financial dispute resolution a landmark initiative
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has welcomed the Government’s landmark move to establish a new one-stop-shop to resolve small business disputes with banks – the Australian Financial Complaints Authority (AFCA).
Ombudsman Kate Carnell said the initiative addressed a key recommendation from ASBFEO’s Small Business Loans Inquiry and would significantly improve access to justice, especially for capital-intensive enterprises.
AFCA will consolidate the existing Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT).
A small business will be able to seek resolution of a dispute where the credit facility is up to $5 million and potentially receive compensation up to $1 million.
Ms Carnell said the FOS was currently limited to considering disputes of not more than $500,000 arising from a credit facility no higher than $2 million.
“This excludes many small businesses,” she said.
“Small businesses do not have the money or time to challenge banks through the court system and there is a significant power imbalance between banks and small businesses.
“Small businesses do not have the financial capacity to hire expert legal advice to help them overcome this disadvantage.”
The new one-stop-shop will be able to make binding determinations.
Ms Carnell said the higher compensation cap should incentivise banks to resolve disputes through internal processes before progressing to the AFCA.
“The Government’s proposed model will provide a genuine alternate dispute resolution option in a forum where the needs of small business are understood,” she said.
“It will save time and money by significantly reducing the need for litigation.”
Ms Carnell also welcomed the proposed transitional arrangements and the Government’s commitment to consult on AFCA’s terms of reference.