Internal & external dispute resolution

Dispute resolution and when to consider it  

Dispute resolution is a free, low risk and relatively accessible mechanism for resolving credit and debt problems.  Internal and, if necessary, external dispute resolution processes are likely to be appropriate for your client where:

• your client disputes the debt (for example, on the basis that, it is not their debt, they have already paid it or it is not for that amount);
• there were features of the creditor’s conduct or of the transaction or agreement which may amount to a defence (refer to the table in Going to court for debt matters for a list of possible defences); or
• the client is eligible for a hardship variation under either the Code or one of the industry codes of conduct (refer to hardship variations).

If your client is judgment proof (and is willing to rely on this), does not dispute that they owe the debt and it’s not clear that any conduct or features of the transaction or the agreement would constitute a defence, negotiation based on the client’s hardship might be a more appropriate option.

An increased emphasis on both internal and external dispute resolution has been introduced under the National Credit Act and the Code in relation to consumer credit contracts and, under section 47 of the National Credit Act, licensed credit providers and credit service providers (including brokers and debt collectors who have been assigned a debt) must:

• have an ASIC-approved internal dispute resolution (IDR) process; and
• be a member of an ASIC-approved external dispute resolution (EDR) scheme (either the Financial Ombudsman Service or the Credit and Investments Ombudsman Service).

ASIC Regulatory Guide 165, Licensing: Internal and External Dispute Resolution (July 2020) (Dispute Resolution Guide) sets standards and provides guidance in relation to these dispute resolution processes.

Although the dispute resolution process is more regulated in relation to consumer credit contracts under the National Credit Act and Code, in relation to other consumer contracts, nearly all companies (for example, telecommunications service providers and utilities providers) will have internal dispute resolution mechanisms and hardship teams.  In addition, telecommunications, insurance and utilities industry members have an Ombudsman (i.e. an independent external dispute resolution scheme):

• providers of telephone, mobile and internet services are required to be members of the Telecommunications Industry Ombudsman;
• insurance companies are required to be members of the Financial Ombudsman Service; and
• gas, water and energy companies are required to be members of the Energy and Water Ombudsman Victoria.

The dispute resolution process will, therefore, be similar for both consumer credit contracts and other consumer contracts despite the legislative obligations only applying to consumer credit contracts.

Steps in dispute resolution

Generally, the steps in dispute resolution will be as follows.

Lodging a complaint with an external dispute resolution scheme will put a hold on enforcement action (including commencing legal proceedings, disconnecting the client’s internet, phone, gas or electricity or listing debts with a credit reporting agency) being commenced or continuing while the issue is being resolved.

You must first complain via the creditor’s internal dispute resolution process – you should make sure that enforcement action is put on hold while the dispute is being resolved.

If legal proceedings have commenced, EDR may still be available depending on the relevant ombudsman’s rules (for example, the Financial Services Ombudsman permits a dispute to be lodged with it after proceedings have commenced, provided that the debtor has not taken any steps beyond lodging a defence or a defence and counter-claim).

Internal Dispute Resolution 

Credit and non-credit consumer contracts

In relation to all consumer contracts (credit and non-credit), once you have worked out the relevant company’s internal dispute resolution process and the appropriate contact person or department, you should forward a letter of complaint to that entity.

You should request that no further late fees are charged and no further enforcement action is taken while the dispute is being resolved.   The debt collector should stop any collection activity while the dispute is being resolved and a default listing should not be made during this period.

You should also consult the relevant industry codes of practice (listed below under External Dispute Resolution) for standards that are applicable to your client’s circumstance.

As relevant, you should refer to or attach:

• previous invoices;
• copies of the contract with the credit or service provider (including product disclosure statements);
• details of any correspondence or contact with the creditor, including name of people spoken to and dates of conversations or correspondence; and
• doctors’ reports, income statements, reports from case workers, financial counsellors or mental health workers that will support your client’s claim.

If your client instructs you that they do not owe the debt or that they dispute the amount being claimed, you should write to the creditor’s IDR department with this information (provided that the relevant debt isn’t statute-barred).  Key issues that the client might dispute include:

• that it is not them who owes the debt i.e. there has been a mistake of identity (for example, two people with the same surnames or adjacent apartments in a block of flats);
• the amount has already been paid;
• the debt was settled previously; or
• the amount being claimed is not correct (which might include late fees and charges).

In each case, you will need to write to the creditor and attach copies of supporting documentation, including as appropriate: a copy of your client’s ID, copies of correspondence proving that the debt had been settled or that the bill had been paid.

If the client disagrees with the amount being claimed, you should ask for an itemised statement of the account.  You should also get a copy of the original contract, so that you can check whether it requires the client to pay recovery fees and expenses charged by a debt collector.   Refer to Getting Relevant Documentation.

If this communication is not successful, you should approach the relevant ombudsman (refer to External Dispute Resolution).

Consumer credit contracts

In relation to consumer credit contracts, the ASIC Dispute Resolution Guide  sets out ASIC’s standards for IDR procedures when dealing with disputes relating to credit activities by the credit provider or credit service provider or their representatives (including standards of efficiency, timeliness and effectiveness).

The ASIC Dispute Resolution Guide provides that, in resolving disputes through IDR, credit providers must:

• adopt the definition of “complaint” set out in Australian Standard AS 10002-2006 Customer Satisfaction – Guidelines for Complaints Handling in Organisations i.e. “an expression of dissatisfaction made to an organisation, related to its services, or the complaints handling process itself, where a response or resolution is explicitly or implicitly expected”;
• have clearly documented IDR procedures that set out the processes for receiving, investigating and responding to complaints, as well as for recording information about complaints, referring unresolved disputes to an EDR scheme, identifying systemic issues that become apparent through complaints and the types of remedies available for resolving disputes or complaints;
• provide a final response (informing the client of the outcome of their complaint, their right to take their complaint to EDR and the name and contact details of the relevant EDR scheme) to a complaint within:
  • a maximum of 45 days for standard complaints;
  • 21 days if the dispute is in relation to a default notice under section 88 of the Code (based, for example, on the fact that the default notice was not served on the client, the default has been rectified or the amount set out in the default notice is incorrect); and
  • 21 days if the dispute is in relation to hardship applications under section 72 of the Code or applications for postponement of enforcement proceedings under section 94 of the Code;
• have a dedicated telephone number and, where possible, a fax number, postal address and email address to accept and handle hardship applications; and
• capture and record complaints and disputes (unless it is resolved by the end of the next business day from when it was received).

The ASIC Dispute Resolution Guide (at RG 165.109) provides that, where a dispute regarding a default notice under section 88 of the Code is being handled at IDR, the credit provider must not commence or continue legal proceedings or any other enforcement activity (i.e. debt collection activity) during the 21 day period within which the complaint is to be handled by IDR or “for a reasonable time thereafter”.  The Guide also states that at least 14 days from the IDR final response should be allowed before continuing legal proceedings or other enforcement action i.e. to give the client time to lodge a dispute at EDR.  This time period may be longer if the client has particular disadvantages that will mean they need longer to lodge the dispute with EDR.

External Dispute Resolution 

Under the National Credit Act, it is compulsory for a holder of an Australian credit licence (for example, licensed credit providers, brokers and debt collectors) to be a member of an EDR scheme.  EDR schemes are overseen by ASIC and have the role of resolving disputes between consumers and members of the EDR scheme.

There are upper limits on the amount in dispute that industry ombudsman schemes can investigate. Currently these limits are $500,000 for both the Financial Ombudsman Service and the Credit and Investments Ombudsman. In addition, there are limits on the amount of compensation that the schemes can award. The Credit and Investments Ombudsman and Financial Ombudsman Service can only award up to $309,000 (this is only an issue if the client’s loss is less than $500,000, but more than $309,000).

Industry Ombudsman schemes will not usually consider a dispute that is based on the same event and facts and with the same parties as one which is or was the subject of court proceedings, however, if no steps beyond issuing a court proceeding and filing a defence have been taken, they can still consider it.

While the rules vary between EDR schemes, key features of EDR which are likely to make it a good option for our clients include:

• EDR is free for consumers;
• EDR is very low risk because the credit provider is bound by the decision of the EDR scheme but the consumer is not – he or she can still go to court if he or she is not happy with the finding (providing the limitation period has not expired); and
• enforcement stops while the EDR scheme deals with your client’s dispute. Depending on the rules of the relevant EDR scheme, the member may be stopped from:
  • issuing legal proceedings against a debtor regarding the subject matter of the dispute following the receipt of that dispute by the scheme;
  • continuing legal proceedings relating to debt recovery instituted before the lodging of the dispute with the EDR scheme except to the minimum extent necessary to preserve the member’s legal rights. In particular, the member must not seek judgment in the legal proceedings provided the dispute is lodged before the complainant takes a step in the legal proceedings beyond lodging a defence, or a defence and counterclaim. A complainant will not be regarded as having taken a “step” in proceedings if they attend a directions hearing or agree to consent orders of a procedural nature only; and
  • taking any action to recover a debt which is the subject of a dispute, like protecting assets securing the debt or assigning the debt while an EDR scheme is dealing with the dispute.

Limitations on what the EDR scheme will assist with vary between schemes and will be set out in the relevant scheme’s rules.  For example, the Telecommunications Industry Ombudsman will not investigate complaints about issues that the client has known about for more than a year before the complaint is made or matters that are part of a court case.

Consumer credit contracts – EDR schemes

The two ASIC approved EDR schemes are set out in the table below.  These services resolve disputes for the banking and finance sector regarding financial products and services such as banking, credit, insurance, loans, mortgages and superannuation.

Because EDR schemes will have regard to best practice, industry standards and fairness, you should also consider the relevant industry codes in framing your complaints to them.  These codes include:

• Australian Bankers’ Association Code of Banking Practice (Code of Banking Practice) – the Code of Banking Practice is the banking industry’s customer charter on best banking practice standards. The Code sets out the banking industry’s key commitments and obligations to customers on standards of practice, disclosure and principles of conduct for their banking services. The Code forms part of the contract between a consumer and a signatory bank and a breach of the Code is therefore a breach of the contract between the consumer and the bank.
• Mortgage and Finance Association of Australia Code of Practice (MFAA Code of Practice) – the MFAA Code of Practice promotes and establishes professional standards between consumers and MFAA members, including to promote ethical and fair business practices to the benefit of consumers, members and the public.

The ASIC Dispute Resolution Guide explains that unlicensed carried over instrument lenders (i.e. credit providers who elect not to register with ASIC and therefore not to offer new credit after 1 July 2010, but which continue to be a credit provider in relation to credit contracts entered into before 1 July 2010) are not required to register with an EDR scheme.  They are, however, obliged to:

• review their IDR procedures to confirm that they meet ASIC’s requirements and cover disputes in relation to the credit activities they continue to engage in; and
• keep a register of:
  • complaints or disputes relating to carried over credit instruments;
  • applications for hardship variations made under section 72 of the Code; and
  • requests for postponement of enforcement proceedings made under section 94 of the Code.

Industry based EDR schemes

The two major non-credit related EDR schemes are:

For non-credit contracts (for example mobile phones, landlines, internet, gas, electricity and water), relevant industry codes set standards for internal and external dispute resolution processes.  These include:

• Telecommunications Consumer Protection Code (TCP Code)  – the TCP Code requires service providers to undertake appropriate credit assessments, provide credit control tools, implement credit management processes, and have a financial hardship policy. Clause 8.2.1(v) of the TCP Code prohibits a service provider from taking credit management action (such as disconnecting a service, calling in debt collectors, or listing a customer with a credit reporting agency) if the dispute is being investigated by the service provider, the TIO or another relevant agency; and
• Energy Retail Code, Energy Marketing Code of Conduct, LPG Retail Code and Customer Service Code Metropolitan Retail and Regional Water Corporations – these Codes are all available on the Energy and Water Ombudsman (Victoria) website and contain provisions regarding dispute resolution standards and processes.

Lodging a complaint with an EDR scheme

Each EDR scheme has its own rules that bind its member organisations so you should look at the rules of the relevant EDR scheme before lodging your complaint (in particular, you should confirm whether the rules of the EDR scheme provide that information and documents provided as part of the EDR process are “without prejudice” and therefore cannot be used in later legal proceedings).   Each of the websites also contains a list of the EDR scheme’s members (i.e. the entities who are bound by the EDR scheme and its determinations) and, in most cases, their contact details.

Complaints to EDR schemes can be lodged online at the websites listed above, but it is recommended that you print off the EDR scheme’s application form, so that you can provide supporting documentation, including:

• previous invoices;
• copies of the contract with the credit or service provider (including product disclosure statements);
• any correspondence with the creditor (including the initial IDR complaint and the creditor’s response);
• any advertisements of the relevant product or other representations made to the client at the time of entering into the contract; and
• doctors’ reports, income statements, reports from case workers, financial counsellors or mental health workers that will support your client’s claim.

The application form for each EDR scheme is different (see, for example, the CIO form and the TIO form). The types of information you will need to provide (and therefore to obtain from your client) include:

• details of the complaint (for example, they have been overcharged, they were disconnected while in negotiation, the contract they entered into was unfair under the ACL or the ASIC Act or their hardship application was incorrectly rejected), including dates of the events being complained about and the issues that remain unresolved;
• the name of the service provider and the service or product provided;
• details of contact with the creditor, including dates of phone calls, names of contact people and copies of any correspondence (including the IDR complaint);
• details of the response (if any) of the creditor to the IDR complaint and other phone calls or contact;
• whether your client has previously lodged this dispute with the ombudsman;
• whether or not the client is experiencing hardship;
• the loss suffered by the client;
• in the case of credit contracts, whether the creditor has started court action or repossession; and
• the outcome the client is seeking, including whether they are seeking compensation (and, in some cases, calculations of their loss).

Each of the EDR schemes also has their own authority to act where a representative is making the complaint on behalf of another person.  You should confirm whether the Justice Connect Homeless Law Authority to Act will be sufficient.

Most of the disputes clients raise with us can be dealt with via an EDR scheme (once avenues for internal dispute resolution have been exhausted), however, if it is pure hardship that the client is relying on (and no questionable conduct by the creditor at all), negotiation is likely to be the best option.   Some examples of EDR disputes are set out below.

• If a financial services provider (FSP) rejects a client’s request for a hardship variation, the EDR scheme can review whether the FSP has followed the correct procedures when considering a request for short term assistance with repayments. If the correct procedure has not been followed, the EDR scheme can award compensation such as fees and interest which may have been imposed (this does not include waiver of the debt).
• Disputes under section 88 of the Code regarding default notices (including where the default notice was not served, the amount specified in the notice was not correct or the default has been rectified) can be considered by the relevant EDR scheme if the credit provider has not responded to the internal complaint within 21 days.
• The EDR scheme has the power to order a FSP to vary a contract, including most credit card contracts, personal loans, car loans and most home loans.
• An EDR scheme could consider allegations of misleading or deceptive advertising by a company, for example, a complaint could be made to the Telecommunications Industry Ombudsman regarding marketing of mobile phones that misleadingly referred to the service being “unlimited”, “free” or “capped”.
• The Energy and Water Ombudsman (Victoria) deals with disputes relating to issues that arise between a customer and an energy or water company, including the provision and supply of a service (or the failure to provide or supply it); billing; credit and payment services; disconnections and restrictions; refundable advances (security deposits) and land and property issues.

Outcomes of EDR

EDR schemes will generally use one of the following four dispute resolution techniques:

• negotiation – the EDR scheme will talk to both the creditor and the client (or to you as the client’s representative);
• conciliation – EDR schemes sometimes use trained conciliators to discuss the issues with both parties and come up with possible ways to resolve the dispute;
• assessment – the EDR scheme might form an initial view on the merits of the dispute and inform the parties of this in an attempt to resolve the dispute without proceeding further;
• decision-making – this is the most formal option, whereby the EDR scheme will investigate the dispute in further detail and make a recommendation or a determination. A recommendation is not binding, but if it is accepted by both parties, it will become binding. A determination is binding on the creditor if the client accepts it and the creditor will be required to comply with the decision (for example, by compensating the client, waiving the debt or otherwise remedying the problem).

EDR schemes have the power to make awards of compensation.  For example, the Energy and Water Ombudsman (Victoria) can award up to $20,000 (or up to $50,000 if all parties agree) and the Credit and Investments Ombudsman can award up to $250,000.