In this section
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:
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:
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):
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.
Generally, the steps in dispute resolution will be as follows.
|Contact the creditor
|Get your client’s instructions about what outcome they are seeking (for example, waiver of debt, waiver of late fees, payment plan or postponement of payments).
Call the creditor’s hardship team and explain that you are acting for your client, who is experiencing serious disadvantage. Work out an appropriate contact person to address correspondence to and ask for their direct telephone and fax numbers and email address.
Ask for a copy of the creditor’s complaints or internal dispute resolution procedure.
Make file notes of your telephone conversations and refer to them in your written correspondence as part of Step 2.
|Make a formal complaint using IDR
|Write to the hardship team (or another appropriate team identified in your conversation) setting out the issue and attaching any relevant supporting documentation regarding your client’s situation.
If you aren’t satisfied with the response to the complaint, or if you don’t get a response in a reasonable time (refer to Internal Dispute Resolution regarding appropriate timeframes, for most complaints it is 45 days but for others such as hardship applications and default notices it is 21 days), proceed to Step 3.
|Independent review using the EDR scheme
|Check which EDR scheme the creditor is a member of:
You should review the specific rules of the relevant EDR scheme.
Submit the complaint, attaching previous correspondence with the creditor as well as supporting documentation regarding the client’s circumstances.
Importantly, an EDR scheme will not deal with the complaint unless you have raised the matter with the organisation first and given them the chance to rectify the situation.
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).
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:
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:
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).
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:
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.
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:
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.
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.
|ASIC approved EDR scheme
|Financial Ombudsman Service (FOS)
|GPO Box 3
Melbourne VIC 3001
Fax: (03) 9613 6399
|Credit and Investments Ombudsman (CIO)
|PO Box A252
Sydney South NSW 1235
Fax: (02) 9273 8440
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:
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:
The two major non-credit related EDR schemes are:
|Telecommunications Industry Ombudsman (TIO)
|GPO Box 276
Collins Street West VIC 8007
Fax: 1800 630 614
|Energy and Water Ombudsman (Victoria)
|Reply Paid 469
Melbourne VIC 8060
Freefax: 1800 500 549
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:
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:
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:
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.
EDR schemes will generally use one of the following four dispute resolution techniques:
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.
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