2020–21 Annual Review

Small business complaints

Between 1 July 2020 and 30 June 2021

Complaints received

3,562 complaints received

27% resolved at Registration and Referral stage

Top five small business complaints received by product 1
Product Total
Business loans 1,419
Business transaction accounts 641
Commercial property insurance 230
Business credit card 192
Loss of profits/business interruption insurance 170
Top five small business complaints received by issue 2
Issue Total
Financial firm failure to respond to request for assistance 326
Service quality 300
Denial of claim – exclusion/ condition 227
Default listing 167
Decline of Financial Difficulty Request 159
Complaints closed

4,712 complaints closed 3

Average time to close a complaint 244 days 4

Stage at which small business complaints closed
Stage Total
At Registration 1,250
At Case Management 2,030
At Rules Review 568
Preliminary Assessment 342
Decision 522
Average time taken to close small business complaints 5
Time Total
Closed 0–30 days 13%
Closed 31–60 days 19%
Closed 61–180 days 32%
Closed 181–365 days 10%
Closed greater than 365 days 25%

 

About AFCA’s small business jurisdiction

Under the AFCA Rules, a small business is defined as an organisation with fewer than 100 employees.

This can be a 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.

If you are a registered charity, we can consider your complaint regardless of how many people you employ and whether or not you carry on a business.

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.

The AFCA Rules now:

  • limit the matters AFCA may take into account when considering a complaint about a loan provided under the Coronavirus SME Guarantee Scheme. The scheme is a Commonwealth Government initiative to provide small- and medium- sized businesses with access to working capital to help them get through the impact of COVID-19
  • require AFCA to exclude complaints about repayment deferrals provided to small business borrowers for existing loans where the deferral is provided between 25 April 2020 and 24 April 2021.

From 1 July 2020 to 30 June 2021, we received 3,562 complaints from small businesses.

During the year 4,712 small business complaints were closed, including 2,154 received before 1 July 2020.

The most complained about product was business loans (1,419), followed by business transaction accounts (641) and commercial property (230).

Of the complaints AFCA closed, 27% (1,250) were resolved at Registration and Referral, while more than half (2,030) complaints were resolved at Case Management. Around one in 10 small business complaints (11%) reached the Decision stage.

The average time of 244 days for a complaint to be closed was significantly inflated by a batch of almost 1,000 complex complaints arising from the collapse of a consumer leasing scheme. The bulk of these complaints were resolved by agreement in late 2020. Excluding these batch complaints, the average time for a complaint to close was 122 days.

AFCA considered claims about a range of issues from small businesses including claims about inappropriate lending, guarantees, misleading conduct and financial difficulty. AFCA also considered complaints about lease equipment finance for small businesses and consumers, although a number of these complaints were primarily about the conduct of the underlying asset or asset provider that AFCA is unable to consider.

AFCA has two dedicated teams for small business complaints assisting in banking and finance and a number of ombudsmen providing their expertise.

Specialists within other product areas in AFCA also deal with small business complaints such as insurance, and investments and advice.

Case study

A bank provided a company with a business loan of $250,000 to purchase a food franchise business. The bank provided extra funding in the following years with loan increases of $50,000 and $100,000. The directors of the company provided guarantees to secure the business loan.

The business failed, and the company went into liquidation before being de-registered. The guarantors lodged a complaint saying the bank should never have provided the loan and increases because the financial projections underpinning the bank’s approval were unattainable and the bank should have conducted due diligence on the business proposal.

Findings and outcome

The AFCA investigation found that the bank assessed the overall business proposal with due care and skill and reasonably considered the initial loan could be repaid by the borrower in due course from available resources. The information the directors supplied to the bank for the original loan showed the loan was affordable and the directors had the capacity to manage the business.

However, AFCA found the bank did not act appropriately in approving the increases of $50,000 and $100,000, as it did not properly consider the borrower’s financial position and ability to repay at the time of each increase. This was in circumstances where the company had disclosed unpaid tax liabilities to the bank, and a review of the company’s loan facility and transaction account held with the bank showed:

  • the company was missing repayments to the loan and became evasive about its financial position
  • the average monthly deposits into the transaction account were deteriorating.

On the available information, there were sufficient warning signs that the credit risk of the borrower was increasing. However, the bank provided the loan increases without further enquiry.

AFCA decided that a diligent and prudent banker should have appreciated that loan increases were not an appropriate solution for the borrower, without fully understanding the financial position of the business. If the bank had conducted further enquiries, it would not have provided the loan increases.

AFCA decided the bank could rely on the guarantees for the initial loan amount plus interest, but should release the directors from liability under their guarantees in relation to the loan increases and any relevant interest.

Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.

 

1 One complaint can have multiple products.

2 One complaint can have multiple issues.

3 This includes 2,154 complaints received before 1 July 2020, and 2,558 received from 1 July 2020 to 30 June 2021.

4 The average time for a complaint to be closed was significantly inflated by a batch of almost 1,000 complex complaints arising from the collapse of a consumer leasing scheme. The bulk of these complaints were resolved by agreement in late 2020. Excluding these batch complaints, the average time for a complaint to close was 122 days.

5 Percentages have been rounded and, as a result, do not total to 100%.

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