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

Banking overpayments

AFCA wrote to the financial firm about whether the bank had appropriate systems and processes in place to monitor and close loan accounts that were in credit. 

In particular, customers were continuing to make payments on loan accounts that had been closed. These customers were not contacted by the bank and were not advised that their accounts were in credit. 

The bank acknowledged that it had not been sufficiently proactive in monitoring and refunding excess payments made by customers. The bank committed to a suite of system and process improvements to ensure consumers are made aware of overpayments. These include automated SMS and email contact every month, for up to two years for overpaid accounts. Letters will also be sent to the last known address on all accounts considered overpaid after one month, and then again at seven months. 

The bank identified 26 affected customers who were owed $102,000 in refunds. 

Financial hardship

AFCA initially wrote to the financial firm due to concerns about:

  • whether it had processes and controls in place to meet its obligations to assist consumers with financial hardship under section 72 of the National Credit Code
  • whether it was entitled to make hardship arrangements subject to cancellation of insurance policies and other agreements.

The financial firm responded to AFCA’s possible systemic issue enquiry and confirmed its IT systems administratively treated hardship variations as refinances. As such, the system would trigger the following for the customer when a request for hardship was made:

  • a new loan contract number
  • an add-on insurance rebate.

The financial firm indicated that approximately 10,000 customers may have been impacted by this error.  

The refinance also resulted in insurance contracts being unnecessarily cancelled when customers sought to vary their loan contracts on hardship grounds.

Following AFCA’s systemic issue investigation, the financial firm confirmed that it had made changes so that:

  • its IT systems no longer treat hardship variations as refinances
  • the consumer loan contract retains the same account number while hardship variations are in place
  • insurance cancellations are no longer triggered by the implementation of hardship variations.

The financial firm identified approximately 14,300 customers who had been affected by this issue, and estimated that the final remediation would see over $669,000 refunded to affected customers. 

Property insurance

AFCA wrote to an insurer in relation to concerns that it was incorrectly conducting retrospective valuations of insured properties when determining the ‘actual loss’ benefit under its policy.

In particular, AFCA was concerned that the insurer was using the property value at settlement date, rather than at the date of the claim, to calculate loss.

AFCA was also concerned that the retrospective assessment did not reflect the actual loss suffered by the consumer and was inconsistent with the rest of the insurer’s policy.

Following AFCA’s possible systemic issue enquiry, the insurer took steps to clarify its application of the ‘actual loss’ benefit under its policy. The insurer updated its policy to ensure it was clear to consumers that ‘actual loss’ would be calculated using the value of the property at settlement date, rather than the date of the claim.

AFCA remained concerned that previous versions of the policy may have misled consumers about the benefit they would receive under the policy for the loss in value of the property.

In resolution of the systemic issue, the insurer made further changes to its ‘key facts’ sheets to advise consumers how ‘actual loss’ is calculated under the policy and to show the calculation using examples.

The insurer identified 60 customers who had been affected by this issue and estimated that the final remediation value would be $161,607.30.

The insurer confirmed that payment had been made to 59 customers totalling $161,607.

Travel insurance

  • Consumers impacted – 714
  • Financial remediation – $51,597
  • Financial firm had 65 internal dispute resolution (IDR) complaints about this issue, but had not identified it as a systemic issue.

AFCA identified a concern that a financial firm was not offering travel insurance policy holders a premium refund or credit during a period when their travel insurance would not have provided cover due to COVID-19 travel cancellations.

The complaint on which AFCA identified the issue related to an overseas trip planned from 18 March 2020 to 10 April 2020, where the return airline tickets had been cancelled by the airline provider. The policy holder made a claim that was declined by the insurer under a ‘pandemic or other epidemic break-outs’ exclusion in the Product Disclosure Statement. AFCA identified seven other consumer complaints that raised the same issue.

AFCA engaged with the financial firm to clarify how it had been handling claims made relating to cancelled travel during COVID-19. It was AFCA’s published view at the time that a premium refund was a fair outcome if an insurer was entitled to deny a policy holder’s travel-related claim based on a blanket pandemic-related exclusion.

During the investigation process, the financial firm worked with AFCA and identified many consumers who had not been offered a premium refund following claim denials, due to the application of pandemic-related exclusions. It had also dealt with 65 internal dispute resolution complaints about this issue.

AFCA assessed a definite systemic issue. The financial firm implemented a small remediation program in April 2022 to address the issue and this program was completed in June 2022.

Life insurance

  • Customers impacted – 17,285
  • Financial remediation – $11,658,333
  • Financial firm identified systemic issue following AFCA determination and breach reported to ASIC.

AFCA identified an issue with the way in which a financial firm was applying and factoring premium policy discounts, alongside premium re-pricing for its life insurance policies.

The complaint on which AFCA identified the issue related to a complainant who had taken out a level premium life insurance policy with the insurer. The complainant brought the complaint to AFCA due to concerns that the insurer appeared to have removed discounts and unreasonably increased the premium. AFCA identified eight other consumer complaints that raised the same issue.

AFCA engaged with the financial firm about the issue. We recognise that insurers are entitled to set the level of their premiums by exercising commercial judgment in a competitive and open market where similar products are available. It is open for the consumer to choose the policy that is most suitable for their individual needs and circumstances, taking into account the policy features including premium cost. However, in this instance, AFCA was concerned that the insurer appeared to have unfairly removed and/or reduced various premium discounts when it re-priced its policy. 

Following the determination made by AFCA on the consumer complaint, the financial firm commenced an internal investigation, made a breach report to ASIC and initiated a large-scale remediation of 17,000 consumers, projected to provide more than $10 million in refunds to impacted consumers. 

The financial firm engaged closely with AFCA through the investigation process and confirmed its report to ASIC. Once it was confirmed that the financial firm’s report to the regulator covered the issues identified by AFCA, we concluded our investigation.

Reporting credit information

  • Customers impacted – 2,542
  • Financial remediation – $130,000
  • A systemic issue relating to a failure of process.

AFCA identified concern with the way a financial firm reported credit information to credit reporting bodies. The financial firm was reporting closed accounts as ‘open’ in certain circumstances and this resulted in incorrect default listings, including where a consumer’s debt had been waived on compassionate grounds. There was also an issue of delay in the financial firm correcting credit reports once a customer complained of incorrect information on their credit file.

The complaint that led AFCA to identify the issue related to the complainant’s request to the credit-reporting body to update incorrect information on their credit file. The credit-reporting body advised that it had not received a request from the financial firm. AFCA identified seven other consumer complaints that raised the same issue.

AFCA engaged with the financial firm about the issue. Through the investigation process, the financial firm identified the main cause of the issue. Its staff were skipping a step in the process and failing to input a ‘close date’ when closing a customer’s account. This failure meant that incorrect, or inaccurate, information passed onto the downstream automatic credit-reporting activity, which passed on information to credit-reporting bodies.

Through the investigation process, the financial firm confirmed that it had identified 2,542 impacted consumer credit files. AFCA assessed this as a definite systemic issue on that basis, and it reported the systemic issue to ASIC and the Office of the Australian Information Commissioner.

The financial firm undertook several actions to rectify the systemic issue, including:

  • correcting 2,542 impacted customer credit files
  • updating its system to classify certain fields, such as making the ‘close date’ a mandatory field
  • introducing an additional check control prior to informing credit reporting bureaus
  • providing additional coaching and feedback to relevant staff
  • introducing new processes to reduce time rectifying incorrect information on credit files.
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