Transcript Complaint Reviews - Financial Ombudsman Service

Debt Recovery
Disputes
A realistic alternative to
the Courts
Diana Ennis – Manager Dispute Resolution
Discussion Points
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Terms of Reference
Expedited dispute resolution process
Dispute data
Jurisdiction
Hot topics:
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Preservation of assets
Settlement agreements
Case studies
TOR paragraph 13.1
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Legal proceedings and debt recovery action – The
Circular Issue 3 www.fos.org.au/publications
Defined as:
“a proceeding commenced in a court by the FSP
to obtain judgment for a debt, or for recovery of
possession of an asset provided by a debtor or
guarantor as security for a credit facility”
While FOS is dealing with a Dispute lodged by an App the
FSP must not instigate legal proceedings against the App
relating to the subject of the Dispute (13.1(a)(i))
TOR paragraph 13.1
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While FOS is dealing with a Dispute lodged the FSP
must not pursue legal proceedings relating to debt
recovery instituted before lodgement unless the
Applicant has taken a step in those proceedings
beyond lodging a defence or defence and
counterclaim (13.1(a)(ii))
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The FSP must not seek judgment in those
proceedings
TOR paragraph 13.1
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A step beyond lodging a defence/defence & counterclaim
includes App:
- defending application for summary judgment
- issuing notice for discovery or subpoenas
- issuing application for further and better particulars of the claim
- serving interrogatories
- issuing a notice to produce
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A step beyond lodging a defence/defence & counterclaim
does not include:
- lodging an amended defence
- directions hearing/consent orders of procedural nature
TOR paragraph 13.1
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While FOS is dealing with a Dispute lodged the FSP must
not take action to recover a debt that is the subject of the
dispute, to protect assets securing that debt or to assign
any right to recover that debt (13.1(a)(iii))
This includes:
- taking possession of secured property
- appointing a Receiver & Manager
- serving of demands or notices
- collection calls
- assigning the debt
- making a credit listing
TOR Paragraph 13.1
Two exceptions subject to FOS consent and terms:
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FSP may issue legal proceedings where the
relevant limitation period will shortly expire
(13.1(b)(i))
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FSP may exercise any rights to freeze or
preserve assets the subject of the Dispute
(13.1(b)(ii))
TOR obligations
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FSP obligations arise out of membership contract
and FOS Constitution (clause 3.7)
FSP failure to comply with FOS requirements
concerning legal proceedings and debt recovery
action can result in:
- serious misconduct reported to ASIC (11.3)
- cancellation of FOS Membership
- requirement that legal proceedings be
discontinued at no cost to App
Background
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December 2009, ASIC approved the FOS TOR
subject to certain conditions, including:
1
Identify:
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Expedite:
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Dispute data:
Early identification where debt
recovery legal proceedings
commenced
Treat the dispute as urgent and
expedite the dispute resolution
process
Provide data to ASIC for a review
in July 2011
Criteria for LPPI
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Date and time of lodgement of dispute with FOS
or other EDR scheme (if referred on from other
EDR scheme) - 6.5 TOR
Legal proceedings must be issued and filed in a
Court prior to lodgement
Default notices/letters of demand alone are not
legal proceedings
Legal proceedings must relate to the repayment
of a debt which is the subject of dispute
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Assessed upon lodgement of dispute:
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Information provided by App relied upon
Documentation or verbal information
Online dispute form
Onus on FSP to tell us not LPPI
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Identify
You know, we don’t
We will assume LPPI unless told otherwise
We rely on you to provide:
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Relevant Court documentation
Current status of proceedings
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Expedite
Initial IDR period (21/45 days) waived
Registration
• Internal Dispute
Resolution
Acceptance
Case
Management
• Review
• Negotiation
• Conciliation
• Investigation
Outcome
• Recommendation
• Determination
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Immediately progressed to Acceptance
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Referral within 2 business days
Prioritised over other disputes
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Expedite
Expedited referral to FSP and review of response
Expedited allocation to compulsory TCC
Expedited decision
Only where shorter timeframes met by FSP
Expedite
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Upon initial referral of dispute FOS will request:
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Relevant Court documentation:
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Defence or defence and counterclaim
Notice of discontinuance dated prior to lodgement of dispute
Judgment (if applicable to demonstrate OTR)
Interlocutory applications/documentation
Documentation relevant to the issues raised by App
including response to App
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Copies of prior settlement agreements /repayment
arrangements important
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This will not occur when:
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Expedite
Incomplete FSP response received
FSP response not received within 14 days
FSP requests extension of time to respond
If de-expedited usual dispute resolution process
timeframes apply
TCC still compulsory
LPPI $1,000 surcharge applies from Review
status regardless of when or whether dispute deexpedited
2
$500
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Expedite - LPPI costs
Initial case
management
fee
Expedited
referral
Payable even
where no LPPI
or OTR
Cost if
documented
resolution
within 14 days
$1,000
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LPPI
surcharge
Payable if
progressed
Applies to all
LPPI disputes
(expedited/deexpedited) at
Review status
$....
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Usual
case fee
Determined at
closure
Depends on
closure status
and complexity
level
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Expedited disputes result in speedier outcomes
59% dealt with expeditiously
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Expedite
56% resolved within 60 days
25% resolved between 60 - 90 days
Overall resolution 81% within 90 days
41% LPPI disputes de-expedited
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16% resolved within 60 days
20% resolved between 60 - 90 days
Overall resolution 36% within 90 days
Expedite
2
Above 180
121 - 180
Days
91 - 120
61 - 90
31 - 60
< 30
De-expedited
0%
Expedited
No. of Days
< 30
31 - 60
61 - 90
91 - 120
121 - 180
Above 180
5%
10%
15%
20%
Expedited
23%
33%
25%
10%
6%
2%
25%
30%
35%
De-expedited
4%
12%
20%
17%
27%
20%
2
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Outcomes
Facilitated negotiation prior to TCC – this is
where FSPs need to focus
Settlement agreement reached during/post TCC
Where no resolution expedited to decision within
7 days
Recommendation
Ombudsman’s Case Conference
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Expedited Determination (8.6)
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Outcomes
proceed to final decision where appropriate
all parties to the dispute notified
reasonable opportunity for parties to make
submissions and exchange information
Criteria to expedite
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dispute involves financial difficulty issues only
property securing debt may need to be sold
App has not agreed to or taken any steps to repay
outstanding debt
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Expedite
Compulsory TCC - 83% resolution rate in 2010
100%
90%
80%
70%
60%
50%
Not resolved
40%
Resolved
30%
20%
10%
0%
Expedite - TCC outcomes
2
70%
Conciliated outcomes:
– repayment
arrangements
61%
– agreed sale
timeframe 26%
60%
50%
40%
30%
20%
10%
0%
Repayment
arrangement /
variation
Timeframe for
sale of asset or
refinance debt
APRA release
Debt waiver
Other
Commercial
Resolution
Expedite
2
Expedited V De-expedited
(%)
80%
70%
60%
50%
40%
30%
20%
10%
0%
De-expedited
Expedited
3
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FOS has collated data on:
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Dispute Data
LPPI disputes received
Number of days dispute open
Whether App is individual or small business
OTR reason
Nature of dispute
Numbers of disputes expedited and de- expedited
Quarterly reports provided to ASIC
ASIC review post 30 June 2011
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Dispute Data
Volume Received
160
March 2011
141 per month
140
120
100
Feb 2010
61 per month
80
60
Growth of LPPI disputes
40
Increasing challenge for all to expedite
20
0
3
Dispute Data
Open V Closed
160
140
120
100
80
60
40
20
0
Opened
Closed
3
Dispute Data
Closed: expedited V de-expedited
80
70
60
50
40
30
20
10
0
Expedited closed
De-expedited closed
3
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Dispute Data
Who lodges disputes?
Business
Finance
93%
Consumer
Credit
Guarantees
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Which products?
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93% consumer credit products
6% business finance
What is the nature of the dispute?
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Majority Financial Difficulty (81%)
1%
6%
3
Dispute Data
Within TOR
60%
OTR Outcome
10%
40%
18%
61%
Within TOR
OTR
Dealt with by Court
More appropriate place
Not a current FOS member
Jurisdiction
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Where dispute assessed as within TOR documentation
must be provided to show otherwise
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FSP written submission with reasons for why considered OTR
App provided 30 days to object
Misguided Terms of Reference submissions result in
delays
Common misconceptions to exclude:
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A dispute which is lacking in merit is not necessarily frivolous or
vexatious
Complex factual and legal issues
Eroding security – court timeframes apply equally where defended
in court
Preservation of Assets
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We recognise it may be necessary for FSP to preserve
assets that are subject of dispute
FSP to request in writing & provide supporting
documentation explaining:
– What action it wants to take
– Why it is more likely than not asset will be lost or
destroyed if consent not given – erosion of equity alone
not generally sufficient
Each application considered on individual merits
Case study
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App small business which operated real estate agency. FSP entered into
various facilities one of which was to assist in the purchase of rent roll
FSP had fixed and floating charge over business (including rent roll), personal
guarantees & mortgage over property
Deficiency in trust fund relating to the rent roll, estate agents licence
cancelled and guarantors bankrupt
FOS dispute concerning financial difficulty lodged. Substantial arrears and
App seeking time to refinance
FSP provided full details of loans and current status, documentation about
trust fund deficiency and documentation to show discussions had been held
between App and third party about sale of rent roll
FOS consented to appointment of Receiver & Manager on basis rent roll at
risk of sale to third party. FOS did so on condition that R&M take no action to
sell asset while FOS file open
Case Study
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App lodged a dispute concerning financial difficulty in relation to a car
loan which was in arrears. The car had been in the possession of a
repairer for a year because App could not afford to pay for the repairs.
FOS consented to the FSP taking possession of the car on the basis
that the car not be sold while the FOS file remains open
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App lodged a dispute with FOS concerning financial difficulty in
relation to a car loan. The car was insured and registered and in the
possession of App’s mother who was his authorised representative.
FSP said that loan was in arrears and App in jail. FSP requested
consent to repossess the car on basis no repayment arrangement
could be made while App in jail. FOS did not consent to repossession
on the basis that the car was at no additional risk of loss or damage.
Settlement agreements
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FOS will not generally consider a dispute which has
previously been settled unless exceptional circumstances
apply. This is because liability of FSP is discharged at law
Exceptional circumstances may apply if agreement harsh
or unconscionable, FSP induced/misled App to enter into
agreement/App agreed to enter into settlement under
duress (illegitimate pressure)
Informing an App that an FSP intends to exercise its
contractual rights if the agreement is not met is not in itself
considered duress
Each dispute assessed on a case by case basis.
Settlement agreements
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Provide finality
Bendigo and Adelaide Bank Limited v Tombs and Anor
[2010] NSWSC 1427 at 40
Must reflect agreement between parties without addition
Deal with consequences of non-compliance
Deal with current legal proceedings:
– Discontinue
– Should not require consent to judgment
Reflect resolution is in full and final settlement of FOS
dispute
Case study
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App lodged a dispute concerning financial difficulty and seeking time to sell
security properties. App had been in financial difficulty for some time and
negotiations had been entered into resulting in a Moratorium Deed being
signed by the parties prior to lodgement of the FOS dispute
The Deed set out the terms of settlement which included the following:
- various payments to be made on specific dates
- App acknowledgment that legal advice had been obtained by App
prior to entering the deed/opportunity had been provided to obtain such
advice
- App acknowledgment that if he failed to make payments FSP entitled
to enforce its rights in full in accordance with the T&Cs of securities
FOS assessed the dispute as OTR by applying the general exclusion under
5.2 TOR on the basis that the dispute had previously been settled.
Timely and cost effective resolution
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Ensure the dispute remains expedited:
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Be commercial and flexible
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Provide substantive responses
Provide timely responses
Increased chance of resolution within 90 days if
expedited
Exhaust opportunities to resolve - don’t wait for a TCC!
Think creatively and laterally
Approach dispute with fresh eyes
Document settlement agreements
Resolution
Questions?