How to improve dispute schemes where debt recovery has commenced

The findings of a review examining the jurisdiction of EDR schemes, in relation to certain consumer complaints, were released by ASIC on Friday 19 October 2012.

The review examined the jurisdiction of EDR schemes over consumer complaints in cases where scheme members have commenced legal proceedings to recover debts from consumers and was undertaken as part of a public consultation under Consultation Paper 172 Review: EDR jurisdiction over complaints when members commence debt recovery proceedings (CP 172). The findings of the review, including a report on the submissions received as part of the consultation process, are contained in Report 308 Response to submissions on CP 172 Review of EDR jurisdiction (debt recovery legal proceedings) (REP 308).

The review sought feedback on the policy settings outlined in Regulatory Guide 139 Approval and oversight of external dispute resolution schemes (RG 139), in particular, RG 139.77-RG 139.79, which require ASIC-approved EDR schemes to handle complaints under their Terms of Reference or Rules when members of the schemes commence legal proceedings to recover a debt from a consumer.

The review confirmed the appropriateness of the existing policy settings and reinforced the useful role ASIC-approved EDR schemes and their debt recovery legal proceedings jurisdiction plays in assisting consumers and financial investors who may benefit by a hardship variation, need more time to sell their home, may have been granted loans in breach of responsible lending requirements or face debt collection issues (i.e. being pursued for statute-barred debts).

ASIC Commissioner, Mr Peter Kell said, ‘This review has helped to focus attention on a number of areas where the dispute resolution system could be enhanced, beyond specific regulatory guidance. All participants in the system have a role to play in making it work more effectively – not just EDR schemes but also licensees who are members of the schemes and consumer representatives who advise consumers. We encourage participants to consider making some changes to their current practises to improve the effectiveness of the system’.

Opportunities for improvement include:

  • licensees taking steps to better identify hardship in its earlier stages, and better resourcing and training their complaints handling teams to become more efficient and effective
  • ASIC-approved EDR schemes (the Credit Ombudsman Service Limited and the Financial Ombudsman Service Ltd) improving their operations by working with scheme members and consumer representatives to improve scheme handling and processing of debt recovery legal proceedings complaints
  • enhanced consumer understanding of how an EDR scheme’s debt recovery legal proceedings jurisdiction can assist as well as the continued obligation to make repayments where possible.

ASIC has updated information on its MoneySmart website to assist consumers who may be experiencing ‘Trouble with debt’ (opens new window), including advice on when it may be appropriate to consult an EDR scheme.

The review also found some relatively minor refinements could be made to ASIC’s guidance for small business lending complaints. In conjunction with the release of its findings today, ASIC is conducting a further consultation seeking feedback on how a scheme’s debt recovery legal proceedings jurisdiction should apply to small business lending complaints (under Consultation Paper 190 Small business lending complaints: Update to RG 139 (CP 190)).

Comments on CP 190 are due by 10 December 2012.