Soaring FOS disputes highlights need to tackle financial difficulty

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Today’s release of Financial Ombudsman Service’s Annual Review shows an alarming – but sadly not surprising – increase in financial difficulty disputes.

The number of financial difficulty disputes handled by FOS increased by 130% (from 2,648 to 6,108). This continues a similar trend from the previous year.

“Financial counsellors will not be surprised by this increase”, said Fiona Guthrie, Executive Director of FCA. “Our sector knows that more and more Australians are struggling to pay their bills. This is why the queues to see a financial counsellor continue to grow.”

There are likely to be many reasons for the increase including the GFC, changes to the FOS Terms of Reference and cost of living pressures. None of these factors are likely to abate in the coming 12 months.

The implication for the many stakeholders involved in assisting people in financial hardship is clear – we need to tackle the problem head on, or it will continue to grow.

The elephant in the room continues to be customers who are in long-term hardship, or customers who cycle in and out of financial difficulty, because for example, they can only obtain casual employment. Current approaches are not working for these customers.

The Bulk Debt Negotiation Project* in particular demonstrates that credit providers and debt collectors are all spending significant resources on pursuing clients on very low incomes, with no assets and often with serious social problems.

Financial counsellors and the banking industry (through the ABA) are jointly involved in a Hardship Working Party. This has been a cooperative and productive forum in the past. In 2012, the issue of long-term hardship needs to be a priority for this group.

Financial counsellors also want to see FOS re-visit its approach to financial difficulty. FOS provides a valuable service for consumers experiencing short-term financial difficulty. But while people in long term hardship can lodge a dispute with FOS, the organisation will not vary a contract if the consumer cannot make a payment. This effectively makes dispute resolution an empty right. A dispute resolution service needs to be available to everyone.

* Bulk Debt Negotiation – client cases were bundled together and outcomes negotiated as a group with creditors, rather than individually.

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