‘Vexatious’ EDR claims drain resources: FPA

In a submission to Treasury, the Financial Planning Association (FPA) has raised concerns about how easily ‘vexatious’ claims against planning groups lodged via external dispute resolution (EDR) schemes can drain resources.

Responding to the Review of the Benchmarks for Industry-Based Customer Dispute Resolution Schemes announced by Assistant Treasurer David Bradbury in April, the FPA’s submission said a “loop-hole… allows vexatious claims to progress through the EDR system with significant impacts on providers, the EDR scheme and other claimants”.

Even for claims that have no foundation, the complainant can request the complaint proceed to full determination because the EDR findings are only binding on the member, the FPA said.

With no negative impact (financial or otherwise) on the complainant for unsuccessful claims, a “moral hazard” is created whereby complainants are encouraged to challenge providers via an EDR scheme.

“After progressing through the entire EDR system, the claim is denied as it was again found that there was no basis to the complaint,” the FPA stated.

“While there is little impact on the complainant, the impact on the provider and the scheme is significant. This is known as a vexatious claim.”

Such claims also divert resources away from consumers with valid claims, while the consequences for the financial services provider can be “devastating”, the FPA argued.

Impacts can include loss of face, financial costs, time diverted away from servicing clients, and a significant impact on professional indemnity insurance premiums even though the claim was successfully defended.

There are six benchmarks in the Benchmarks for Industry-Based Customer Dispute Resolution Schemes, maintained by Treasury’s Commonwealth Consumer Affairs Advisory Council.

The FPA recommended changes to three of those:

  • The Benchmark for Accessibility, under which the FPA proposed that complaints found to have no basis or foundation should not be able to proceed through an EDR scheme without cost sharing between parties
  • The Benchmark for Effectiveness, which the FPA said should give industry schemes appropriate power to reject a claim if initial investigations by the scheme find no valid basis for the complaint
  • The Benchmark for Fairness, which the FPA said should enable industry schemes to demand scheme members and complainants provide information that is relevant to a complaint
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