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:
An adviser has slammed the poor behaviour of insurers in hiking premiums for existing customers while new client rates stay unsustainably low, as the ...
The corporate regulator has used its enhanced banning powers to restrict the former head of a collapsed asset manager from financial services in any ...
The government has rushed new legislation to Parliament in the wake of its ushering in a new broom at ASIC, which will keep the regulator accountable ...