Consumer groups have made a joint submission to the Treasury’s Discussion Paper, Implementing Royal Commission Recommendation 7.1 – Establishing a Compensation Scheme of Last Resort (December 2019). This submission has been drafted by Consumer Action Law Centre with contributions and endorsement from the following organisations:
- Consumer Credit Legal Service (WA) Inc
- Financial Counselling Australia
- Financial Rights Legal Centre
This submission comments on critical design features and should be read in conjunction with the Joint Consumer Group submission to the Ramsay Review Supplementary Issues Paper.
A series of financial scandals have left many Australians out of pocket and, in some cases, resulted in the loss of the family home or a secure retirement. Scandals have not just occurred in relation to financial advice; many people have suffered uncompensated loss from the mis-selling of complicated investment products, collapse of managed investment schemes and predatory conduct by credit providers. Uncompensated losses arise when consumers and small businesses have been awarded compensation by an external dispute resolution scheme, court or tribunal, but due to, for example the inability of the financial firm to pay, they do not receive that compensation. That is where our current framework for compensating loss fails.
When the loss goes uncompensated, the harm experienced by individuals and families can be severe, with flow-on costs for the community, Government and trust in financial firms.
A compensation scheme of last resort (CSLR) must be established to prevent the harm that results from uncompensated losses, and to rebuild trust and confidence in Australia’s financial system. A CSLR is the missing piece of our financial services regulatory architecture.
We strongly support the Government’s commitment to implement a CSLR, and to establish a broad scheme that goes beyond financial advice disputes.