Consumer Action Law Centre welcomes reports that independent Senator Nick Xenophon MP and Labor Senator Sam Dastyari have called for a last resort compensation scheme for financial services consumers.
Gerard Brody, CEO of Consumer Action, said that consumer advocates had long called for a safety net for those that are sent broke because of misconduct of a financial services provider.
‘There are too many individuals that suffer at the hands of a financial adviser or institution that are not compensated. The Financial Ombudsman Service has awarded over $12 million to consumers that have not been paid by providers. For the community to have trust in our financial system, there must be a system to provide a remedy where there has been financial misconduct’, said Mr Brody.
Any compensation system should cover the financial sector broadly, and not be limited to financial advice.
‘There have been many scandals in financial advice, but many vulnerable consumers have been left uncompensated after misconduct by payday lenders and other credit providers. The Cash Store – a payday lender that recently went under – is a case in point: the Federal Court found that 99 percent of sampled contracts breached consumer protections. There were over 300,000 contracts entered into, affecting thousands of consumers—the vast majority of these have not been compensated’, said Mr Brody.
Consumer Action also welcomes admissions by some banks that confidentiality clauses in settlement agreements are inappropriate, made at the Senate Inquiry into financial advice yesterday.
‘Confidentiality clauses are commonly imposed by businesses as part of settling an individual consumer dispute’, said Mr Brody. ‘In our experience, confidentiality is rarely requested by consumers. Instead, it can be used to repress public awareness of misconduct’.
‘We believe there is often a public interest associated with the outcomes of settlements, for example where the relevant misconduct affects many consumers. In banking and other mass markets, misconduct is likely to affect thousands more individuals. Where there has been a breach of consumer laws, confidential settlement agreements should not be used to hide this from the public’, said Mr Brody.