Article by Mark Holden (Solicitor, Financial Rights Legal Centre).
On 4 February 2019, the Royal Commission on Financial Services released its final report. To a lawyer working in financial services law, it was like Moses coming down from the mountain top or the Four Horsemen of the Apocalypse, all carrying a link to a 530-page PDF document . Everyone was not only wondering what guidance the Commissioner would provide in his recommendations, but also hoped for validation for why the Royal Commission was needed in the first place.
We saw first-hand witnesses in the box who were vulnerable in their circumstances, reopening wounds from how they were exploited for a financial service provider’s gain. Other witnesses included the owners or managing directors of these financial service providers in the dock, cross-examined by Rowena Orr SC, who dragged them over the coals and forced them to stutter over their admissions of wrongdoing or incompetence.
One particular subject the Royal Commission examined was the relationship between Aboriginal and Torres Strait Islander people and financial services. Comprising three per cent of the population, they were found to be some of the most vulnerable to exploitation with low levels of financial literacy, poor access to financial services and wholly inadequate access to justice. There was evidence of companies intentionally structuring their marketing and sales campaigns around Aboriginal communities to take advantage of them.
The Commission’s report delivered 76 recommendations, three of which were geared particularly towards reducing disadvantage in financial products for Aboriginal and Torres Strait Islander communities. Of course, many of the other recommendations – like those aimed at improving culture, eradicating conflicted remuneration, closing loopholes in the law and putting the customer’s interest back on the agenda – have the potential to assist Aboriginal and Torres Strait Islander peoples along with everyone else.
The question now is whether the recommendations are going to be carried out, particularly those relating specifically to Aboriginal and Torres Strait Islander communities. Let’s take a closer look at them.
1. Banks to work better with remote, non-English speaking and Aboriginal communities
The Royal Commission recommended the Australian Banking Association amend its Banking Code of Practice to be more aligned with the needs of Aboriginal and Torres Strait Islander communities and a little less tone deaf to their circumstances (a paraphrased recommendation 1.8).
The Banking Code of Practice is adopted by most of the banking institutions and can be enforced against them through the Australian Financial Complaints Authority and the courts. The recommended amendments were:
- to work with customers living in remote areas or those not adept at English to find suitable ways for them to access and undertake their banking;
- if a customer is having difficulty proving his or her identity, and tells the bank that he or she identifies as an Aboriginal or Torres Strait Islander person, the bank will follow AUSTRAC’s guidance about the identification and verification of persons of Aboriginal or Torres Strait Islander heritage;
- without prior express agreement with the customer, banks will not allow informal overdrafts on basic accounts;
- banks will not charge dishonour fees on basic accounts.
The first two recommendations reflect the difficulty experienced by Aboriginal and Torres Strait Islander people in accessing banking. In some of the reported case studies, Aboriginal customers had to fly to their local bank branch to receive service and their lack of literacy created many barriers to accessing appropriate financial services. The banking fees themselves, especially the ATM fees in remote communities, consume a significant proportion of Centrelink income received, leaving people in more financial hardship.
Some Aboriginal and Torres Strait Islander people could not even open a bank account because not only had they never been issued with a birth certificate or official ID documents, they did not even know their date of birth. The recommended AUSTRAC method for identification and verification involves a flexible process of using consumer declarations, referee statements and government correspondence to verify the consumer’s identity. (1)
Commissioner Hayne also noted for banking services that implementing telephone services was useful in assisting more Aboriginal and Torres Strait Islander banking customers, but it cannot be a panacea for all of the systemic issues that are still being faced (page 93).
Where are they now?
The new Banking Code of Practice just came out on 1 July 2019. The new Code doesn’t exactly reflect the recommended changes:
- Paragraph 35 – to make any information about banking services reasonably available to identified Aboriginal and Torres Strait Islander customers including assisting with identification requirements
- Paragraphs 36 and 37 – to take reasonable steps to make information about their banking services accessible in remote communities and provide cultural awareness training
- paragraphs 38-41 – to identify and assist vulnerable people where required
- paragraphs 45-48 – to identify appropriate customers to market affordable banking services
The new Code does pave the way for participating banks to prescribe and implement their own means of achieving the first two recommendations but makes no particular reference to the methodologies referred to in the Commission’s final report, including prescribing AUSTRAC methodologies. Further changes to the Code are the subject of an Australian Consumer and Competition Commission (ACCC) authorisation application by the banks, with a view to implementation in 2020. Some of these changes received authorisation from the ACCC on 11 July 2019, specifically proposed Code provisions:
- not allowing informal overdrafts on basic bank accounts (BBAs) without prior express agreement with the customer; and
- not charging dishonour fees or overdrawn fees on BBAs.
Further changes in relation to defining the minimum features of a basic bank account have not yet been approved by the ACCC because of concerns raised by consumer groups (including Financial Rights Legal Centre), but we hope these issues can be addressed. Consumer groups also continue to push for banks to introduce an obligation to proactively identify people who are not in basic bank accounts and are being overcharged as a result.
2. No hawking superannuation or insurance products
The Royal Commission recommended prohibiting unsolicited sales of superannuation (recommendation 3.4) or insurance products (recommendation 4.1), including when the product offer was made when the person was attending a meeting or telephone call for the purpose of entering negotiations for a different type of financial product.
Unsolicited sales have been a prevalent issue with Aboriginal communities and populations due to poor financial literacy, high pressure sales, cultural expectations in relation to sorry business, feeling disempowered to refuse, and encouragement to sign up family members through their kinship connections. In one salesperson’s account to the writer “I just love Aboriginal people! They go around and get everyone signed up!”.
It’s not just the initial contract of sale for insurance products, but also when consumers are approached by a salesperson to increase the benefit in their insurance policy or to take out another super fund or another insurance policy. In one of Financial Rights Legal Centre’s cases, an Elder was constantly called by a funeral insurer to increase his insurance benefits while he was being treated in intensive care, resulting in multiple policies being incepted. For another client, they were door knocked by a sales person for a ‘check up’ on their funeral insurance to increase their benefit, to their serious financial detriment.
Because of these practices, often Aboriginal and Torres Strait Islander consumers are more likely to have more than one insurance product for the same event which multiplies the amount in premiums and additional super accounts, which then waste away with administration fees.
On a related note, Commissioner Hayne urged that Treasury consult the Aboriginal and Torres Strait Islander community on the issues relating to the binding death benefit nominations (at page 253). The Commission reported that some of the problems with superannuation death benefits included super funds not recognising traditional kinship structures when nominating beneficiaries (i.e. where the super fund pays benefits to dependents but not to the non-dependent, who is culturally obligated to pay to the entire family and community).
Where is it now?
The Morrison government accepted the recommendations in relation to prohibiting the unsolicited sales of superannuation and insurance. So far, there has been no consultation in relation to implementing these changes.
Treasury has since begun consultations over amending superannuation laws to reflect traditional kinship structures when nominating beneficiaries.
3. Remove the exemption for funeral expenses plans and policies
There are arguments over whether the consumer protection laws under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) apply to funeral benefit schemes and insurance. Under these arrangements, the policy holder is making regular premium payments in return for being covered for funeral expenses between $5,000 to $20,000 in the event they die.
Many witnesses in the Commission, as well as the Australian Securities and Investments Commission (ASIC), have reported that funeral insurance products are severely disadvantageous, especially to poor and vulnerable people.(2) As the person gets older, the less income they receive and the higher the premiums get. They are also more likely to become incapacitated by illness or otherwise less able to manage their financial affairs as they age, also resulting in premiums going unpaid and policies lapsing. Funeral insurance ends up with a very high cancellation rate, leaving many people out of pocket and yet not having a funeral policy to claim on when they need it.
In examination, one particular company, ACBF Group Pty Ltd (ACBF) or ‘Aboriginal Community Benefit Fund’, was alleged to have masqueraded themselves as an Aboriginal organisation and targeted Aboriginal consumers with their funeral products. Aboriginal consumers are particularly vulnerable because of the importance and expensiveness of ‘sorry business’ and higher mortality rates, particularly child mortality rates and tragic deaths. Aboriginal consumers reported that they entered into a funeral plan either at the behest of their family, or following a tragic incident, under the belief that ACBF was an Aboriginal-owned organisation.
The Commission recommended that the ASIC Act be amended to unequivocally include funeral benefits (recommendation 4.2) and allow ASIC to regulate the funeral expense and insurance industry.
Where is it now?
Treasury has consulted with ASIC on repealing the exemption. In the meantime, the government has acted to amend the Corporations Act 2001 (Cth) regulations to provide that a funeral expenses policy is a financial product for Part 7.9A of the Corporations Act, which is the new Product intervention Power held by ASIC. ASIC acquired these new product intervention powers in April 2019. These new powers may give ASIC the flexibility to step in and modify financial products and services to better protect consumers.
After the director of ACBF, Bryn Jones (who was appointed 18 days after the Commission was announced), testified in July 2018, ACBF amended its disclaimer to state ‘we are not an Aboriginal organisation’. In November 2018, ACBF recruited an Aboriginal director and shareholder, but he does not have full majority shareholding over ACBF. ACBF has renamed its company to ‘Youpla’ and promised a better funeral product for Aboriginal communities going forward but has not published any intent for a remediation program for its past consumers.
The Royal Commission was designed to look into the failings of our financial system and how these failings affected consumers. To its credit, the Commission shone a particular light on issues affecting Aboriginal and Torres Strait Islander peoples.
However, the Commission’s terms of reference were unfortunately too narrow to consider all relevant financial products. Readers should also refer to the Senate Inquiry into Credit and Financial Services targeted at Australians at risk of financial hardship for more products which need better regulation. Pay day lending, consumers leases, buy now pay later services and debt management firms are all cases in point.
The Royal Commission’s findings should be taken seriously and implemented as soon as practicable, but there is no urgency without pressure from the public, especially the Aboriginal community. The real threat to the recommendations may not just be the efforts of financial services industry lobbyists, but this report fading from the public consciousness.
Part of Financial Rights Legal Centre and its Mob Strong Debt Help program objectives include not just participating in the Royal Commission, but to also making sure that the most vulnerable of communities and consumers understand the Royal Commission report, and encourage them to pressure their government representatives and financial services to carry out the recommendations and not let the community outrage just fade away.