Home' Financial Ombudsman Service Annual Review : 2011-2012 Annual Review Contents 59
Financial Ombudsman Service 2011-2012 Annual Review
Systemic Issues and Serious Misconduct
While the details of these case studies are taken from
actual systemic issues we have investigated, none
of the case studies reflects the exact circumstances
of any one systemic issue. Providing detailed
information about real cases could unfairly affect
the relevant financial services providers (FSPs)
by disclosing features of their products.
Finding a solution to a particular problem requires an
in-depth understanding of the details of the problem.
So, even though these case studies include the outcome
or resolution of the systemic issue, our aim is not to
devise a solution ourselves to each problem. When
investigating and resolving a systemic issue, we work
with the FSP. Resolutions are therefore always
formulated case by case.
1. Switch fee disclosure
We handled a dispute about a switch fee a customer
was charged when they switched from a fixed to a
variable rate loan. We found that the switch fee had
not been disclosed in the relevant Residential Loan
Agreement offer. This raised a potentially systemic
issue about whether the FSP was able to charge the
switch fee if it had not been disclosed in the contract
and whether there was a breach of the Uniform
Consumer Credit Code (UCCC) that would have
affected other customers.
The principal issue we had to assess was whether
or not the FSP's failure to disclose the amount
of the switch fee in its loan contract documentation
constituted a breach of the UCCC. In our view, based
on the information provided by the FSP, the matter
represented a definite systemic issue.
After conducting an internal review, the FSP said
that it had identified a category of loans within its
portfolio for which the switch fee had not been
disclosed even though it was payable under the credit
contract. The FSP stopped charging the switch fee in
relation to the affected loans and agreed to waive or
reimburse the switch fee for existing customers who
held the affected loans. Without admitting liability,
it also agreed to amend its loan offer documents
across its whole portfolio to disclose the switch fee.
In total, the FSP identified 3,625 affected customers
and refunded over $1.7 million to them.
2. Calculation of break cost fee
A substantial number of disputes received by
FOS illustrated that the break cost fee charged
by a particular FSP may not have been reasonably
charged. In each of the disputes, we were unable
to reconcile the FSP's break costs as reasonable.
The issues that we reviewed as possibly systemic
included the FSP's methodology for calculating
break costs and the contractual disclosure of the
calculation methodology in its fixed rate contracts.
Following an independent review of its calculation
methodology, the FSP acknowledged that it had
found a cash flow error in the methodology. It agreed
to identify customers affected by the cash flow error,
recalculate their break costs and reimburse them
The FSP later notified us that it had refunded over
$220,000 to the affected customers.
3. Incorrect claim denial
The FSP involved in a particular dispute had referred
to incorrect policy wording when assessing a
customer's claim for disability benefits. The issue
reviewed as a possible systemic issue was whether
the FSP had incorrectly ceased payments to other
The FSP acknowledged that it had not relied on the
correct policy document to assess the customer's
claim. It reviewed its records relating to disability
claims and identified that it had terminated payments
of disability benefits for a small number of relevant
policyholders. It indicated that it would train the
relevant staff about this issue and contact the
policyholders in order to reassess their claims. Based
on the information provided to us, we determined
that the matter was a definite systemic issue.
The passage of time could make it harder for the
affected policyholders to obtain the necessary
medical information to demonstrate that they still
met the definition of 'disability' at the time their
claims were terminated. Therefore, we asked the FSP
to treat the affected customers fairly and reasonably
in assessing their claims.
The FSP subsequently advised us that it had
reviewed the affected policyholders' claims and
that it had reinstated benefits in all cases, with
interest being added in accordance with the relevant
provisions of the Insurance Contracts Act. A total
of $208,652 was refunded to the affected customers.
We considered the issue satisfactorily resolved.
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