Speaking at COSBOA’s annual National Small Business Summit in Melbourne late last month, Geoff Browne — the lead ombudsman for small business at the Australian Financial Complaints Authority (AFCA) — said that the agency has received more than 54,000 complaints about Australian financial institutions in only its first nine months of operation.
From that, over $130 million in compensation has been awarded to complainants.
Of those complaints, Mr Browne said that “about 3,000 complaints [have come] from small businesses, with about $8.5 million in compensation paid”.
However, Mr Browne said he believes that “those numbers are understated”, given that many complainants present themselves as individuals, but the underlying problem is business-related.
How much higher could the number of complaints coming from SMEs be?
As noted above, Mr Browne said that the number of complaints about financial services coming from SMEs could be much higher than the figures suggest.
Speaking with My Business after his presentation, Mr Browne was asked to hazard a guess at how much higher this proportion could be.
He admitted that “it is difficult to say”, but suggested that “it could be anything up to double”.
That could equate to more than one in 10 disputes being raised by SMEs compared with those from the general population.
What are the big problem areas?
Financial services encompass a vast array of areas. According to AFCA’s website, it oversees disputes involving:
- Credit, finance and loans
- Banking deposits
- Financial advice
So, which areas are causing consumers and SMEs the most grief?
“Seventy-ish per cent are in the banking and finance space. Of that, the largest are credit matters, as opposed to deposits and transactions, that sort of thing,” Mr Browne told My Business.
“About 45 per cent of our complaints [overall] would be credit-related.
“One of the top things we see there... this is in general, we see a number of claims about misleading information, product information; we get a lot of claims that the lend shouldn’t have happened, the credit shouldn’t have been provided, it was inappropriately provided.”
Another area of concern is scammers and infiltration of financial transactions, the ombudsman said.
“We are seeing a lot of problems about essentially scams and rip-offs, a lot of cases where the third party has managed to infiltrate a computer system, and they will sit remotely and look at invoicing, what have you, and we get a number of problems where the invoice has been issued correctly by the financial controller, often at the instigation of a forged email from a director.
“And what happens, the scammers will retain the name of the third party of a genuine supplier, for example, but they doctor the BSB and the account number, and transfer $50,000 to AB Supplies. And the account controller says, ‘Well, AB Supplies is one of our regular suppliers, the email seems to be legitimate, it’s from Bill the Boss’, but this is all doctored. Money gets transferred straight to a third party, different BSB. Businesses will complain to their bank and say, ‘I didn’t authorise this’.”
According to Mr Browne, “the banks don’t check the name, they check the BSB and account number — if it’s a viable one, off the money goes”. But the difficulty is that the bank has acted on a legitimate payment instruction from the business, with neither party recognising that the account details have been fraudulently changed.
He said that there is a protocol between banks when a fraudulent transaction is identified or reported, and a stop is put on any remaining transfers, “but usually these things are so well designed that the money is gone and the poor old business back here is left to suffer”.
‘Surprising’ number of complaints about superannuation
Another area that has taken AFCA by surprise has been the volume of complaints relating to superannuation, the ombudsman explained.
“One of the areas we’ve seen surprising growth in [the volume of complaints] is the area of superannuation,” Mr Browne said.
“Last time I heard, I think we were up around double what we expected to get.”
He continued by stating that this is “relatively small numbers, but compared with Superannuation Complaints Tribunal volumes, or the jurisdiction we inherited, we’re about double what we expected to get”.
‘Really important’ advice for SMEs
While only a fledgling organisation in its own right, being less than a year old, a key trend has already become apparent.
“It’s really important for small businesses... they often don’t understand their rights as a small business are different, and lesser, than a consumer,” Mr Browne told the conference.
His advice was for SMEs to ask whether a financial services provider is a member of AFCA before doing business with them, because not all service providers fall under AFCA’s jurisdiction.
Asked to expand on this point, Mr Browne told My Business that “financial service licensees must, as a condition of their license — think banks, think big insurers, credit providers have to be, superannuation trustees have to be because of legislation — but the regulation for financial service licences of credit providers is driven by the National Consumer Credit Protection Act, which is consumer-only”.
“So, there is no obligation for a licence requirement [to become a member of AFCA] if you don’t provide to consumers.
“If you’re both, you’re captured. But if you solely provide to business, there’s no licence obligation for you; therefore, you do not have to be a member of ours.”
Mr Browne said the fintech sector is “a prime example” of this, including online business lenders, invoice finance providers and asset leasing firms.
“Some of them have signed up to a code, and that requires them to be members of ours, but that’s a voluntary arrangement, it’s not a mandatory one. There are a lot more out there who aren’t members of ours.
“If you as a small business have got credit through, or some sort of finance through, somebody who is not a member of ours, if you’ve got a complaint, you can try and address it directly, but you can’t come to us.”