Caution required around AFCA’s move to permanent early case merit assessments | May 2022

26 May 2022

The Australian Financial Complaints Authority (AFCA) will adopt a merit assessment process for all cases going forward. The aim of the merit assessment process is to identify and exclude complaints where no apparent error or financial loss has occurred. 

This follows a three-month pilot program conducted by AFCA last year, which showed that where unmeritorious complaints can be identified and addressed early, the time taken to resolve the selected cases was half that of ‘comparable’ cases, and the fee charged ‘was as much as 75 per cent lower’. 

(The ‘fee charged’ in this context means the fee charged by AFCA to its member – i.e. the financial services firm complained against.)

AFCA says that its members – i.e. financial services firms – were finding the costs of responding to AFCA complaints were such that they made commercial decisions to concede complaints on the basis of costs, regardless of the merits of the case. 

It says that the issue ‘was made worse by the conduct of a small number of third-party paid representatives using questionable tactics, with complainants refusing to consider a reasonable resolution in the earlier stages of AFCA’s process’.

AFCA now intends to roll-out early merit assessment across all cases ‘where sufficient information about a complaint is available at an early stage and it clearly shows there is no error and/or loss’. 

AFCA notes that ‘[t]he balancing act is to ensure we are not closing complaints that do not have merit. Sometimes the only way to determine this is through further investigation’. 

The early merit assessment process is said to address the following Recommendations of the Independent Review of AFCA:

  • Recommendation 4 – Addressing poor conduct of some paid advocates.
  • Recommendation 7 – Ensuring funding model does not disincentivise firms from defending complaints.

Whilst the concept of an early case assessment is good in principle and should increase AFCA’s efficiency, we have some reservations:

  1. Firstly, a summary procedure already exists for AFCA to deal with complaints at an early stage. Currently, AFCA issues a preliminary decision by the case manager operating the file. The parties can choose to accept that decision. If not, the complaint moves to a final decision by an Ombudsman. It is unclear how the early merits review process improves this procedure. What will the role of preliminary assessments be once early merits reviews are adopted across the board? AFCA’s press release is silent in this regard. Further details are required.

  1. Secondly, the preliminary assessments we have reviewed from AFCA have been of mixed quality, sometimes overlooking key information and arguments, or misunderstanding legal concepts. It is unclear whether the early merits review process by AFCA will have better quality control – particularly if they are to be assessed at an even earlier stage in the process. 

  1. Thirdly, AFCA is expressly attempting to tackle two problems at once – difficult ‘third party representatives’ and unmeritorious cases. If the problem is actually that AFCA is having difficulty managing the conduct of ‘third party representatives’, then it should focus its efforts on that conduct, not the assessments of cases more generally.

In summary, more information is needed to see the preliminary merit assessment process in action. Now that AFCA has committed to rolling it out across all complaints, it will not take long to see the results.  AFCA should be prepared to assess those results and change course if too many complaints are being excluded.

The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.