One of the first payments made under the CSLR is for more than $50,000 for a couple who received ‘inappropriate’ advice from a mortgage broker.
The Compensation Scheme of Last Resort (CSLR) has made its first payments to claimants who suffered financial services misconduct, with one of the first four payments relating to mortgage broking.
The CSLR provides up to $150,000 in compensation to eligible consumers who have experienced misconduct by a financial firm and where the firm has not made recompense (generally, due to insolvency).
To be eligible for compensation, claimants must have experienced financial misconduct – as determined by the financial services sector ombudsman, the Australian Financial Complaints Authority (AFCA) – relating to personal financial advice, securities for retail clients, credit, and in arranging credit.
A total of $360,000 has now been paid to four claimants – the first payments made under the new system – with one being for $54,050 to a couple from Queensland who were advised by a mortgage broker to take out a loan that was “inappropriate for their circumstances”.
What was the issue?
According to the CSLR, the couple were “taken advantage of by a mortgage broker” after AFCA found that the broker had falsified their projected income. The complaint is several years old and reportedly took place before the Best Interests Duty was brought in (in 2021).
The couple told the body: “We were misled by a mortgage broker who we trusted as a friend. Believing he was helping us, we soon realised he was profiting at our expense.
“Lacking industry knowledge, we were vulnerable to his deceit and conflict of interest. He got us a mortgage loan by falsifying projected income to secure a loan we couldn’t afford.”
The couple flagged that the issue led them to experience financial hardship, to the point where they “are in debt and with barely enough money for groceries and living day-to-day”.
“We have children whom we love deeply and want to shield from our anguish. The CSLR payment is a beacon of hope, allowing us to address our debts and regain some stability,” they said.
“Without CSLR, we risk losing our home. We are incredibly grateful for this support and the chance to rebuild our lives.”
Another payment was to a couple from Sydney’s south who received $145,417.76 following “inappropriate personal financial advice” provided by their financial planner relating to a self-managed super fund.
The “fraudulent financial adviser” was found to have “provided deceitful advice” by convincing the clients that they were investing in a property that was to be built.
The adviser then allegedly stole the money and fled the country, leaving the family unable to meet their mortgage repayments and causing them to apply for a financial hardship loan.
Commenting on the first payments, the CEO of the CSLR, David Berry, said: “Whilst the financial services industry works toward the betterment of their clients it’s unfortunate that there are a small few who take advantage of the trust bestowed on them. Ensuring some basic consumer protections works to lift trust in the financial services industry and the professions that support it.
“This crucial safety net for victims of financial services misconduct is now in place and those who have experienced financial loss through no fault of their own are being compensated.
“This really is a compensation scheme of last resort – these first four claimants had exhausted all other avenues and waited up to five years for a resolution.
“The CSLR claims team has been moved by the joy expressed by the scheme’s first claimants, some of whom were in quite desperate financial straits.
“The scheme is an important part of Australia’s consumer protection framework and aims to alleviate the distress of consumers when other avenues for redress are unavailable.
“In turn, its existence will support confidence in the financial services sector.”
Association heads note broking case
Noting the first payments, the CEO of the Mortgage & Finance Association of Australia (MFAA), Anja Pannek, said that while the association "fully support[s] the CSLR’s intended purpose" the broker complaint was "a number of years old, and before the introduction of the Best Interest Duty which has sought to provide not just further protection for home loan borrowers using a mortgage broker but has also further increased consumer confidence in the channel".
Pannek said: “Our members have built trust with Australian consumers, and it is imperative that trust is maintained. For the purposes of maintaining this trust, we will continue to engage with David Berry, CSLR CEO, and his team and act as that connection point between the Scheme and our industry to monitor any trends that emerge from the CSLR’s review of broker-related claims."
The MFAA CEO added that, compared to levies on other industry sectors, CSLR levies for the mortgage and finance broking sector are low.
"This reflects low levels of complaints generated by the industry and low levels of unpaid determinations," Pannek said, adding that less than 0.5 per cent of all AFCA complaints relate to the broking industry.
“We maintain that the levies our members pay must remain reasonable and proportionate, and will continue to monitor complaint volumes and payments made through the scheme and industry levies to ensure our members are not subsidising payments for misconduct by other segments of the financial services sector," she said.
Peter White AM, managing director of the Finance Brokers Association of Australasia (FBAA) said it was “unfortunate that a mortgage broker was alleged to have assisted a customer with a loan that was deemed to be inappropriate for their circumstances” but also noted these claims “go back up to five years”.
“We know that finance and mortgage brokers act in the best interests of their customers but this is timely reminder of our legal obligations to do so,” White said.
”There are many protections in place for consumers and the CSLR is a further way for consumers to seek recourse.”
Industry up in arms about levies imposed
The CSLR has been drawing ire from the financial services industry, with financial advisers collectively writing to politicians and regulators outlining their frustration that they are having to pay high penalties for something they have not done.
The anger largely stems from the fact that the financial advice industry will have to pay $5,709 per adviser to bear the financial burden for the transgressions of a major, defunct entity, such as Dixon Advisory.
Berry also said it was important to acknowledge the financial support that the industry was providing to the compensation scheme, through the levies on the subsectors covered in the legislation.
“Industry contributions ensure the scheme will both compensate eligible claimants but also encourage industry to back stronger standards, which enhances confidence and trust in the financial services sector,” Berry said.
“It is important to note that the vast majority of people in the financial services industry act ethically and in the best interests of their clients.
“The CSLR is a genuine last resort for misconduct only, not for poor performing investments or people who ignore good advice and take undue investment risks.”
[Related: Should brokers join the fight against CSLR?]
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