AFCA proposes new user-pays funding model

The Australian Financial Complaints Authority (AFCA) is claiming that the vast majority of financial firms would pay the same or less under a new user-pays funding model it is proposing be implemented.

The cost increases would be carried by larger firms who are heavier users of AFCA.

In a statement issued today, AFCA has claimed that under its proposed new model about 90% of financial services companies who are members of AFCA would see “a positive or neutral impact on total cost”.

“One in five members would experience a decrease in fees,” it said. “About 10% – the very largest financial institutions which make most use of AFCA’s services – would experience an increased cost that more accurately reflects their usage, addressing cross-subsidisation of larger firms by smaller members of the ombudsman scheme.”

Commenting on the proposed funding model, AFCA chief executive, David Locke claimed it was a “a fair, transparent and equitable model that is supported by strong data and modelling”.

“Under the user-pays model, firms would have control over the fees they paid by managing their complaints well,” he said.

The proposed funding model includes a single registration fee, a simplified complaints fee structure and introduces five free complaints per year to all members. It removes the superannuation levy and brings super funds under the same fee structure as other AFCA members – with a positive or neutral impact for most superannuation members.

Under the proposed model, 66% of fees would be recovered from the 2.5% of AFCA’s members that represent 66% of all complaints received by AFCA.

The AFCA statement said the model would reduce the burden on small members like financial planning firms and brokers, as well as other less frequent users of the scheme, through its user-pays approach and the buffer of five free complaints.

“Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme would pay only their annual registration fee each year, currently estimated to be $376 for the coming financial year. Among authorised credit representatives, 99.9% would pay only $65.98 annually – steady with their annual membership levy today.”

AFCA has been seeking feedback on the proposed model from firms and industry groups in recent weeks and today held the first of five member webinars.

The proposed model being consulted on would minimise the cross-subsidisation across sectors that had been occurring under the interim model put in place at AFCA’s inception in 2018, Chief Operating Officer Justin Untersteiner told today’s webinar. This was because it considered both the volume of complaints registered for a firm along with the time being taken to resolve those complaints.

The user-pays approach meant firms would have ultimate control over their costs, Mr Untersteiner said.

“The amount a member has to pay above and beyond the low annual registration fee is totally within their control,” he said. “Our user-pays approach incentivises firms to use internal dispute resolution to decrease complaints to AFCA. Firms can absolutely significantly reduce their fees and charges through improvements to their own processes and procedures.”

The proposed user-pays model emerged from a study of AFCA’s funding by PwC Australia that incorporated feedback from members, including submissions made to last year’s Treasury-led Independent Review of AFCA.

AFCA will be taking feedback from members during a six-week consultation period that ends on April 22. The model will then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from 1 July 2022.