CIO process September 2017 Hi Everyone, thank you for joining me this afternoon for this session on CIO’s process. My name is Allison Dam. I am CIO’s Head of Risk and Compliance and have been at CIO for almost 10 years now. With me I have James Beaumont who is the Senior Manager for the team that deals with financial hardship. Today I will be going through a case study about a general case. Financial hardship cases have a slightly different process, so James is here if there are any questions later about how his team may approach a case differently. I also have Theresa Zakaria, who is sitting at the back. Theresa is a Senior Risk and Compliance Manager, and will be helping me with any technical legal questions you may have. Let’s get started. Imagine you have just received an email from CIO. It may be an email to tell you that we have received a complaint about you, or it may be about a complaint we’ve already informed you about. How do you feel? Is it something like this?

Do you have questions? Are you asking: What do I need to do? What does CIO really want? How long is this going to take? Today, I will be going through a case study which will give you some insight into how a case is dealt from CIO’s perspective. Created by Creativeart - Freepik.com

Overview Introduction Case study – what do we want? Questions FSPs = financial services provider I will start with some background information about our process. Then I will go through one case study. The focus of the cases study is on what we want from FSPs, and why we want it. There should be about 10 minutes left at the end for any questions. In these slides, I do use the acronym FSPs a lot, it stands for financial services provider.

Make a decision What is CIO’s end game? Negotiate Investigate We’re going to begin, by talking about the end. That is , what is CIO’s end game? What is it that CIO is trying to achieve when it is dealing with a case? In general terms, we are trying to negotiate an outcome between you and the consumer. While we are doing this, we are also investigating the case. We want to understand what the consumer is claiming, what is the FSP’s position, we are gathering information from the parties to better understand the complaint and asking the parties for evidence to support their claims. If the parties cannot agree to settle the matter when we have finalised our investigation, we will make a decision for the parties.

Good industry practice Framework Law Code of practice Good industry practice Fairness CIO’s benchmarks When we are negotiating, investigating and making decisions, we have four benchmarks that we consider: The law like the National Credit Act Applicable codes of practice like the Debt Collection Guideline, Good industry practice, and What is fair. If the FSP has not complied with one of these benchmarks and the consumer has suffered a loss, we will expect the FSP to make an offer to resolve the complaint. If the FSP complied with their obligations under each of these benchmarks, we will inform the consumer that we cannot assist them and the complaint will be closed.

How are complaints resolved? Other outcome % 1. Decision in FSP's favour 7% 2. Decision confirming FSP's offer 0.6% 3. Decision in consumer's favour 1% 4. Outside jurisdiction 10% 5. Withdrawn/no response 12% 6. Changed respondent 5% Total 35% In terms of how complaints are generally resolved at CIO, 65% or about two thirds are resolved with the parties reaching an agreement. The breakdown of the remaining one third is set out in the table. In 7% of cases, we have made a decision that the consumer’s complaint has not been established. In 0.6% of cases, we made a decision confirming the FSP’s offer. These are situations where the FSP has made an offer which we consider to be reasonable, and the consumer does not accept the offer. In these circumstances, we can make a decision explaining why we consider the FSP’s offer is reasonable and, if the consumer does not want to accept it, we will close the case. In 1% of cases, we made a decision in the consumer’s favour. This number is small because generally FSPs will settle these cases. CIO have a set of Rules that it operates under, and those Rules set out some matters that we will not have jurisdiction to deal with. This could be because the complaint was about an event that happened a long time ago and is outside our time limits, the consumer only wants disciplinary action (rather than a remedy to fix their complaint), the matter has already been dealt with in court and the FSP has judgement. 10% of cases are closed because we don’t have the jurisdiction. Then we 12% of complaints where the consumer withdraws their complaint or they are not responding to us so we have closed their case. And another 5% which have been made against an FSP, but really should be made against another.

Internal Dispute Resolution (31%) Complaint stages Internal Dispute Resolution (31%) Validation (41%) Initial Review (24%) Investigation (3%) Determination (1%) CIO has four stages, the fifth one in grey is the FSP’s internal dispute resolution process. If we receive a complaint and it has not gone through the FSP’s IDR process, we will give the FSP an opportunity to resolve it first. The IDR process forms part of our Validations stage. The four stages of our process is the Validation stage, the Initial Review stage, the Investigation stage, and the Determination stage. A different fee applies to each of the four stages, as the fee does get higher as the complaint reaches the later stages. Generally, a case moves to the later stages of our process if we need more information, the matter is particularly complex, or an FSP really should be considering making a offer but declines to do so. However, as you can see, most cases do get resolved in the earlier stages of our process with only 3% reaching the Investigation stage and 1% to the Determination stage.

Case study – the complaint Let’s move to our case study. In this case study, a consumer has gone to completed our complaint form and has posted it to us. In their complaint form, they have written as their complaint (read it). This complaint form raises one issue, of course, a consumer may raise more than one issue. And the consumer has given us very little information. How much information we will get will vary from complaint to complaint. So, the consumer has made a complaint to us, what is the first thing that we do?

Complaint received Validation Initial Review Investigation Case manager Received case Inform consumer and FSP No IDR? Maximum IDR period IDR complete? 7 days Registered as a new case Assigned case number Assigned case manager Registering cases: All new complaints go to our Client Services team who are responsible for putting the complaint onto our system. Last financial year we received about 5,800 new cases, so it is important that we can keep track of all of them. The complaint is given a case number and the case is assigned to a case manager. The case manager will deal with the case from start to end. All our case managers either have a legal background, industry experience or both. The next step will be for our Client Services Team to inform the consumer and the FSP that we have received the complaint. They will send one of two letters, depending on whether there has been IDR or not. If the consumer hasn’t, we will give the FSP an opportunity to resolve the complaint with the consumer directly. Otherwise, if IDR is complete, our initial letter to the FSP states that we will progress the case after 7 days to give the FSP a last opportunity to resolve the complaint directly with the consumer. In both scenarios, we ask the FSP to let us know what the outcome of their IDR is and to give us a copy of their IDR response. After these initial letters are send, the case is transferred to the case manager. So, at the end of the maximum IDR period or the seven days, they should know whether the complaint has been resolved, or otherwise have a copy of the FSP’s IDR response. Validation Initial Review Investigation Determination

Case study - IDR? Validation Initial Review Investigation If we return to our case study, this is the part of the complaint form, where we ask the consumer about IDR. If you look at the second box, have you asked the person or business you are complaint about to fix the problem? The consumer has said yes. So, there has been IDR. We ask when the consumer when they approached the FSP. IDR ends when the FSP responds or the maximum IDR timeframes ends. In this instance, the consumer has indicated that the FSP has not responded and, bases on the fact that the consumer said they had approach the FSP in January and it is now September, the relevant IDR period of 45 days has well and truly passed. In this cases, study, IDR has already been completed. The letter we send to the FSP will confirm that IDR has been completed, the FSP has seven days to resolve the complaint if they wish, or otherwise provide us with a copy of their IDR respose. If you want a summary of the maximum IDR periods for the different types of complaints, these are summarised in CIO’s Guidelines which are available on our website. Validation Initial Review Investigation Determination

Validation stage Validation Initial Review Investigation Determination Case manager receives case Resolved? Resolved by agreement Jurisdiction? Decision – outside jurisdiction Consumer requested Determination IDR response? Review IDR response The case managers is reviewing the case for the first time and the question they are asking themselves is: Has the case been resolved? If the complaint has been resolved, the case is closed. Is the case within our jurisdiction? As I mentioned earlier, about 10% of complaints are not within our jurisdiction for one reason or another. If the complaint is not within our jurisdiction, we will write to the consumer and inform them that their complaint is not within our jurisdiction and the reasons why. The consumer has at least 14 days to respond and may also request that it be referred to the Ombudsman for a determination. I mentioned earlier that a fee gets charged for each stage of CIO’s process, for cases that are progressed to the determination stage because we can’t deal with it but the consumer has requested a determination, no determination fee is payable by FSPs. We call these consumer requested determinations. For the purpose of our case study, the complaint has not been resolved, and we will assume that it is within or jurisdiction. So, the next step is for the case manager to review the FSP’s IDR response. Validation Initial Review Investigation Determination

Case study – IDR response FSP’s IDR response: Fees correctly charged Fee disclosed in contract: You must pay the reasonable expenses which we reasonably incur in enforcing or preserving our rights under the contract for your loan or a security. Cost of issuing two default notices If we return to our case study, in this example, we received the FSP’s IDR response. The FSP has given us a copy of an email they sent the consumer where they confirm the fees were correctly charged. It was disclosed in the loan contract, and was incurred because they had to issue three default notices. Validation Initial Review Investigation Determination

Case study - framework Contract law x Enforcement costs In terms of our framework, you will recall, the four b

Case study – considerations Our approach to the IDR response: Copy of contract? What fees were charged? Evidence they were incurred? You must pay the reasonable expenses which we reasonably incur in enforcing or preserving our rights under the contract for your loan or a security. How we would approach this would be firstly, the FSP has not attached a copy of the contract. Second question is, we still don’t know much about the fees, how much were fees, when were they incurred? And lastly, the terms refer to reasonable expenses that were incurred, we don’t have any information to evidence the fact they were incurred Validation Initial Review Investigation Determination

Progressing to Initial Review Escalation triggers: On its face, complaint to investigate More information required from the FSP No jurisdictional question arising at this stage First round of information gathering As this point, the case manager will be considering progressing the complaint to the initial review stage (read from slide). Validation Initial Review Investigation Determination

Case study – first info request Request from the FSP: Position changed? Copy of contract and T&Cs Copy of account statements Copy of invoices Copy of default notices Any other relevant information The complaint is moved into our Initial Review stage, and we do that first round of information gathering. We send an email to consumer and ask them for … A copy of the contract and the T&Cs – we want to see the contract and the term. We want a copy of the account statements – so we know what enforcements costs were charged and when. We also want proof that the expenses were incurred, so in this example we would ask for a copy of the invoices. The FSP said they related to default notices, so we will ask for a copy if those default notices too. Lastly, we ask for any other information the FSP considers is relevant. This is important because we can only deal with information that we know about. There may be other information that you are aware of that we may not be, unless either you or the consumer tells us something, we will not know about it. Take into account IDR Validation Initial Review Investigation Determination

Initial Review stage Opportunity to correct CIO’s understanding of issues Provide requested information Provide other relevant information Make an offer! Read slide. One point I would like to make about making offers, if you make an offer, we won’t consider that as admitting to the consumer’s claims. We appreciate that some offers are made to resolve a complaint. So, if you make an offer which the consumer declines, and we need to continue with our investigation of the complaint, we will not draw any inferences from the fact that you had previously made an offer. Validation Initial Review Investigation Determination

Copy of account statement? Copy of default notices? Case study – FSP’s response Copy of contract?  Copy received  Fee disclosed Copy of account statement?  2 enforcement costs Copy of invoice?  No invoice for 1st fee  Invoice for 2nd fee (but RITC?) Copy of default notices?  Copies received  Matches Read. Will return to RITC or reduced input tax credits in a moment. I hope you can see what our concerns are here, we are missing an invoice. Validation Initial Review Investigation Determination

Case study – CIO’s approach Negotiate – waive 1st fee Investigate – provide invoice Make a decision - waive 1st fee We return to this slide about CIO’s role, that is, to negotiate, investigate or make a finding. In this case, what we will do is contact the FSP and let them know our concerns about the missing invoice. We will recommend that the FSP make a offer to waive the fee for the missing invoice, or they will need to give us a copy of that invoice. If the FSP does not make an offer or give us missing the invoice, we will likely make a decision that they cannot charge the consumer the fee and that it should be waived. I mentioned earlier that most complaints get resolve in the earlier stages of our process. In most cases, the FSP will either make that offer or produce that invoice. We don’t generally need to go on to make a decision. Validation Initial Review Investigation Determination

Case study – if offer made Offer – waive 1st invoice Consumer accepts Resolved by agreement Consumer does not accept Decision confirming FSP’s offer (Rule 20 Recommendation) Consumer requested determination We return to this slide about CIO’s role, that is, to negotiate, investigate or make a finding. In this case, what we will do is contact the FSP and let them know our concerns about the missing invoice. We will recommend that the FSP make a offer to waive the fee for the missing invoice, or they will need to give us a copy of that invoice. If the FSP does not make an offer or give us missing the invoice, we will likely make a decision that they cannot charge the consumer the fee and that it should be waived. I mentioned earlier that most complaints get resolve in the earlier stages of our process. In most cases, the FSP will either make that offer or produce that invoice. We don’t generally need to go on to make a decision. Validation Initial Review Investigation Determination

Consumer requested determination Case study – if offer not made No offer Invoice provided Decision for FSP (Review) Consumer requested determination Invoice not provided Decision for consumer (Recommendation) Determination We return to this slide about CIO’s role, that is, to negotiate, investigate or make a finding. In this case, what we will do is contact the FSP and let them know our concerns about the missing invoice. We will recommend that the FSP make a offer to waive the fee for the missing invoice, or they will need to give us a copy of that invoice. If the FSP does not make an offer or give us missing the invoice, we will likely make a decision that they cannot charge the consumer the fee and that it should be waived. I mentioned earlier that most complaints get resolve in the earlier stages of our process. In most cases, the FSP will either make that offer or produce that invoice. We don’t generally need to go on to make a decision. Validation Initial Review Investigation Determination

Investigation stage (3%) Typical triggers: No response Information outstanding or more needed Not following CIO direction or recommendation Complex – multiple issues, factually or legally complex Steps: Final request for relevant information Settlement negotiations Formal written Recommendation 3% of complaints do move to our investigation stage. The reason could be because we do not receive a response from the FSP, or the response is not substantive enough or information is missing. Sometimes it could be that the case itself is complex and requires further investigation. We find that these are cases where there are multiple issues, the facts are complicated, there could be a huge volume of information that we need to go through, or the complaint relates to an area of law that is complex. In our investigation stage, we ask for the all the information that we may need, we continue to try to resolve the matter between the parties, and, if we consider that there is some merit to the complaint and the FSP has not made a suitable offer, the final step in the investigation stage is for us to issue a formal recommendation. The recommendation is not binding, so … Validation Initial Review Investigation Determination

Determination stage (1%) Typical triggers: No response Does not accept Recommendation Steps: Ombudsman issues Determination If consumer accepts, it is binding on FSP If the FSP does not accept the recommendation, the complaint will move to the determination stage. The case moves to the Ombudsman who will review the entire case file and issue a Determination. A Determination is our final decision on the matter. If the consumer accepts the determination, then the FSP must comply with it. Of course, the consumer can decide not to accept it, in which case the file will be closed. I mentioned earlier that 1% of complaints reach the determination stage. Most of these cases are ones where we’ve made a decision in favour of the FSP rather than the consumer. We do not charge the FSP for the determination. There were only four cases where the Ombudsman issued a determination in favour of the consumer. By the time a case gets to this stage, it is generally pretty clear to an FSP what CIO’s approach will be so generally complaints will settle earlier. Validation Initial Review Investigation Determination

Factors impacting progress Complexity: Volume of information Number of issues, new issues Complex area of law Timeliness: Parties time to respond CIO’s case load

Case study – RITC Validation Initial Review Investigation A New Tax System (Goods and Services Tax) Act 1999 (Cth) x Good industry practice Fairness Reduced input tax credit I mentioned reduced input tax credits earlier and said I would return to it. Under the GST Act and regulations, a lender is able to claim a reduced input tax credit for 75% of the GST they pay on enforcement costs. So, we expect that FSPs will pass on this tax credit to consumers. This means that the amount in the invoice should not be the same amount that is charged to the consumer in their account statement, it should be a lower amount after accounting for the RITC. If the FSP has not actually claimed the tax credit, we still consider that the FSP should account to the consumer for any entitlements. This is because we consider that it would be good industry practice and fair for the FSP to claim the tax credit if it will reduce the amount the consumer pays. If they choose not to, the consumer should not disadvantaged. You will note that the consumer has not raised this as an issue. When CIO deals with a complaint, we will not just limit ourselves to the issues raised by the consumer, if we are aware of other issues like this, we will raise them with the FSP. Validation Initial Review Investigation Determination

Tips Relevant information? Don’t wait Relying on a document? Give us a copy We’ve asked for it? We want it Don’t have it? Tell us (and why) Need more time? Tell us (within time) Questions? Ask your case manager This draws me to the end of this session, I’ve put up some quick tips for dealing with CIO. In particular, I mentioned that there will be a case manager assigned to the case. They are there for you if you have any questions about our process, if you don’t understand what it is we want, or why, they are there to help you through the process. We are here to help both consumers and FSPs through the process. If you need more time, let us know. If you are referring or relying on a document, give us a copy. And if you can’t give us information tell us. We don’t always know whether it’s because you don’t have it or you’ve forgotten so do let us know. And sometimes there may be other documents you have that would do just as well.

Any questions? Allison Dam Head of Risk and Compliance allison.dam@cio.org.au