Consumer group Choice has slammed the proposed compensation scheme of last resort, saying the government has failed to deliver on its commitments.
Last month, the government released draft legislation for consultation. The compensation scheme of last resort will consider claims for unpaid Australian Financial Complaints Authority determinations, where the complaint was made after 1 November 2018.
There are a couple of controversial elements in the planned scheme. Court and tribunal rulings will be outside its scope.
And compensation will be capped at A$150,000, compared with AFCA’s compensation limits of more than $2 million for some credit products and $271,000 for claims against insurance brokers.
A proposal paper accompanying the draft bill says: “The compensation cap balances the provision of compensation to claimants and the scheme sustainability for those financial firms that are not responsible for the misconduct giving rise to the compensation being claimed but are nonetheless being required to pay for it.”
Choice said: “The government committed to a scheme that could pay up to $540,000 in compensation, as recommended by the Hayne royal commission, covering a broad range of financial services.”
The decision to leave court and tribunal decisions out of scope is contrary to the recommendation of the 2017 Ramsay Review, which was endorsed by the Hayne royal commission.
The proposal paper says this is an issue that could be reviewed in future
Financial products and services within the scheme’s scope will include personal advice on financial products to retail clients; credit intermediation, securities dealing, credit provision and insurance product distribution.
Specific products and services are those that financial institutions with an Australian financial services licences or an Australian credit licence are authorised to provide and where they are required to be AFCA members.
Products and services provided by voluntary AFCA members will not be covered.
Choice said: “The proposals released by the government will disappoint victims by failing to cover compensation from financial scandals in areas like managed investment schemes and funeral insurance. This will see many people go uncompensated.”
It said the government must ensure that compensation can be paid to people who have been ripped off by debt management firms and providers of funeral expenses policies.