Does your Organisation have a strong enough “Customer Voice”?

You’ve no doubt heard it on multiple occasions, we live in extraordinary times.  Like so many other industries, the COVID-19 pandemic has brought significant challenges for financial services businesses.  This has included servicing clients who may be experiencing financial difficulties because of impacts to their employment, impacts to their businesses or impacts to their investments because of turmoil in the markets.

At the time of the outbreak, Governments rushed in with various levels of financial support.  Lenders also played their part including deferring repayments on mortgages for up to 6 months.  In the words of our Prime Minister, it was our ‘Team Australia’ moment, and everyone was pitching in.

“Can we” versus “should we”

But as we start to emerge from the pandemic and the Government support starts to be rolled back, many clients may find themselves in financial hardship.  This in turn could lead to them breaching contractual obligations giving financial firms the right to seek legal remedies.  When turning their minds to enforcement of their rights, it will be important to consider the overlay of fairness obligations that apply to the financial services sector.  Environmental factors need to be considered.  These include the post COVID-19 removal of protections, and the pre COVID-19 Royal Commission and reports into bank failings.  The “can we”/”should we” question will be a question that financial firms will need to be asking themselves as we come out of COVID-19.

Take the example of the CBA.  During the Royal Commission into Banking and Financial Services, it emerged that CBA’s Matt Comyn was told to “temper his sense of justice” by his then CEO for recommending that the CBA should stop selling consumer credit insurance products because few policyholders were eligible to make a claim.  It was a good example of what can go wrong when an organisation becomes tone-deaf to the voice of the customer.

The “can we/should we” dichotomy also fared largely in the APRA’s 2018 review of the CBA.  It focussed on the potential for poor customer outcomes when the “voice of finance” was prioritised over the voice of risk and the “voice of the customer”.  In other words, the “can we” question won out over the “should we” question and generally because of financial considerations.

As we begin to emerge from the COVID-19 pandemic and find our new normal, it is not surprising that more and more clients will be suffering financial distress or be considered vulnerable then before the on-set of the pandemic.  In such an environment, the trade-off between the “can we” versus the “should we” question becomes even more important.

Expectations of regulators

Regulators are live to this issue and have made it clear that they expect licensees to support their clients throughout the current period of uncertainty.

Take the example of lenders who have offered borrowers impacted by COVID-19 the option to defer loan repayments for up to six months.  As this support comes to an end, ASIC has made public its expectations that lenders should have in place a process that will allow for an orderly transition whilst delivering fair outcomes for clients. Some of these processes include:

  • making reasonable efforts to contact clients prior to the repayment deferral expiring;
  • providing clients with information that will assist their decision-making;
  • where clients cannot resume repayments on their mortgage, offering further assistance where appropriate; and
  • in circumstances where a client’s repayment deferral expires and misses a repayment, lenders should make reasonable efforts to contact the client and to assess the appropriateness of further assistance offered.[1]

In fact, ASIC went on to say that it expects lenders to consider these expectations across other credit products and assistance arrangements when responding to consumers experiencing financial difficulties due to COVID-19.

Expecting “fair” outcomes for consumers during a time of crisis is not limited solely to lenders.  ASIC’s strategic priorities for responding to the impact of the COVID-19 pandemic highlighted protecting consumers from harm at a time of heightened vulnerability as its main priority.

But like most things in the law, whether conduct is “fair” or “unfair” is generally situational – meaning, it depends on the facts of the specific case.  So, whether a client is suffering financial difficulties or heightened vulnerability is likely to factor into whether conduct is fair or not.

Given its current priorities, licensees should expect that ASIC will focus on practices which create the risk of poor customer outcomes, or put another way, that are unfair.  In such an environment, making sure that not just the “can we” question but also the “should we” question is asked and answered takes on even greater significance.

Efficiently, honestly and fairly

Given the vagueness of the principle, one may rightfully ask how enforceable such expectations about fairness actually are. However, when ASIC announced its expectation of lenders regarding loan repayment deferrals, it specifically anchored this in the lender’s obligation to ensure that their credit activities are engaged in efficiently, honestly and fairly as the basis for this expectation.

It is not just lenders who have this obligation.  All Australian credit licensees and Australian financial services licensees are obliged to do all things necessary to provide their services efficiently, honestly and fairly.

Recently, the courts appear to have breathed new life into this obligation.  While the courts have previously decided that the section does not create three separate obligations, but rather, should be read together as one combined obligation, the recent decision in ASIC v Westpac Securities Administration Limited [2019] FCAFC 187  appears to have elevated the “fairness” aspect of the obligation.  While the Court did not consider the extent or limits of the obligation, Allsop CJ did make an interesting observation that:

“…if a body of deliberate and carefully planned conduct can be characterised as unfair, even if it cannot be described as dishonest, such may suffice for the proper characterisation to be made.”

This observation seems to suggest that unfairness alone may be sufficient to breach the efficiently, honestly and fairly obligation.

This view appears consistent with Commissioner Hayne’s Final Report on the Banking and Financial Services Royal Commission which included, as one of his six norms of conduct, to act “fairly”.  Commissioner Hayne went onto to say that the efficiently, honestly and fairly obligation, understood properly, would “embrace” all of his six norms.

But understating what the expectation about fairness entails is not merely an academic point.  As licensees would be aware, a breach of the efficiently, honestly and fairly obligation alone can now lead to potentially significant civil penalties following the start of recent reforms to strengthen penalties.

That said, one aspect of the expectation that its likely to include given recent public statements by ASIC is that during times of heightened consumer vulnerability, greater attention is paid to whether products or services, and the way in which they are delivered, achieve fair outcomes for consumers.  This means that now more than ever it’s important that licensees have, as part of their risk and compliance processes, someone in their organisation that champions the “voice of the customer” so that it is not drowned out by financial considerations.

AFCA’s fairness jurisdiction

Any licensee who has recently dealt with an AFCA complaint will tell you, fairness is also feature of AFCA disputes.  In fact, fairness it is elevated as a separate jurisdiction.  In the words of the AFCA’s Operational Guidelines, this means:

“mov[ing] decisions away from strictly relying on a legal interpretation of the applicable legislation or the terms and conditions of the disputed financial product to a decision which also contemplates fairness.”[2]

However, neither these Operational Guidelines nor the AFCA rules themselves define or explain how AFCA will apply the fairness jurisdiction in its decision making.

With AFCA having the ability to award significant sums of compensation – for example, $500,000 for most non-superannuation disputes and no monetary limit on superannuation disputes – based solely on its fairness jurisdiction, it means that licensees must consider more than whether they have met their legal obligations (the “can we” question).  It also results in licensees being confident that their financial services result in fair outcomes (the “should we” question).


So, as Government relief begins to be wound back, the prospect of more and more people suffering hardship or being considered vulnerable is likely to increase.  For credit and financial services licensees, this increases the risk that their financial products or services may result in poor customer outcomes.

Given this increased risk, who in the organisation is championing the “voice of the customer” to test whether the financial products or services your organisation provides, and the way they are provided, enhances customer outcomes.

With the increased attention on fairness by regulators, the prospect of large civil penalties for breaches of the efficiently, honestly and fairly obligation, or the prospect of significant compensation awards by AFCA, can your organisation afford not to adequately listen to the “voice of the customer”?  In fact, it might just be the very thing the industry needs right now.

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Authors: Jesse Vermiglio (Partner) and Annabelle Chai (Law Graduate)

[1] https://asic.gov.au/regulatory-resources/credit/covid-19-information-for-lenders/covid-19-and-financial-hardship-asic-s-expectations-of-retail-lenders-when-loan-repayment-deferrals-end/

[2] Australian Financial Complaints Authority (AFCA) Operational Guidelines to the Rules (April 2020), page 87