Financial complaints hit record high

The Australian Financial Complaints Authority (AFCA) received a record 102,790 complaints and secured $304 million in compensation during 2023, but says the rise is unsustainable.

In 2018 the Australian Financial Complaints Authority (AFCA) started life as the new one-stop shop for financial services complaints - the body which consumers and small businesses can turn to when they've failed to reach a solution with their bank, insurer, superannuation fund or financial advisor.

In the five years since, the ombudsman has dealt with hundreds of thousands of complaints and secured nearly $1.3 billion in compensation for consumers.

But a recent surge in complaints - a result, in part, of the wave of scam activity hitting Australia - has started to stretch the external dispute resolution system to its limits.

To find out more about the record number of complaints, the impact AFCA has had since its inception and the kinds of challenges consumers and financial firms are currently facing, Money sat down with AFCA's chief operating officer, Justin Untersteiner.

1. Has the creation of AFCA been a positive step for consumer financial protection?

"Five years on from opening our doors and as we head towards the five year anniversary of the banking Royal Commission, it's clear that the need for a strong consumer protection framework, including AFCA, remains just as important as ever.

"And the proof is really in the pudding. In 2023, AFCA received just short of 103,000 complaints against the financial services sector. For context, our three predecessor ombudsman schemes received 50,000 complaints between them in 2017, so the number of complaints coming to us has more than doubled in five years - it's quite extraordinary.

"In that five-year period we have provided compensation or refunds to consumers in the order of $1.3 billion - that's $1.3 billion that those consumers are unlikely to have received back if they hadn't come to AFCA and used our service."

2. What were the common issues that consumers lodged complaints about in 2023?

"The first and most significant was escalating scam activity. We know that scams are costing Australians over $3 billion a year in losses, and we saw the number of cases that came to us related to scams double since 2022. So a really significant increase.

"We're also seeing increased financial stress and hardship because of rising interest rates, as well as general increased cost of living.

"And we've also seen an ongoing trend with a large number of complaints coming to us against insurance companies and super funds relating to delays in processing insurance and super claims."

3. Are you concerned that these issues will continue to this year?

"I suspect that we're going to continue to see a high level of scam activity. There have been some really great initiatives announced by both industry and government that I think will start to disrupt scams, but they both need time to be implemented.

"And then it's already been a really tragic and difficult end to last year and start to 2024 with the catastrophic events in Queensland, New South Wales and Victoria.

"We know that the major insurers are still dealing with the tail of claims related to the major 2022 floods in South East Queensland and the Northern Rivers, so this is just going to compound that. I'm hopeful that there have been some lessons taken by the insurance sector that will help address these systemic issues but I think it's going to be really challenging for the insurers again."

4. You saw a 23% rise in complaints between 2022 and 2023. Does AFCA have the capacity to deal with that volume going forward?

"Interestingly over a two-year period our complaints have risen well over 40%. That is just enormous for any business to try and absorb and it's certainly been challenging for our business to deal with. Having said that we've been highly responsive: we've increased the size of the organization, we've made changes to technology and other process changes to make sure we can cope.

We are funded by industry so grow to deal with this growing demand of work we will need to charge the sector a higher amount to cover it. I don't think any business likes paying more, but at the end of the day the way to resolve that is for less complaints to be coming to us in the first place."

5. What should financial firms be doing better?

"First of all, I'm quite confident that there are a lot of complaints coming our way that we should just never see. Often we'll deal with a delay in processing an insurance claim and the resolution will be that the insurer apologises or gives a small amount of compensation. That's something that could have been dealt with by the firm, not through AFCA.

"So what we want to see is a really significant uplift in complaint handling within financial organisations, but also further deep dives into the causes of these issues in the first place.

"I've spoken to many insurers about the challenges they've faced because of significant events like the 2022 floods. When we looked deep into the complaints we received the thing that stood out so strongly was that it wasn't just delays, it was the absolute black hole of information and communication. So we think there are things that the sector could be doing to prevent complaints to begin with."

6. When should someone lodge a complaint with AFCA?

"In terms of the first step, if a consumer is having a dispute or they're unhappy with their bank, or insurer, or superannuation fund, or whoever it might be, we always encourage them to lodge a formal complaint directly with the firm.

"Most larger organisations have their own complaints departments, so we often find that making a complaint with the complaints department can be successful because it's being looked at with a fresh set of eyes. So that's the first port of call.

"If you're still dissatisfied with the response you can lodge a complaint with AFCA on our website or by calling us. We're a free, independent service and we solve 50% of our complaints early on in the process just through early contact directly with the firm."

7. Why is it important that people can have their complaints resolved quickly?

"The longer a complaint goes on the more stress it causes the consumer, and the higher the cost for the business. So it's in everybody's best interest to try and resolve complaints as quickly as possible.

"You've got to remember that by the time somebody comes to AFCA with a complaint they may have been dealing with the issue for 12 months, 18 months - so they're already frustrated.

"That's why we do our best to try and resolve complaints quickly and we have been able to significantly reduce the time it takes to resolve complaints over the last five years."

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