ASIC has brought a case against Lightspeed Finance, an Australian Credit Licensee, in the Federal Court for failing to comply with the Australian Financial Complaints Authority’s (“AFCA”) determination against them.
Lightspeed Finance is a finance broker who arranges loans for a fee on behalf of their clients. AFCA made its first determination against them on 4 December 2018 as a result of a complaint by a client that defaulted on a loan.
The determination required Lightspeed Finance to pay the loan debt to the third party lender (including interest) owed by their client to the lender, prior to the client repaying Lightspeed Finance the initial loan amount. On 12 July 2019, AFCA made a second determination in favour of the client, further reducing the client’s liability. Lightspeed Finance defended the AFCA complaints and were unsuccessful in both instances and then did not comply with AFCA’s determinations.
ASIC is seeking to have the AFCA determinations upheld and is also seeking additional penalties for Lightspeed Finance’s failure to comply with the AFCA determinations.
New civil penalties introduced in March 2019, resulting from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Royal Commission mean that failure to co-operate with AFCA can result in fines of up to $10,500,000 for a company and $1,050,000 for an individual.
What does this mean for ACL holders?
The recent proceedings against Lightspeed Finance and its director highlight the risks that ACL holders and their directors face where they fail to adhere to AFCA’s determinations. Further, licensees should ensure they have robust internal dispute resolution procedures in place to respond to and resolve complaints prior to them reaching AFCA.
Complaints handling is a crucial first step in the dispute resolution process and plays a vital role in maintaining relationships with your clients. ASIC has set standards and requirements for AFSL holders that deal with retail clients and ACL holders to ensure they have a dispute resolution strategy in place that consists of both:
- an Internal Dispute Resolution (IDR) procedure that complies with standards and requirements made or approved by ASIC; and
- membership of the Australian Financial Complaints Authority (“AFCA”).
The key objectives of this approach are to promote:
- confident and informed participation of consumers and investors in the Australian financial system;
- fairness, honesty and professionalism by those who provide financial and credit services;
- fair, orderly and transparent markets; and
- the reduction of systemic risks.
New complaints handling requirements come into effect on 5 October 2021. These changes will apply to both Australian Financial Services Licence (“AFSL”) holders dealing with retail clients and Australian Credit Licence (“ACL”) holders. For more information on how to prepare for the new changes please read our article ASIC Releases further guidance on complaints handling.
- ASIC commences proceedings against credit licensee over failure to comply with AFCA determination
- ASIC v Lightspeed Finance Pty Ltd Originating Application
- ASIC Releases further guidance on complaints handling
- AFCA’s Rules
- AFCA Membership a Requirement for AFS and Credit Licensees
- AFCA changes regarding conduct of AFSL and ACL representatives
- Tips for managing complaints both internally and with AFCA
For further information on the obligations of Australian Credit Licensees and for assistance in relation to internal dispute resolution procedures please contact us