The Taskforce is to inquire into and report on options that facilitate the improvement and harmonisation of dispute resolution schemes while reducing costs to industry and improving outcomes for consumers.
Effective dispute resolution is a crucial element of industry self-regulation offering redress to consumers and it can also identify systemic problems in the industry. Dispute resolution schemes are an excellent monitoring tool increasing performance and industry standards.
However, dispute resolution schemes come at a cost. In particular, they can be costly for small industry groups. One option is for dispute resolution to operate across different sectors with similar products/services which may reduce costs to business and reduce confusion for consumers. Also, there may be scope to consolidate dispute resolution schemes.
The following chapter explores some options that facilitate the improvement and harmonisation of dispute resolution schemes.
- The type of dispute resolution scheme, if required, should depend on the nature of the complaints and type of self-regulatory model.
- A scheme is only as effective as its broader coverage of industry participants, so it should aim for comprehensive membership.
42. In the future dispute resolution schemes may operate across different sectors with similar products/services, driven by changes in technology and market circumstances. Harmonisation of schemes would be less costly and less confusing to consumers and the use of umbrella-type arrangements with a single co-ordinated access point would likewise be of assistance to consumers.
43. Promotion of dispute resolution schemes to consumers raises their awareness of the availability of quick and inexpensive redress.
In recent years, the growth in self-regulation has seen an expansion in the range of redress mechanisms available to consumers well beyond the traditional sphere of Small and Consumer Claims Courts and their equivalents. A number of industry-based dispute resolution schemes provide consumers with a cheap and accessible means of resolving disputes.
The form of dispute resolution schemes also varies depending on the nature and quantity of complaints. Two of the biggest dispute resolution schemes are the Australian Banking Industry Ombudsman and the General Insurance Enquiries and Complaints Scheme. These schemes have a large number of staff dealing with up to 50 000 inquiries per year.91 In contrast, the Telephone Information Services Standards Council, which handles consumer complaints about primarily `0055/1900' telephone numbers, has a small number of staff and generally deals with complaints of a low monetary value.92
As discussed in chapter 6, dispute resolution schemes can be expensive. A `Rolls Royce' dispute resolution scheme is not necessary if the complaints are minor and are of small monetary value or significance. Again, the type of dispute resolution scheme should be that which imposes the least cost of compliance consistent with achieving the identified objectives.
As a general principle, the Taskforce considers that the type of dispute resolution scheme that best meets consumer needs will depend on the nature of the complaints. However, an overarching consideration that will apply to all schemes is that a scheme is only as effective as its coverage of market participants, or the extent to which consumers can factor dispute resolution participation into their purchasing decisions.
A challenge for self-regulatory schemes is that Australian markets are dynamic markets with increasing convergence and globalisation. Clayton Utz suggested that future codes will need to be more inter-industry rather than intra-industry and adaptable to take into account changing consumer relationships resulting from advances in technologies and adapting delivery systems.93
Hence, market forces may lead self-regulatory schemes being developed along more functional lines. For example, convergence of industry sectors and the rapid redrawing of industry boundaries are occurring in telecommunications. The Service Providers Industry Association commented that the telecommunications industry brings a tradition of detailed regulation and standardisation and an engineering culture that insists on industrial strength, reliability and simplicity of user interfaces. The information technology industry sector has relied on a relative absence of regulation to support decades of rapid growth and technological change. Convergence poses continuing challenges for regulators and the self-regulatory process. The Association argued that there needs to be recognition that these basic regulatory principles will need to be directed primarily at cross-industry activities rather than industry-specific transactions and processes.94
Similarly, convergence continues to occur in the finance sector, generating pressure for the merger of codes and dispute resolution schemes. However, the financial services industry is different to other industries in that there is a proliferation of dispute resolution schemes and there are other factors driving rationalisation in the industry. ASIC commented that membership of an approved scheme has become mandatory for an increasing number of industry participants, and existing complaints resolution schemes are subject to consideration under ASIC's Policy Statement 139. Further, ASIC commented that the Corporate Law Economic Reform Program (CLERP) requirements for dispute resolution scheme membership are also likely to be a key driver of rationalisation.95 Convergence and the establishment of corporate composite service providers will drive fewer schemes.
Potential for dispute resolution schemes to operate across different sectors with similar products/services
The Taskforce considers that it is possible for dispute resolution schemes to cover different sectors of industries with similar products/services on a shared cost basis as a means of capitalising on economies of scale. For example, the Australian Direct Marketing Association (ADMA) has a dispute mechanism that operates across a range of different sectors and industries. ADMA commented that their code binds all ADMA members and all employees, agents or subcontractors of ADMA members. It requires members to ensure their suppliers comply, by requiring that this is a condition of contracts between members and their suppliers. The Code seeks to curb behaviour by members that may be inconsistent with widely accepted best practices in direct marketing. ADMA commented that this approach has been applied consistently across all direct marketing media and direct marketing activity on both the user and supplier sides of the ADMA membership.96
In theory, there are a number of advantages for dispute resolution schemes to operate across different industries and sectors with similar products/services. The main advantage is that more rationalised schemes will benefit from lower costs overall by virtue of the economies of scale. These lower costs can be passed onto industry members and consumers. Consumers would also benefit through a less confusing and better promoted dispute resolution system. From a consumer's perspective, a `one stop shop' with a single co-ordinated access point decreases the need for consumers to be referred from one scheme to another.
The Financial Industry Complaints Service suggested that schemes should be willing to cover different sectors of industry if it is of no cost to them. Cross industry schemes would be more effective so long as the industries have some common threa
However, as discussed elsewhere, industry commitment is very important in establishing and maintaining self-regulatory schemes.98 Sharing schemes may lead to a loss of `industry ownership' and therefore commitment in some schemes. During Taskforce consultations some industry bodies also commented that larger schemes would need to avoid becoming bureaucratic.99 Clearly, harmonisation of schemes would require some greater formality in administration.
The Investment and Financial Services Association commented that industry schemes consistently benefit from expertise and industry knowledge on the part of those who establish them. The need for schemes to recruit directors, adjudicators, panel members and other personnel who have specialised knowledge will, in the case of very large schemes, translate to a need for bureaucratic processes and a consequent remoteness from both industry members and consumers.100
Further, although the Law Council of Australia recognised that there is no reason why dispute resolution schemes cannot operate across different sectors of industries, the Council commented that consumer rights must be maintained. In particular, the Law Council of Australia argued that consumers (unlike industry) are not concerned about the cost of these schemes. Any suggestions of making cross industry schemes more cost effective conjures up staff cuts and procedure cuts. To the consumer, the costs of goods and services that are perhaps slightly lower in the short run is inadequate compensation for the erosion of the rights they currently have and the rights they should have.101
The Taskforce recognises that in the future cross-sector dispute resolution schemes may be used more, driven by changes in technology and market circumstances. Harmonisation of schemes would be less costly and less confusing to consumers and the use of umbrella-type arrangements with a single co-ordinated access point would likewise be of assistance to consumers. However, the issue is whether specialised functional services can be provided by fewer schemes.
Apart from the possibility of dispute resolution schemes covering different sectors of industries with similar products/services, it may also be possible for industries to share dispute resolution schemes. In particular, there are opportunities for schemes to share backend services to the benefit of the respective industries. For example, Insurance, Enquiries and Complaints Limited commented that it currently performs accounting, payroll, and Company Secretary functions for the Financial Industry Complaints Service scheme to the financial benefit of both organisations and their associated industries.102
Similarly, the Australian Banking Industry Ombudsman considered that sharing services between schemes is a good concept.103
ASIC commented that rationalised schemes will benefit from lower costs overall by virtue of the economies of scale arising from a single budget (e.g. for administration, property and marketing) that would otherwise have to be generated for several schemes. These lower costs can be passed onto industry members.104
ASIC appreciated that an appropriate degree of flexibility in the structure of self-regulation should not be pursued at the expense of appropriate minimum standards, structural efficiencies and better market outcomes for industry members and consumers.105
However, Insurance, Enquiries and Complaints Limited stated that careful consideration must be given to the beneficial effect that a high degree of industry `ownership' has had for its scheme and other schemes.106 Also, the Law Council of Australia stated that shared case management and dispute resolution mechanisms can be viable only if consumer safeguards are maintained.107
In addition, one smaller industry association observed that there were no economies of scale to join with other schemes.108
On balance, the Taskforce recognises that sharing services is one means for smaller industry associations and smaller businesses to be involved in dispute resolution schemes.
Overall, the Taskforce considers it is important that the structure of self-regulation is flexible and does not become the site of institutional `empire building' that will prove costly for both industry members and consumers.
The promotion of dispute resolution schemes is both beneficial to industry and to the consumer. For industry, a dispute resolution scheme can be used as a marketing tool to differentiate themselves from competitors. Whereas, for the consumer, the promotion of dispute resolution schemes informs them of their rights.
The Taskforce heard that an United Kingdom industry association was loath to promote its dispute resolution scheme in fear that people might find out about it.109 While this story is extreme, it illustrates that unless a scheme is promoted then a consumer may not even know to avail themselves of a quick and inexpensive redress mechanism. Access is very important for effective self-regulation. The Taskforce considers that the promotion of schemes is the responsibility of both industry and government, and to a lesser extent consumer groups and counselling services.
The Law Council of Australia commented that industry can improve access by providing effective, simple communication which allows the consumer to fairly present grievances and complaints. Industry should provide information packages to consumers when goods or services are provided.110 For example, Insurance Enquiries and Complaints Limited stated that consumer access to the scheme is ensured by the Code requirement that a member company inform the consumer about the external dispute resolution scheme once an internal dispute resolution decision has been reached.111
Similarly, the Telecommunications Industry Ombudsman (TIO) commented that consumers are aware of the Scheme's jurisdiction and of the limits on that jurisdiction. Apart from general media and other activities, the Scheme provides a booklet on the TIO's functions to every complainant who contacts the TIO.112
Further, for promotion to be effective for consumers it also needs to focus on the organisations that consumers go to when there is a problem , for example Fair-trading agencies or financial counsellors. There will always be insufficient resources to educate consumers of a service which is only likely to be used in a minuscule number of cases.
The Government can also contribute to the harmonisation of dispute resolution schemes. A couple of Commonwealth initiatives are discussed below.
Directory of Consumer Dispute Resolution Schemes and Complaint Handling Organisations
One initiative that has been useful is the Commonwealth's Directory of Consumer Dispute Resolution Schemes and Complaint Handling Organisations which sets out consumer dispute resolution schemes, complaint handling organisations and other useful contacts such as fair-trading agencies.113 The Directory is a practical reference guide for individual consumers and organisations that advise consumers and small business.
A number of industry associations, consumer groups and government agencies submitted that the Directory has been
useful. For example, the Telecommunications Industry Ombudsman commented that there is more than anecdotal evidence that the Directory is an important initiative. The Directory is commonly used by consumer groups, legal aid workers and financial counsellors to ensure that consumers are directed to the appropriate redress mechanism.114 Similarly, the Financial Industry Complaints Service commented that the Directory is `most helpful' and the scheme distributes it when presenting seminars.115
Financial Complaints Referral Centre
As discussed elsewhere, access to schemes is very important for self-regulation to be effective and there is evidence to suggest that consumers get confused and frustrated if they have to go through multiple schemes. In February 1998, a Commonwealth initiative to overcome the problem of consumer confusion associated with a proliferation of schemes in the financial services industry was the introduction of the Financial Complaints Referral Centre, operated by ASIC.
It operated as a portal to the dispute resolution schemes in the financial services industry. The Centre's staff advised callers to refer their complaints to the relevant service provider in the first instance and provided contact details for the appropriate dispute resolution scheme(s) if a deadlock remained.
The operations of the Centre were reviewed by ASIC in late 1998 and February 1999. ASIC commented that the reviews found that around 5 to 6 calls per day were being referred to the industry-funded complaint schemes.116 For the purpose of comparison, the two largest industry ADR schemes - the Australian Banking Industry Ombudsman and the Insurance Enquiries and Complaints - each receive between 45,000 to 50,000 telephone contacts per year.
The views expressed by industry and consumer groups during the Taskforce consultations also indicated that the Financial Complaints Referral Centre has not been effective in channelling calls.
ASIC commented that during the Referral Centre's development, industry stakeholders expressed reservations not only about the actual demand for a central gateway, but also that the promotion of the Centre might detract from the efforts of the dispute resolution schemes to effectively promote themselves. Thus, detracting from industry's sense of ownership of the established dispute resolution processes.117
ASIC submitted that there was also resistance from existing dispute resolution schemes to devoting significant resources to the establishment and operation of a central gateway without detailed evidence that there was a sufficient level of demand for the service.118
The Taskforce notes that the Referral Centre has now been closed. The referral of complainants to those dispute resolution schemes dealing with general and life insurance, superannuation and banking is a role that ASIC's Infoline would have played in any event, and that it will continue to play in the future.119
The Taskforce understands the schemes themselves already have established referral mechanisms to assist consumers to locate the most appropriate dispute resolution mechanism.
99 For example, Taskforce consultation with the Insurance Brokers' Dispute Facility, Melbourne, 22 November 1999. It commented that it would be hard to point the consumer in the right direction if there was just one broad scheme covering financial services.
113 Consumer Affairs Division, Commonwealth Department of Treasury 2000, Directory of Consumer Dispute Resolution Schemes and Complaint Handling Organisations, 4th edition, released by the Minister for Financial Services and Regulation, the Hon Joe Hockey MP. This document is available on the Internet at http://www.treasury.gov.au/publications/pubs.asp.