Skip to main content

The Rise of Consumer Remediation Service Providers in Australia

The Rise of Consumer Remediation Service Providers in Australia

Following the Financial Services Royal Commission and amidst increasing regulatory scrutiny of financial services remediation and complaints handling, a new service offering has formed in the Australian market. A growing number of Consumer Remediation Service (“CRS”) providers have emerged which offer to support and represent consumers in lodging complaints and seeking compensation. These businesses typically operate on a ‘no-win-no-fee basis’ and take up to 30% of compensation provided to the consumer as their fee. CRS providers are especially relevant to financial services institutions, with many complaints being lodged for issues related to add-on insurance products, such as Consumer Credit Insurance (“CCI”), and failures related to financial advice services, such as the charging of ongoing advice fees for no service. Given the scale of remediation programs currently underway in Australia, we anticipate that the growth of the CRS sector, and the volume of complaints lodged through CRS providers will continue to increase. 

Looking into the Future: Insights from Overseas

Despite their recent entry into the Australian market, CRS providers have been a feature of UK remediation for many years, where they are known locally as Claims Management Companies (“CMCs”). Although there are important differences between the financial and remediation landscape in the UK and Australia, looking at the rapid growth in the CMC sector since 2007 and at the response of consumers, regulators, and financial institutions provides key insights for Australian financial institutions. The history of CMCs in the UK will help inform the ways in which they can prepare for the impact of CRS providers on their own activities.

A 2016 independent review of CMC regulation highlighted that CMCs were responsible for inadequate customer service, confusing fee structures and disruptive approaches to marketing (i.e., cold calls, frequent text messages and pressure tactics), each of which was recognised as potentially detrimental to customers. Conversely, the review also identified that many banking and insurance stakeholders saw CMCs as an important service for consumers who may face barriers or otherwise be unwilling to make a claim for compensation on their own behalf. The review also emphasised the public interest benefit provided by CMCs, identifying their role in holding financial institutions to account for market conduct and complaint handling processes. A 2018 survey conducted by the Financial Conduct Authority (“FCA”) further supported this, identifying that 67% of consumers would not have made a claim without the services of a CMC

The significance of CMCs in the UK is best demonstrated in Financial Ombudsman Service (“FOS”) 2020/21 data showing that 53% of complaints relating to consumer credit products were brought by a person other than the consumer (which includes CMCs), with this number increasing to 66% for Payment Protection Insurance (“PPI”) complaints. Although this includes complaints made by other types of representatives (including family/friends or community organisations), less than 22% of complaints made to the Australian Financial Conduct Authority (“AFCA”) in the equivalent reporting period were made by a representative other than the consumer, suggesting far greater potential for the CRS sector in Australia to grow.

Preparing for the Future

Australian financial services institutions have already started to receive larger volumes of complaints from CRS providers, and in line with the UK experience, it is reasonable to expect that these volumes will continue to grow. Financial institutions have a unique opportunity to leverage insights from overseas to predict future developments in the CRS sector and use these learnings to take a proactive approach in building trust with consumers.  This early planning will help to ensure that fair outcomes, consistency and equity remain at the core of remediation and complaint handling programs.

Based on our experience, there are four key areas that financial services institutions may wish to turn their focus to in the near future:

  1. Systemic Issue and Program Performance Insights - utilising data from CRS complaints to inform remediation program performance and regulatory reporting obligations;
  2. Consistent Consumer Outcomes - ensuring alignment between and consistency in Internal Dispute Resolution (“IDR”) and remediation consumer outcomes;
  3. IDR Resourcing - resourcing considerations for IDR teams; and
  4. Streamlined Information Request Pathways - developing streamlined pathways for information requests.

We’ve expanded on these four key areas below.

As with any interface involving consumer feedback, CRS complaints provide an opportunity for firms to source data on the effectiveness of previous and ongoing remediation programs. This insight is especially valuable when evaluating whether scoping activities conducted on known systemic issues have captured all potentially-impacted consumers. Given the complexities in scoping populations for remediation programs, this additional data set provides institutions with an opportunity to identify commonalities between de-scoped consumers and successful CRS complaints. This in turn provides remediation teams with the opportunity to proactively scope similar consumers into a new cohort and ensure that obligations to remediate are being undertaken effectively.

Fairness is a core principle underpinning how IDR processes should operate and how remediation programs must be conducted. There is an appreciable risk of a divergence for consumer outcomes depending on whether a consumer was scoped into a remediation program or is seeking recourse through a CRS provider, which is instead being managed through IDR processes. While accepting that every case should be taken on its merits, there is a general expectation that similar issues should result in similar outcomes. To mitigate the risk of differential or preferential treatment of any complaint, institutions should enable and encourage communication between their remediation and IDR teams and apply consistent policies for known systemic issues.  

Regulatory requirements for IDR place an emphasis on maintaining sufficient staffing and staff skill level to administer an effective complaints-handling system, with scalability for periods of high demand or industry trends of higher complaint volumes. A rise in complaints volumes may place additional pressure on providing timely outcomes for consumers, and financial institutions should look to predict any changes required to their current resourcing model to ensure it remains fit for purpose.

A key benefit of CRS providers for consumers is that they do not need to source documents themselves, but instead may rely on the CRS provider to request documents from financial institutions. The downside of this for financial institutions is that requested information must be provided within a reasonable timeframe of 30 days as advised by the Office of the Australian Information Commissioner (“OAIC”). Given the anticipated volume of complaints, financial institutions would benefit from establishing streamlined pathways and suitability skilled resources for data access requests, to help to prevent any unnecessary administrative burdens being placed on frontline staff.

The rise of CRS providers in Australia provides consumers with an alternative avenue to seek recourse for misconduct and remediation. This will place an additional burden on Australian financial institutions as they continue to navigate regulatory changes to remediation and complaints handling. However, it also presents an opportunity for financial institutions to distinguish themselves as industry leaders by taking a proactive approach to ensure that fair outcomes, consistency and equity remain at the core of remediation and complaint handling programs.

Contact us

Deloitte Managed Solutions is playing a key role in helping Australian businesses move forward with confidence that they have consistently and comprehensively addressed relevant risks of misconduct. If you’d like to learn more about our solutions and the support we can provide, please contact our team.