In accordance with ASIC Regulatory Guide 139 the Financial Ombudsman Service is obliged to identify, resolve and report on systemic issues and serious misconduct by Financial Service Providers to ASIC.

FOS’s Winter 2011 circular summarises the systemic issues that it identified during the March quarter of 2011 and reported to ASIC.

Error in credit listings
A number of disputes received at FOS illustrated that the FSP may have listed a credit default against its customer even though a demand for payment was made after the listing was made. The FSP explained that problems arose when it used a third party to assist with debt collection.

Break costs issues
These included:

• whether customers with variable rate home or investment loans were provided proximate disclosure of break cost provisions when switching their loan to a fixed rate and whether they were provided misleading information about their liability to pay break costs if they chose to exit their fixed rate home loans before the term had expired.
• the FSP provided a break cost quote to its customers that was valid for seven days, but it was unable to process requests to switch loans to a variable rate during that time frame.
• the break cost was unreasonable: the FSP acknowledged that it had identified a cash flow error in its method. It agreed to identify customers affected by the error and to recalculate their break costs and reimburse them if they were charged too much.
• FOS identified a potentially systemic issue relating to the FSP’s break cost calculation method prior to 1 October 2010. The method included a credit spread at either end of the calculation of the break cost.
• whether the FSP provided adequate information disclosure in its loan contracts about how it accounts for lump sum repayments and whether its method for calculating a break cost liability in these circumstances represents a fair and reasonable estimate of its loss.