Dodgy bank loan compensation on the cards
EXCLUSIVE: BANKS could be forced to fully compensate customers for the loss and harm caused by dodgy loans - including in some cases erasing a customer's debt - under a suite of measures being considered by the Morrison Government.
News Corp Australia can reveal financial industry insiders are increasingly preparing for the new mega ombudsman to be handed more wide-ranging powers to force banks and other money lenders to fully compensate Australians for the hardship caused by their wrongdoing.
Treasurer Josh Frydenberg said he "was committed to taking strong action" but looked forward to receiving the banking royal commission's final report.
The proposed beefing up of consumer laws comes in the wake of royal commissioner Kenneth Hayne delivering an interim report that lashed the greed of banks and impotence of regulators.
While the body AFCA replaces - the Financial Ombudsman Service - was viewed as effective, it was limited to only compensating borrowers back to where they were before a loan was made.
Under a move suggested by Mr Hayne, AFCA would be given more powers, including the ability to make banks pay compensation for "losses or harm caused" and waiving a customer's debt.
It is understood the Morrison Government does not want to commit to giving the extra powers to the new body until it receives Mr Hayne's final report.
But the government wants to show it is taking a stick to the banks and a more robust consumer advocate would be a good sign, according to industry insiders.
"You might have someone who lost their job and their car and their house," one source said.
"They will want compensation or settlement for harm caused. If you have powers in the body to do that - it is a deterrent in itself."
Last May, then treasurer Scott Morrison revealed FOS was being merged with the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal to create a "mega ombudsman" for the sector called the Australian Financial Complaints Authority.
AFCA, which will begin taking complaints on November 1, has a compensation cap of $500,000, which is double what FOS could offer.
Mr Frydenberg said AFCA would offer a "free, fast and binding" dispute resolution service for consumers and small businesses.
"It will operate with higher monetary limits than currently available under the Financial Ombudsman Service and the Credit and Investments Ombudsman, so that those who have wrongfully suffered a loss will receive fair compensation," he said.
A spokesman for the Australian Banking Association said it was considering the questions posed by Commissioner Hayne and would announce an industry position as part of its submission to the interim report.