'A very unusual case': Financial Ombudsman Service's failings laid bare before royal commission

Systemic problems with the approach taken by the Financial Ombudsman Service (FOS) when dealing with disputes between customers and banks were revealed at the royal commission on Monday.

Philip Field, lead ombudsman for banking and finance at the FOS, told the commission the body had made mistakes.

The commission heard of a system that appeared to prioritise banks over applicants.

The FOS is funded by the banks and while banks are familiar with the FOS' processes, most applicants are not.

Mr Field told the commission the majority of applicants didn't have a lawyer and had very limited resources.

Jennifer Low, with her son Rien Low.
Photo: Pat Scala

Compensation awarded by the FOS is capped at $323,500 and once the FOS has made its determination there is no further appeal or review available within the FOS. The only appeal channel for applicants to the FOS is through the courts but Mr Field said this happened "very rarely".

The commission considered the FOS's actions in finding maladministration in a $240,000 loan made by Suncorp to widow Jennifer Low after the death of her husband, Peter.

On Friday, the banking royal commission heard how Suncorp aggressively pursued Jennifer and son Rien Low over Peter's five outstanding business loans.

Mrs Low found she was $2800 short each month of the loan repayments so she sought hardship assistance from Suncorp, asking for 12 months to figure out how to pay the loans back.

Suncorp, however, would provide only four months' leeway.

Mr Field told the commission that once the FOS makes a determination, as it did in finding maladministration by Suncorp, the applicant and the bank then had to negotiate the outcome.

"We decide what their liability is but they still maintain that banker-customer relationship," Mr Field said. "We basically say we have resolved our dispute you go back and negotiate with your bank as to how it should be paid."

Rowena Orr, counsel assisting the commission, put it to Mr Field that it is not easy for customers to negotiate with banks.

"Why can't FOS work out what a reasonable outcome is for the payment of the debts?" she asked.

"It's not readily apparent that there is going to be a dispute," Mr Field said. "If ultimately that arrangement falls over or if they don't come to an arrangement then there will be another dispute."

Ms Orr put to Mr Field that the FOS processes were difficult for applicants.

"What do you say to the proposition that if applicants knew that success in FOS looked like what Mrs Low experienced, they would be deterred from making a complaint to FOS?" she asked.

Mr Field said Mrs Low's case was "an unusual case".

"You know, we do try very hard to ensure that the outcome that the customer gets is fair in all the circumstances," he said to laughter from the gallery. "And I would encourage them still to - to come and use our service, which as you said at the start is free of charge to them, and, you know, we have staff that try very, very hard to ensure that we get the right outcome."

Mr Field disputed some of the testimony of David Carter, chief executive for banking and wealth at Suncorp.

Mr Field said he was not aware of an "industry-wide practice" where the FOS determined a small business loan was affected by maladministration and the applicant needed to pay it back in a short period of time.

However, Mr Field acknowledged his recommendation that Ms Low repay the $240,000 loan in six months was not reasonable when it was a loan with a 17-year term.

"In hindsight, I don't think that was the correct thing to do," he said.

The hearing continues.