Surge in complaints against advisers

Of the 1,469 complaints made, 366 cases were formally investigated and complaints about financial advisers made up the biggest number at 23%, followed by issues with lenders at 20%, and insurers at 17%.

The number of complaints has increased rapidly over the past two years in the wake of Covid, risen 4% in the past year and doubled in the past five years, to remain at historically high levels, Susan Taylor, the Financial Ombudsman says.

"We’re not yet seeing signs of complaints reducing. It reflects ongoing financial pressure on households and small businesses.”
She says what’s changed is the spread. Complaints are now more evenly distributed across a broader range of financial services, rather than being concentrated in just a few areas like non-bank lenders.

Lenders accounted for the largest share of complaints at 38%, but many of these were resolved before escalating to a dispute needing formal investigation.

There has been a noticeable shift in the types of issues and sectors involved, Taylor says.

One emerging trend is a rise in complaints from small businesses, especially about loans and insurance products.
"This likely reflects the tough trading environment many small business owners are facing. They're under pressure — and we’re seeing that come through in the disputes they bring to us."

Home at risk

In a recent case, a woman discovered she had been added as a guarantor on her husband’s business loan, without her knowledge or consent.

The business later defaulted on the loan, and she faced the consequences of a guarantee she never agreed to give — including putting the family home at risk of a mortgagee sale.

In this case, the lender offered to put the matter right for the woman by agreeing to extinguish her guarantee and release their security from the woman’s half share of the family home.

“The case highlights the importance of giving clear explanations and proper disclosure to all parties to a loan, including guarantors of business debt, especially when small businesses are borrowing under stress,” Taylor says.

"Many of these issues could be prevented altogether with clearer and personal communication by the lender to the guarantor.”

Taylor says the FSCL can help when things go wrong — but also to feed insights back into the system so things go better next time.

Early repayment fee

In another case about a complaint mortgage advisers often come up against – early repayment fees – a borrower with a small transport business took out a loan to buy two vans for group tours in his home town.

He needed them fitted out and spoke to the lender about a top-up loan when he knew the cost.

While the lender agreed to a one-off top-up loan of $100,000, it was in a lump sum, but the business owner didn’t want his business to be paying interest on the full amount because it was going to take some time to complete the fitouts.

He went to a different lender and got a line of credit facility so he only had to draw down on funds as bills became due. He repaid the existing loan and was charged an early repayment fee of $19,000.

The borrower complained to the FSCL when the lender would not waive the fee. He says the lender didn’t explain it could only lend in one lump sum for the fitout costs.

He claimed he had been misled about the terms of the top-up loan and felt it was unfair he should pay the early repayment fee.

In its investigation the FSCL says some of the emails that passed between the borrower and the lender were ambiguous and poorly worded, and it could see how the borrower may have thought he could draw down the $100,000 top-up loan in instalments as bills fell due.

On the other hand, it says the borrower could also have been much clearer about his funding requirements in his communications with the lender.

After suggesting the borrower and lender halve the early repayment fee they agreed.

The FSCL says it is essential borrowers understand they will be charged an early repayment or break fee if they repay their loans early and need to understand when it will be charged and the likely amount before deciding to repay or refinance a loan.