Background

On 27 September, ASIC published its updated and expanded consumer remediation guidance – RG 277 Consumer remediation. At the same time, it published a practical field guide: ‘Making it right: How to run a consumer-centred remediation’.

The guidance, which came into effect on the date of publication, applies to all remediations initiated by Australian Credit Licence (ACL) and Australian Financial Services Licence (AFSL) holders on or after that date.

ASIC notes that a remediation is only ‘initiated’ when a licensee makes the decision ‘to address misconduct or other failure and starts a remediation process’. This means that if failures have been identified, but remediation has not started, it has not been ‘initiated’.

Overview

The remediation framework is underpinned by the general obligation on licensees to do all things necessary to ensure the activities covered by their licence are provided efficiently, honestly and fairly.

RG 277 sets out a general process for conducting remediations, and nine overarching principles to be adopted.  These include:

• giving consumers the benefit of the doubt (to minimise the risk of under-compensating consumers);
• applying reasonable endeavours when making remediation payments (and using payment methods that require no consumer action when possible, such as EFT or PayID), and returning money owed to current customers regardless of value; and
• never profiting from misconduct or other failures. In the event customers cannot be located despite reasonable endeavours, licensees should lodge an unclaimed money return or make a residual payment to a charity or not-for-profit.

On the point of making remediation payments, ASIC speaks to using reasonable endeavours to obtain up-to-date contact information and payment information. Licensees are expected to utilise the expertise of recovery teams or access/purchase data from information merchants that might assist in locating consumers (among other steps).

There is also detailed guidance regarding how to make remediation payments to current and former customers where their payment information is on file, former customers who are owed A$5 or less (after interest), and all other cohorts of customers.

In addition to discussing monetary remedies in detail, and providing worked examples, RG 277 sets out a range of non-monetary remedies that shouldn’t be forgotten, including providing assistance to consumers (including legal assistance), postponing or ceasing current action, and pausing or waiving statutory limitation periods.

ASIC flags that where a remediation review period extends beyond seven years, it may indicate a systemic underinvestment in systems to deliver products and identify failures.

Other notable points

• Scalability applies: While the guidance applies to licensees of all types and sizes, ASIC acknowledges that a full remediation program may not need to be initiated when one or only a small number of consumers are affected. For smaller remediations and licensees, not all processes in RG 277 will be relevant.
• Applicability to non-licensees: ASIC notes that the guidance can be used by entities not licensed under the Corporations Act or NCCP Act, which effectively includes many BNPL providers.
• Don’t forget industry codes: ASIC reminds licensees that breaches of industry codes may also constitute a breach of law or contract, which must be remediated.
• Consider conflicts of interest: ASIC expects that licensees will have controls in place to avoid or manage any conflicts of interest when conducting consumer remediation. For example, this includes ensuring that anyone who engaged in the misconduct or other failure is not involved in the remediation and is unable to influence anyone who is so involved, (such as file reviewers, peer reviewers, decision makers and anyone else providing oversight of the remediation).

What now?

The above only scratches the surface.

It’s important that all individuals involved in current and future remediations become familiar with ASIC’s new detailed guidance – and quickly, since the guidance is already in effect.

ASIC has warned licensees that it is likely to look more closely at the way remediations are conducted if there is a significant delay in initiating the consumer remediation. This must be balanced with the need to pause and reflect before mapping out the remediation, potentially testing the approach via a ‘soft launch’, drafting communications to consumers, and so on.

Unjustified delays can indicate a lack of adequate resources, and may also amount to a breach of the general obligation to act efficiently, honestly and fairly (which is reportable under the breach reporting regime).

Should you wish to further understand your obligations under RG 277, or require any assistance throughout the remediation process, please reach out.