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Demystifying AFCA - Part Two: The complaints process and restrictions on financial firms

There is no doubt the current economic climate is precarious. Many experts suspect a recession is looming in the aftermath of the COVID-19 pandemic. This coupled with increased mortgage stress caused by the RBA’s recent rate increases is likely to result in more complaints being lodged with AFCA against financial firms, particularly in the lending industry.

This makes it even more important for financial firms to understand the scope and power of AFCA and what steps need to be taken when a complaint is lodged with it.

In this bulletin series, Demystifying AFCA, we are examining the role of AFCA, the complaints process and the powers and remedies available to AFCA. In this part two of our bulletin series, we are examining the complaints process and exploring the restrictions placed on financial firms during the complaint period.

The complaints process

Once an AFCA complaint has been lodged the details of it will be forwarded to the financial firm. This generally occurs within one to two business days of the complaint being lodged. The notification will include details of the complainant, a short summary of the issues raised, and the remedy sought.

Ordinarily, AFCA will give the financial firm a timeframe to either resolve the complaint with the complainant directly or provide its submissions. This is known as the ‘refer-back period.’ The refer-back period is typically between 21 to 90 days depending on the type of complaint.

In some rare circumstances, AFCA will proceed to immediately investigate a complaint without allowing for the refer-back period. This is typically only deployed when there is an immediate risk to a complainant i.e where a lender has obtained judgment and is looking to immediately enforce its judgment by taking possession of or selling a security property.

If the complaint has not been resolved at the end of the refer-back period, then AFCA will encourage parties to resolve the matter by participating in a conciliation conference. If this fails, then the next stage of the complaints process will be enlivened. For example, AFCA may provide a preliminary assessment of the complaint. This may be accompanied by a recommendation as to how the parties should resolve the matter. In some limited circumstances AFCA may determine the complaint without the parties attending a conciliation conference.

It is important for complainants to understand that AFCA can assist with a broad range of financial problems and may be able to assist if there is an allegation a financial firm has acted unfairly in some circumstances. However, AFCA is not a legislative body and therefore cannot involve itself with matters than would be better dealt with by a court or tribunal or have already been dealt with by a court of tribunal but the outcome was not favourable to the complainant.

While AFCA can determine complaints where a financial firm has acted unfairly in breaching a law or relevant Code of Practice, it cannot make a finding against a financial firm which attracts any civil or criminal penalties as these can only be ordered by a court or tribunal.

AFCA has a wide range of remedies it is empowered to impose when determining complaints. These remedies are discussed in part 3 of this bulletin series.

Information gathering powers

AFCA has broad powers to gather information from the parties when trying to determine a complaint. For example, AFCA can request:

  1. submissions from a financial firm once a complaint is lodged

  2. that a financial firm provide files relating to the complainant, documents relevant to the complaint (including loan documents), statements from relevant people, policy documents, and documents relating to steps taken to resolve the dispute

  3. a statutory declaration explaining why a party has failed to provide information requested in item 2 above

  4. in some circumstances, that a party attend an interview to provide information.

If a financial firm fails to comply with the information gathering stage of AFCA’s investigation, AFCA is entitled to draw an adverse inference against it in respect of the complaint. It is therefore essential that financial firms take the necessary and timely steps to address any complaints.

When providing information there are a range of issues a financial firm should consider including confidentiality, privacy, and legal professional privilege.

Further, while a financial firm is entitled to seek legal advice on any complaint or information gathering that AFCA is undertaking, the Rules strictly state that a lender cannot pass the legal costs of defending an AFCA complaint on to a borrower, regardless of any indemnity they might enjoy regarding costs of default in loan documents or other agreements.

Restrictions on financial firms once a complaint is lodged

A broad range of restrictions apply to a financial firm from the date an AFCA complaint is lodged against it. It is very important for all financial firms to be aware of these restrictions and for complainants to be aware of the power of making a complaint. A failure to adhere to the restrictions can result in serious adverse determinations against the financial firm.

Once a complaint is lodged with AFCA, the financial firm cannot:

  1. begin or continue legal proceedings about any aspect of the subject matter of the complaint

  2. seek judgment against the complainant

  3. take any other enforcement action to pursue an outstanding debt.

Unless special permission is given to the financial firm by AFCA, in writing, a failure to adhere to the restrictions can result in serious adverse determinations against the financial firm. Some special permission might include circumstances where a limitation period is about to expire or there is a need to freeze or preserve an asset.

If proceedings are already on foot, the financial firm is obliged to stay the proceedings and not incur any costs which are passed to the complainant until the complaint is finally determined or otherwise resolved by AFCA.

A recent AFCA determination, case no 884514, dated 15 March 2023, involved the obligations a lender has to a borrower in financial hardship. In this case the complainant had two facilities with the financial firm, one was a home loan secured against a residential property (Property 1) and the second was a business loan secured over Property 1 and a factory (Property 2). The complainant had been experiencing financial hardship as a result of COVID-19, causing it to go into material arrears. Over the course of two years, there were ongoing discussions between the borrower and the financial firm about how to resolve the issues. The borrower made proposals that it would sell one or both of the properties or use an ATO refund to pay down the arrears. None of these promises were fulfilled and it culminated in the financial firm commencing proceedings to take possession of Property 1 and Property 2. The borrower then lodged a complaint with AFCA against the financial firm. In its determination AFCA gave consideration to duties under the National Credit Code (NCC) and the Banking Code of Practice (BCP) that require mortgage providers to assist customers to overcome financial hardship.

The NCC and BCP require mortgage providers to give real and genuine consideration to a request for hardship assistance. AFCA considered the negotiations between the parties to assess whether appropriate hardship assistance was considered. Ultimately, in this case AFCA found that the lender had satisfied its obligations. However, the complaint halted the lender’s enforcement action from the date the complaint was filed on 2 June 2022 to March 2023, presumably causing significant detriment to the lender.


As we have seen above, the AFCA complaints process can have serious restrictions for financial firms. The purpose of AFCA is to provide a regulatory body which is available for all consumers when they feel a financial firm is acting unfairly or unconscionably. There is no way that eligible financial firms can completely avoid the possibility of AFCA complaints being made.

However, by always ensuring compliance with the appropriate guidelines, such as the NCC and BCP, and acting in a fair and conscionable way, financial firms can mitigate the risk that an AFCA complaint lodged against it will be determined in the complainant’s favour.

Further, if a complaint is lodged, being familiar with the restrictions imposed on a financial firm and knowing how to address the complaint within the timeframe stipulated will minimise the risk of adverse findings against the financial firm. Generally, all reasonable attempts should be made by parties to a complaint to resolve outstanding issues by agreement rather than requiring a final determination by AFCA.

In our next bulletin in this series we will examine the powers and remedies available to AFCA should it be required to determine a complaint.

Authors: Gavin StuartEmma Boyce and James Duff


Related reading:

Demystifying AFCA - Part One: Overview and complaint fundamentals

Demystifying AFCA – Part Three: Powers and Remedies