The cornerstone of Labor’s response to the banking royal commission will be an “unprecedented” compensation scheme for victims of banking misconduct.
The scheme, paid for by contributions from the financial industry itself, would give customers a second chance to raise their complaints against the banks, even if they have been denied compensation in the past.
There are four key elements to Labor’s proposed scheme.
• Higher compensation cap
The compensation cap at the Australian Financial Complaints Authority (AFCA) would be raised significantly.
Consumers are currently eligible for $500,000 in compensation, and small businesses can get up to $1 million.
Labor would set the limit at $2 million for both.
• Huge boost for non-financial loss
The potential compensation for non-financial loss would be massively boosted, in an attempt to help people who have lost their homes, businesses, livelihoods or families.
At the moment, the compensation cap for non-financial loss is just $5000. Labor wants to make it subject to the same $2 million cap mentioned above.
You would not be able to double up — that is to say, you could not win $2 million for financial damages and then another $2 million for non-financial loss. It would all fall under the same cap.
• Increased eligibility limit
The value of claims that AFCA can consider would be doubled from $1 million to $2 million.
• It would be retrospective
Customers and small businesses would be able to make claims for misconduct dating all the way back to January 1, 2008.
We’re not just talking about new claims, either. If you have made a complaint before and missed out on compensation, you would get a second chance to make your case.
Or say you were compensated before, but it happened under the old, smaller caps, and you felt you deserved more. You could make a claim for higher compensation.
Customers would have two years to lodge their claims.
Some of this should sound familiar. The royal commission’s final report recommended establishing a “compensation scheme of last resort” for customers who have not been fairly compensated.
The government has committed to do so.
It has also said it will expand the remit of AFCA so it could award compensation for successful claims going back to the same date as Labor — January 1, 2008.
Bill Shorten’s proposal takes those principles further. “Labor will make the big banks pay what they owe. We will fight for victims to get what they are owed,” Mr Shorten said.
“The banking royal commission uncovered some of the worst conduct in corporate history. Businesses and houses were lost, livelihoods destroyed. And while compensation won’t undo all of the damage done by the banks, it will help victims rebuild what was lost.
“Importantly, this won’t just include loss of possessions and assets — the banks will also have to pay for non-financial loss. Because we know that some of the worst losses have come not from a loss of possessions, but from the impact on people’s lives and identity.
“After Mr Morrison voted against the Banking Royal Commission 26 times, I urge him to learn his lesson and support Labor’s bigger and fairer compensation scheme. It’s time Mr Morrison stopped protecting the top end of town.”
The compensation scheme would be overseen by a board of independent experts, drawn from industry and consumer groups. The board would establish processes and procedures for resolving each type of dispute.
It would also fulfil the “last resort” function Commissioner Kenneth Hayne recommended by considering applications from customers who cannot otherwise be compensated, because the relevant financial service provider has become insolvent.
After the two-year application period, the board would consider the total amount of compensation ordered against these insolvent companies and decide on a cap for the money to actually be paid out, using funds collected from the whole industry.
Labor says it is conscious of the need to compensate these customers without forcing banks to pay an unfair amount of money for the unlawful behaviour of now-insolvent companies — in essence, to pay too dearly for somebody else’s sins.