Play nice with AFCA… or else

Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, reforms were introduced which mean that a failure to cooperate with the Australian Financial Complaints Authority (AFCA) is a civil penalty offence which can attract significant financial penalties.

The Federal Court of Australia, in Australian Securities and Investment Commission v General Commercial Group Pty Ltd [2023] FCA 24 (ASIC v General Commercial), has left no doubt that the legislative reforms will be employed to hold Australian Credit Licence holders’ to account if they breach the obligations they owe to AFCA. 

Although the licence holders in this case were of a modest size and financial position, the Court imposed significant penalties (totalling $150,000) on the two home finance companies and their directors.

Court’s findings

Two Australian Credit Licence holders, General Commercial Group Pty Ltd (formerly known as Urban Commercial Group Pty Ltd) and Eden Capital Pty Ltd (Eden), were found to have contravened sections 47(1)(a) and 47(1)(m) of the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) by:

- failing to take reasonable steps to co-operate with AFCA in relation to two complaints;

- failing to do all things necessary to ensure that the credit activities authorised by their Australian Credit Licence were engaged in efficiently, honestly and fairly through:

  • Urban’s conduct in:
    • seeking to rely on a settlement agreement to argue that the dispute was outside of AFCA’s jurisdiction;
    • threatening legal proceedings against the complainants to try and secure the withdrawal of the AFCA complaint;
    • commencing proceedings in the Queensland Civil and Administrative Tribunal seeking damages alleged to have occurred as a consequence of the AFCA complaint (which is also a breach of AFCA’s Rules);
  • Eden’s conduct in entering into a settlement agreement to resolve the AFCA complaint and then commencing proceedings in the Queensland Civil and Administrative Tribunal (QCAT) seeking damages alleged to have occurred as a consequence of the AFCA complaint.

Urban and Eden were both penalised $50,000, and the sole directors of each company were personally fined $30,000 and $20,000 each with 12 month restraints and restrictions.  Urban was restrained from engaging in credit activity for 12 months and Eden restrained from engaging in credit activity for 12 months with only two limited exceptions. 

Relevantly, both Urban and Eden failed to adhere to their statutory obligations to do all things necessary to ensure their activities were engaged in “efficiently, honestly, and fairly”; and failed to take reasonable steps to cooperate with AFCA (Credit Act ss 47(1)(a) and 47(1)(m)).

The home finance companies:

  • were uncooperative in their communications with AFCA;
  • failed to provide documents and information requested by AFCA;
  • threatened, and eventually initiated proceedings in QCAT against the complainants and a staff member of AFCA; and
  • failed to give effect to AFCA’s determinations given against each company.

While there was no suggestion of dishonesty, the Court found that the:

“conduct continued over a lengthy period of time, it was not inadvertent and it undermined the effective operation of AFCA’s processes and the resolution of the complaints by the consumers” (at [85]).

The Court recognised not only the loss and damage suffered by AFCA’s complainants as a result of the companies failing to pay the compensation for some time, but also the impact on AFCA. The loss and damage flowing from the conduct included the imposition of an unnecessary additional administrative burden on AFCA, including the cost of responding to proceedings, as well as the harm to AFCA staff who were subjected to inappropriate and unprofessional behaviour.

Key takeaways

Interaction with AFCA

ASIC v General Commercial is a reminder of the roles and responsibilities and behaviours expected of licence holders and their directors and employees when dealing with AFCA.

The objective of AFCA’s Engagement Charter (Charter) is that “all parties cooperate reasonably with the common goal of bringing finality to a complaint.”  Further, all parties involved in the AFCA complaint process are required to engage with each other in a manner that is transparent and honest, respectful and fair, in good faith, and efficient and cooperative.

Understanding and acting in accordance with the Charter ensures participants meaningfully engage in the AFCA process and avoid potential contraventions of legislative requirements.

The Charter echoes regulation 11A of the National Consumer Credit Protection Regulations 2010 (Cth), which took effect from 6 April 2019.  Reg 11A requires licensees to take reasonable steps to cooperate with AFCA in resolving any complaint under the AFCA scheme to which the licensee is a party.

A failure by a licensee to comply with reg 11A is a breach of s 47(1)(m) of the Credit Act.

What do you do if you receive an AFCA complaint?

Licence holders and their directors who receive an AFCA complaint should immediately contact their broker to arrange for their professional indemnity insurer to be notified of the complaint.  In many instances, insurers will appoint a law firm to assist the licence holder in responding to the AFCA complaint.

It is important for licence holders to work with their solicitors to ensure they are providing all necessary assistance and ensure that they are taking reasonable steps to cooperate with AFCA.


Financial firms must be mindful of how they engage with AFCA and ensure that they cooperate and act efficiently, honestly, and fairly.

While this has always been the expectation, ASIC v General Commercial demonstrates that, in circumstances of significant contraventions, AFCA will refer licence holders to ASIC for investigation and a successful prosecution can result in the imposition of considerable penalties and restraints.

This article was co-authored by Claudia Lynch, Graduate.

Further reading

Australian Securities and Investment Commission v General Commercial Group Pty Ltd [2023] FCA 24

AFCA Engagement Charter  

Read other items in the Australian Insurance Brief - March 2023

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