Backlash over draft scam laws as consumer groups condemn victim compo proposal

It’s been two years since an elaborate scam upended Jo O’Brien’s life.

Criminals tricked her into parting with half a million dollars from her divorce settlement.

They pretended to be financial giant AMP offering her a secure long-term deposit scheme.

Desperate efforts to get her money back have come up empty despite going to police, two banks, the Supreme Court and the financial ombudsman.

The latest blow is a ruling against her by the Australian Financial Complaints Authority (AFCA).

AFCA sided with the Commonwealth Bank, saying her bank met its legal and industry code obligations.

“This is the worst mental anguish I’ve ever had in my life,” she said.

Ms O’Brien’s experience isn’t unusual. Few scam victims are currently repaid by their bank.

Consumer groups say that’s left victims to carry a heavy burden – last year scam losses were $2.74 billion, according to the Australian Competition and Consumer Commission.

The Albanese government wants to change that by focusing on prevention.

It plans to pass laws by the end of the year, which will place new obligations on banks, telcos and tech giants to detect, prevent and respond to scams.

In a major shift, the government also wants victims to be able to seek compensation from multiple companies if they breach their obligations.

But there’s a growing backlash against the compensation model from scam victims, consumer groups and cross-bench politicians.

‘A David and Goliath battle’

The government says scam victims will be able to follow a straightforward path to getting compensation and will only need to make a single complaint even when it involves multiple companies.

The liability would be shared between the sending and receiving bank, digital platform and telco provider, depending on the scam.

While consumer groups back the need for change, they have deep concerns about what it will mean for victims seeking compensation.

“It will be a David and Goliath battle,” CEO of the Consumer Action Law Centre, Stephanie Tonkin, said.

“It is frightening and unworkable.” 

Advocates have raised fears victims will be put through lengthy, hard-fought battles over who should pay.

In a joint submission with eight other groups including CHOICE, the Financial Rights Legal Centre and Financial Counselling Australia, they have estimated that could involve up to 30 steps and take about two years.

That included a person reporting the scam, lodging a complaint – first with the companies involved, seeking advice, escalating the dispute to the financial ombudsman, AFCA, participating in meetings and then getting an outcome.

“I’m deeply concerned that this system will not only financially ruin consumers, but emotionally,” Ms Tonkin said.

“The harm that will be caused by protracted disputes, adversarial fights with teams of lawyers of multinational corporations.”

The consumer groups want the government to change course and instead force banks to reimburse most victims within 10 business days.

Exceptions would be if they’re grossly negligent or knowingly took part in the fraud.

Under their preferred model, it would be up to the bank and other companies to work out how much each is liable for afterwards.

That would be a modified version of the United Kingdom’s approach where banks quickly pay victims back.

However, that’s been heavily criticised by minister for financial services Stephen Jones.

He said it fails to put enough emphasis on prevention, has limited scope and an unfair focus on banks while leaving out other industries.

It is also opposed by the banks who argue it would make Australia a honey pot for scammers by reducing personal responsibility.

But Ms Tonkin said Australia’s billions in annual losses show it is already a honey pot.

“That is an eye-watering and entirely unacceptable amount of money,” she said.

Telecommunications Industry Ombudsman Cynthia Gebert shares some of the consumer group’s concerns around how scam complaints will be resolved.

Her office handles disputes with phone and internet providers.

“We don’t think it’s reasonable that consumers should be the one having to jump through all the hoops while watching regulated entities put blame on each other,” she said.

Ms Gebert believes the reimbursement model should be up for discussion.

“There is some merit in a fast reimbursement model,” she said.

The banking industry says there’s currently no mechanism to work out liability across sectors and has called for the government to provide clear rules and a way of doing so.

‘I’m not convinced’

Independent Senator David Pocock plans to vote against the laws unless the government changes how victims are paid back.

“We have to have a reimbursement model, even if it’s a capped one, that’s a red line for me,” he said.

Tasmanian senator Tammy Tyrrell also expressed concern.

“I know my dad would struggle to figure out how to get help with this system.

“I’m not convinced the bill in its current form hits the mark.”

Independent MP for Kooyong Dr Monique Ryan said she wouldn’t support the current proposal.

“I will be proposing to put up amendments which will change the balance of the onus so that it falls on the banks and the other large structures … rather than on the consumer.”

Fellow Teal independent Allegra Spender told the ABC there was an increasing mood amongst the cross-bench that the model should change.

Mr Jones defended the government’s plan in a statement.

He said the focus on prevention would stop “the losses before they occur”.

When that failed, victims would have new pathways to get their money back.

“It will create new grounds for compensation where currently there are few.

“It would be a tragedy if politics got in the way of introducing these new protections,” Mr Jones said.

Ms O’Brien’s case is continuing to be managed by the AFCA.

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