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ASIC calls on lenders to support customers

With the cost of living crisis and increase in interest rates hitting Australian households, there is growing evidence that many are falling into financial stress. It is with this background that the Australian Securities and Investments Commission (ASIC) has issued an open letter to various banks, credit institutions, and lenders, calling on them to ensure that their customers have the appropriate level of support. It reminds lenders that they must have suitable arrangements in place to respond to the requests for assistance from customers and work cooperatively to find sustainable solutions.
There is increasing evidence that a growing number of consumers are starting to report high levels of financial stress. For example, the National Debt Hotline has received a 28% increase in calls this year compared to the last financial year, and delinquencies and hardship application volumes are also starting to increase. Based on early engagement information obtained by ASIC, several important areas of focus for banks and credit institutions were identified. 

ASIC has reminded lenders that under s 72 of the National Credit Code, providers must consider varying a customer’s credit contract if they are notified that these credit obligations are unable to be met. Credit providers must also ensure that credit activities authorised by their licence are engaged in efficiently, honestly and fairly. First and foremost, to meet their obligations, lenders must proactively communicate to customers about the circumstances in which they can seek hardship assistance and the options that are available. 

Hardship options may be temporary (eg deferring a payment) or permanent (eg setting up a payment plan or altering/varying loan repayments). Applications for financial hardship will usually be required to provide proof of hardship including reasons for the hardship, current income and other major financial expenses, as well as the level of repayments that can be afforded at the current time. 

Customers worried that seeking hardship arrangements will permanently affect their future credit scores can rest easy knowing the effects are only temporary. While hardship arrangements for certain credit products such as loans or credit cards can appear in credit reports, the report will only show the months the arrangement is in place, or if the arrangement is permanent, the month the loan is varied, no other details are included and the listing will be deleted after 12 months. 

Where a hardship application is granted, lenders should contact customers as the period of assistance comes to an end, to understand their most up-to-date financial circumstance and consider whether further assistance is required. This includes ensuring that customers understand what happens to any arrears that may exist at the end of the hardship assistance period. Where a customer’s hardship assistance is denied, written reasons must be provided along with other options including making a complaint to the Australian Financial Complaints Authority (AFCA) about the decision. Lenders should also encourage customers to reach out and talk about further options including non-hardship arrangements on offer. 

Ensuring customers receive the appropriate level of support will be an important compliance area for ASIC over the next 12 months. To facilitate that, it will commence data collection, involving 30 large lenders, to collect application-level information relating to financial hardship. ASIC will also initiate a review of 10 large home lenders to understand their approach to hardship through the use of questionnaires, review documents, and meetings with staff of selected lenders. Differences in lenders’ approach to hardship will be gleaned from case studies and hypothetical applicant exercises with results and insights to be released early to mid-2024.