Australian lenders not fulfilling their legal duty to assist customers facing financial difficulties
Despite legal requirements for banks to assist customers in debt, the processes have become so complex that one-third of people give up, according to a study by the Australians Securities and Investments Commissions (ASIC).
The study found that the application process for financial hardship assistance is too difficult, leading many recipients to fall back into arrears immediately after receiving help. ASIC Commissioner Alan Kirkland noted that lenders need to do more to support customers at risk of losing their homes.
In its report titled “Hardship: Hard to Get,” ASIC revealed that lenders made it challenging for customers to submit hardship notices and lacked effective communication. Customers faced difficult assessment processes, especially vulnerable individuals.
The study also highlighted a 54 percent increase in hardship notices related to home loans in the last quarter of 2023 compared to the same period the previous year.
80 Percent of Arrears Are Mortgages
The main reasons for financial hardship were over-commitment, reduced income, medical issues, unemployment, and separation. In the October quarter of 2023, nearly 53,000 customers experienced these events, up from 46,000 in the previous quarter.
From July 1, 2022, to Dec. 31, 2023, lenders received 250,000 hardship notices related to 144,000 accounts, with 80 percent related to owner-occupied home loans.
Responding to this trend, ASIC collected data and reviewed policies and procedures of 30 lenders, focusing on 10 of them in detail. Case studies revealed that customers in vulnerable situations were not always treated with care and empathy.
ASIC uncovered instances where customers received no help or insufficient assistance, leading to immediate re-arrears in 40 percent of cases following the hardship period.
ASIC May Prosecute if Lenders Don’t Improve
ASIC emphasized that compliance with financial hardship obligations would be a priority in 2024, with potential enforcement actions against non-compliant lenders. The chair, Joe Longo, mentioned the possibility of prosecutions against major finance providers in Australia.
All lenders in the review will be required to develop action plans to address the issues raised. ASIC will continue to collect hardship-related data and launch a consumer awareness campaign on financial hardship.
The lenders involved in the study include Bank of Queensland, Bendigo and Adelaide Bank, Commonwealth Bank, ING Bank, Macquarie Bank, National Australia Bank, Pepper Money, Resimac, Liberty Financial, and Westpac Banking Corporation.
