Australian Lenders Failing to Assist Struggling Customers: ASIC

Despite being required by law to have processes to assist customer who are in debt, banks have made the process so complex that a third of people give up.
Australian Lenders Failing to Assist Struggling Customers: ASIC
Australian banks have launched a new digital platform to help combat fraudulent transactions. (Peter Parks/AFP via Getty Images)

The application process for financial hardship assistance is too hard, and many people who receive it simply go back into arrears immediately afterwards, a study by the Australian Securities and Investments Commission (ASIC) has found.

It says lenders need to do much more to support customers who may be vulnerable to losing their homes.

“We found that in a number of respects, banks and other lenders are failing to live up to community expectations,” said ASIC Commissioner Alan Kirkland. “They’ve got processes that are so complicated and convoluted that more than a third of people have dropped out of the process at least once after lodging a notice of hardship.”

In its report, “Hardship: Hard to Get,” the regulator found that lenders made it difficult for customers to give a hardship notice and didn’t communicate effectively with them. Assessment processes were often difficult for customers, and vulnerable customers often weren’t supported.

It noted that in the last quarter of 2023, the number of hardship notices related to home loans increased by 54 percent compared with the same period the year before.

80 Percent of Arrears Are Mortgages

The main reasons people encountered hardship were, in order of frequency, over-commitment, reduced income, medical issues, unemployment, and separation.

In the October quarter of 2023, almost 53,000 customers experienced one or more of these events, up from 46,000 in the preceding quarter.

From July 1, 2022, to Dec. 31, 2023, lenders received 250,000 hardship notices related to 144,000 accounts. Eighty percent of these were related to owner-occupied home loans.

Responding to this trend, in late 2023, ASIC collected data from 30 lenders (20 being home lenders) about the hardship notices they received between July 2022 and December 2023. They also undertook a detailed review of 10 of these lenders, including their policies, procedures, and internal reporting.

In addition, they looked at 80 case studies and held on-site meetings with more than 170 bank staff.

They found that lenders sometimes failed to take extra care of customers who were experiencing vulnerability. For example, people were required to repeatedly explain their circumstances, even though that was distressing for them.

One case study outlines the experience of a woman subject to family violence, and who wanted to wanted to obtain a deferral on her loan so that she and her daughter could move into an apartment. Her partner had removed the funds from their offset account, and she could not afford to make repayments and pay rent.

The lender put her on hold; after an hour the call dropped out. In all, it took her three calls, during which she had to explain her situation three times, along with two applications, three emails, and a five-week wait until her application was finally granted.

She was forced to apply twice because the lender’s online portal had “a bit of a problem” and she was forced to resubmit her application via email.

ASIC said assessment and approval processes were often “stressful, inefficient, and inflexible.”

Some People Receiving No Help

The regulator found that some lenders weren’t proactive in informing their customers about the availability of hardship assistance before their late payments affected their credit report.

Of particular concern, some failed to identify when a customer was giving a hardship notice. This meant that people didn’t receive timely assistance or got no assistance at all.

“We also saw examples where collections staff focused on the immediate payment of arrears, rather than ensuring the customer could meet their obligations going forward,” the report said.

“Some lenders focused on collections objectives more than on hardship objectives. For example, they focused on maximising the performance of the lending portfolio through management of arrears, rather than helping customers in their time of need.”

Even those who were successful in obtaining assistance were handled badly, the report finds.

“Some lenders made minimal attempts to contact their customers at the end of their assistance period (e.g. only a letter or single outbound call attempt). This resulted in customers not knowing that their hardship assistance period had ended or what was required from them.”

In 40 percent of cases, people fell into arrears immediately after the hardship period ended.

ASIC May Prosecute if Lenders Don’t Improve

While acknowledging that some lenders in the study had started making changes to improve their customers’ experience and their own compliance with the law, ASIC says the results have led to the decision that compliance with financial hardship obligations will be an enforcement priority for 2024.

“This means that we’ll prioritise the investigation of potential noncompliance. We may take a range of enforcement actions in response to non-compliance, including commencing court action seeking civil penalties,” the report says.

ASIC chair Joe Longo has indicated that prosecutions may be taken against some of Australia’s biggest finance providers.

“ASIC has made this a priority focus area, and where appropriate, we will not hesitate to take enforcement action to protect consumers,” he said.

All lenders in the review will be told they need to prepare an action plan for responding to the issues raised. ASIC will continue collecting hardship-related data from lenders for the next 12 months and will also start a consumer awareness campaign on financial hardship.

The lenders involved in the study were 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.

Rex Widerstrom is a New Zealand-based reporter with over 40 years of experience in media, including radio and print. He is currently a presenter for Hutt Radio.
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