Are lenders letting down customers experiencing financial hardship?


Australia's chief body for complaints in the financial services sector is calling for lenders to up their game in assisting borrowers who are experiencing financial difficulty, following an increase in complaints.

The Australian Financial Complaints Authority (AFCA) has revealed that it received 5396 complaints related to financial difficulty in 2023, which is up 25% on the year prior.

Overall, AFCA received a record 102,790 complaints against the financial industry during 2023.

Are lenders letting down customers experiencing financial hardship

David Locke, chief ombudsman and chief executive at AFCA, says that while the increase in complaints related to financial difficulty is not entirely unexpected given the economic situation and cost of living pressures many Australians are dealing with, lenders need to step up.

"Lenders were preparing for this too and we acknowledge the investments some have made in specialist hardship teams and better processes. But the rise in complaints tells us there is still work to do."

One of the more troubling areas highlighted by the ombudsman is the number of reports made about lenders simply not responding to requests for hardship assistance, which may occur when a customer can't meet the repayments on their home loan, credit card or another debt.

In fact, the issue accounted for half of all complaints in the financial difficulty category last year, with smaller lenders and buy now pay later (BNPL) providers overrepresented.

"These are not complaints about what the lender's decision was, but consumers saying there was no response at all. Failure to respond to such a request is a breach of the lender's obligations and there is no excuse for this," Locke says.

Last August the Australian Securities and Investments Commission (ASIC) wrote to lenders reminding them of their obligations to customers suffering from financial hardship, noting that cases of hardship were likely to tick up as living pressures intensified.

As part of that, ASIC made it clear that lenders need to be proactive about informing their customers of the kind of hardship support available, provide individual support to customers (not generic responses) and actively communicate throughout the support process.

How can customers access financial hardship support?

For customers who are having trouble making repayments on their loans or debt - or anticipate struggling in the future - there is help available in the form of financial hardship arrangements.

These arrangements can vary from customer to customer, but they can involve a lender reducing or deferring someone's required repayments for a period of time.

Natalie Cameron, the lead ombudsman for banking and finance at AFCA, recommends that customers reach out for support as quickly as they can.

"Don't wait until overdue repayments and arrears are already accumulating. Act quickly so as many options as possible remain open to you. We'd also encourage people to seek help from a free financial counsellor sooner rather than later."

If a customer isn't happy with the response they get though, Cameron says that the first port of call should be making an internal complaint. Lenders will often have a dedicated team to deal with these, and Cameron says most banks will have 30 days to respond.

"If they remain unhappy after the complaint has been considered by the lender, or the complaint hasn't been considered in time, they can access AFCA's free and impartial dispute resolution service."

Customers wanting to lodge a complaint with AFCA or access financial support from a financial counsellor can make use of the following resources.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.