ASIC slams banks for failing customers in hardship

Some of the country's largest lenders are failing to provide adequate support to customers struggling to meet their mortgage repayments, a review conducted by the corporate regulator has found.

As part of the review, the Australian Securities and Investments Commission (ASIC) scrutinised the effectiveness of responses provided to struggling home loan customers by ten major lenders, including the Commonwealth Bank, National Australia Bank and Westpac.

Overall, the regulator maintains that lenders aren't doing enough to support customers experiencing financial hardship - in essence, when a borrower can't make a repayment on their debt.

ASIC noted that many customers find the process confusing and frustrating. In fact, because of the difficulty some customers face in navigating the system, a third of people dropped out of the application process at least once.

"This report highlights lenders must improve the way they deal with customers experiencing hardship. What we have seen is simply not good enough - struggling customers deserve the right support in their time of need," says ASIC chair Joe Longo.

In one example cited in the report, a mortgage holder struggling to meet their regular repayments repeatedly reached out to their lender over a series of months asking for a payment pause.

It took four calls between January and May 2023 before the lender recognised the customers need for hardship assistance, and six months in total before they were referred to the lenders' hardship team.

In some instances, borrowers didn't receive any support. In what ASIC describes as the worst cases discovered in its review, some customers were ignored by their lenders when they reached out, meaning they were "effectively abandoned" in their efforts to access hardship assistance.

The same issue was highlighted by the Australian Financial Complaints Authority (AFCA) earlier in the year, noting that it had received a number of complaints from customers about lenders not responding to requests for hardship assistance.

"For people who reach out to their lender to signal they need support, this can be devastating. Too many Australians in financial hardship are finding it hard to get help from their lenders and it's time for meaningful improvement," Longo says.

Are lenders meeting their hardship obligations?

According to ASIC, under the National Credit Code lenders have to consider varying a credit contract in the event that a customer notifies them of their inability to meet their repayment obligations. Lenders are also required to provide a response within a specific timeframe.

The report found that 71% of hardship requests were approved by lenders and resulted in some assistance being given, while 23% were withdrawn or declined because the customer didn't provide the required information and 6% were declined for a separate reason.

Decline rates did vary among the ten lenders though, with some as high as 9% and as low as 3%. ASIC didn't specify the results of each individual lender though.

Anna Bligh, the chief executive of the Australian Banking Association, noted that while there is an opportunity to improve, the vast majority of hardship applications did receive some level of support.

"In any organisation, there is always room for improvement. Banks will consider these findings and work with ASIC on any further ways to support customers.

"Customers who are feeling the pinch financially should take heart from the fact that the report finds that 94% of all completed applications for assistance are approved."

Unfortunately, gaining support isn't a cure-all though. ASIC found that 40% of borrowers who received hardship assistance through a payment reduction or deferral fell into arrears after the assistance ended.

Mortgage stress on the rise

Between July 2022 and the end of 2023, more than 250,000 hardship notices were received by the ten lenders reviewed by ASIC, with financial overcommitment, income reduction and medical issues proving to be the major drivers of hardship among borrowers.

Given the interest rate rises and living cost increases that occurred over the same period, this figure is hardly a surprise. Nor is it surprising that mortgage-related hardship cases have jumped over time.

For example, 30,562 hardship notices were received by those lenders between July and September 2022, while 52,826 were received between October and December 2023 - a 73% rise.

Claire Tacon, director of the Consumer Action Law Centre's Financial Counselling Practice, has witnessed this firsthand in recent years.

"We have seen a big surge in people calling the National Debt Helpline - a 25% increase in the first three months of this year compared to the last, and that's on top of a 25% increase last year.

"The biggest presenting issue to our financial counsellors is mortgage stress, we haven't seen that in 15 years. And the people calling us are a different cohort too, it's people concerned about mortgage stress, people who are working, sometimes more than one job, people who are professionals, impacted by the cost-of-living crisis."

Tacon also says that she's not surprised to hear about the difficulties some mortgage holders have in accessing hardship support from their lenders.

"We still hear that lenders don't have their processes in order, or that people are given the run around, being kept on hold for ages, and having to explain from the beginning what happened.

"For many of these lenders, it's as if hardship options are treated as an afterthought, and a box to tick rather than a key customer service and in fact a consumer right."

What can you do if you're struggling with your mortgage? 

For those who are already struggling with their home loan repayments, or who anticipate having trouble keeping up in the future, Tacon says it's important for mortgage holders to know that they have rights, though acting quickly can be beneficial.

"I would say to those borrowers that Australia's credit legislation gives you the right to ask for a hardship variation on any of your credit contracts, including your home loan.

"It is much better to talk to the lender as soon as possible as the longer you leave it the fewer options there may be.

"Or, if you are feeling overwhelmed or anxious about your financial situation, give us a call on the National Debt Helpline. It's a totally free service, we're independent of the banks and we can talk to you about your rights and options and help you work out a plan to ease the financial stress you're feeling."

Both Tacon and ASIC also suggest that those unhappy with the service provided or the decision made by a lender in relation to a request for hardship assistance lodge a complaint with AFCA.

• Australian Financial Complaints Authority: Lodge a complaint online or contact AFCA for free on 1800 931 678
• ASIC Moneysmart: Access a range of free resources on managing debt and financial hardship, or find a financial counsellor in your area
• National Debt Helpline: Chat with a financial counsellor online or speak with one over the phone for free by calling 1800 007 007

Get stories like this in our newsletters.