May 19th 2024.
A recent report has uncovered a troubling trend among home loan customers who are facing financial hardship. It reveals that a significant portion of these individuals give up on seeking assistance from their banks due to the complicated application process. The report, released by the Australian Securities and Investments Commission (ASIC), examined the financial hardship support programs of the top 10 home loan lenders in the country. According to the corporate watchdog, there is a pressing need for banks to improve their support for struggling customers.
Joe Longo, the Chair of ASIC, expressed his concern over the dire situation. He stated that in the worst cases, lenders completely disregarded hardship notices, leaving customers in a vulnerable position without any support. This can have devastating consequences for those who reach out to their lenders for help. Longo emphasized the urgency for meaningful improvements to be made by banks in assisting Australians who are facing financial hardship.
In October of last year, ASIC sent a letter to the CEOs of major banks, putting them on notice and reminding them of their obligations towards customers experiencing financial difficulty. Under the National Credit Code, home loan lenders are required to consider adjusting a customer's credit contract if they indicate that they are struggling to make repayments. This may include options such as payment deferrals, reduced payment arrangements, interest-only periods, term extensions, capitalization of arrears, or even interest rate reductions. Lenders must also inform customers of their decision within specific timeframes.
However, even when customers were able to receive financial assistance, it often came to an end too quickly. The ASIC report revealed that 40% of customers who received hardship assistance from their bank fell behind on their repayments right after the assistance period ended. This paints a concerning picture of the state of many Australians who have mortgages, especially with the recent increase in interest rates and high inflation.
In the 18-month period leading up to December of last year, there were a staggering 250,000 hardship notices filed, as reported by ASIC. This number includes 53,000 notices in the last quarter of 2023, which was a significant 54% increase from the same period in 2022. The report highlighted several issues that contribute to the struggles faced by customers, including lenders' failure to identify those in financial distress, the use of generic approaches to dealing with hardship requests, and overly complex assessment and approval processes.
Longo made it clear that ASIC will not hesitate to take enforcement action if the banks do not take steps to improve the situation. He emphasized that this is a top priority for the organization, and they will do everything in their power to protect consumers. In response to the report, The Australian Financial Complaints Authority (AFCA) reported a 25% surge in complaints related to financial difficulty in 2023 compared to the previous year. This category includes disputes over requests for hardship assistance. Of the 5,396 complaints received, one-third were related to home loans, according to the financial ombudsman.
David Locke, the Chief Ombudsman and Chief Executive Officer of AFCA, expressed concern over the rising number of complaints and the barriers customers face in receiving hardship assistance. He urged all lenders to engage with customers and ensure they receive individual consideration when requesting assistance, especially in these challenging economic conditions. It is crucial for banks to step up and provide genuine support to those in need, and AFCA will continue to monitor the situation closely.
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