A review of 10 major home lenders has found they aren't doing enough to support customers in trouble, with some failing to meet minimum legal requirements.

The Australian Securities and Investment Commission (ASIC) report revealed there was a 54% jump in mortgage hardship notices in the last quarter of 2023 compared with the same period in 2022.

ASIC chair Joe Longo said in the worst cases, lenders were simply ignoring hardship notices, "effectively abandoning customers who needed their support".

Eighty per cent of hardship cases related to owner-occupied home loans with 'overcommitment' being the most common reason for hardship, followed by reduced income.

Many of these loans were originated in the pandemic era where sub-2% rates were common; ASIC questioned whether all loans were written prudently within that period.

See also: What to do if you lose your job and have a mortgage

It also found 40% of those who received hardship variations to their loans fell into arrears straight after their assistance period ended.

The report found, in general, banks performed better than non-bank lenders, and larger banks were better than smaller banks.

However, the reviewers identified gaps in support provided by all lenders.

Barriers to assistance

The report said it was concerning 35% of customers dropped out of the process at least once after reporting hardship, often because of unnecessary barriers hindering customers from getting the assistance they needed.

The blocks identified included lenders:

  • providing poor quality hardship information to customers
  • requiring customers to explain their circumstances multiple times to different people
  • asking for irrelevant documentation
  • having poor follow-up and communication resulting in applications being declined because customers weren't aware they needed to supply further information
  • being inflexible and not considering case-by-case situations
  • not supporting vulnerable customers
  • focusing on short-term assistance only, usually for three months

'Inadequate' focus on customers

ASIC said the core problem it identified was lenders' inadequate focus on customers as compared to financial risk and operational efficiency.

Some lenders focused more on the financial performance of their institution's lending book rather than helping customers in their time of need.

Most lenders didn't have specific performance measures relating to their hardship roles or if they did, they covered financial risk rather than customer outcomes.

The Consumer Action Law Centre said it had been telling lenders for more than a year that customers are still receiving inconsistent and inadequate financial hardship responses when they seek help. 

"The hardship stories our [National Debt Helpline] financial counsellors hear every day are complex and unique, requiring tailored and thoughtful solutions, not a cookie-cutter approach," CEO Stephanie Tonkin said.

“This report calls for lenders to undertake a serious wholesale review of their customer service systems and culture, beginning with putting the customer - not debt recovery - at the centre."  

The ASIC report noted seven of the 10 lenders it reviewed currently had programs underway to improve their approach to financial hardship.

What are hardship provisions?

By law, lenders are required to consider varying a credit contract if a customer advises them they are unable to meet their current obligations due to hardship.

Variations can include payment deferrals, reduced payments, interest-only periods, loan term extensions, or other arrangements.

In August 2023, ASIC issued an open letter to the CEOs of all lenders advising it was focusing on financial hardship and setting out its expectations.

Who were the lenders in the review?

The lenders in ASIC's review are:

  • Bank of Queensland Limited
  • Bendigo & Adelaide Bank Limited
  • Commonwealth Bank of Australia
  • ING Bank (Australia) Limited
  • Macquarie Bank Limited (and Macquarie Securitisation Limited)
  • National Australia Bank Limited
  • Pepper Money Limited
  • Resimac Limited (and related entities)
  • Secure Funding Pty Limited (trading as Liberty Financial)
  • Westpac Banking Corporation

The review also collected data from 30 lenders (20 being home lenders) about the hardship notices they'd received between July 2022 and December 2023.

The Australian Banking Association said banks would consider the report's findings and work with ASIC on better ways to support customers.

How to access hardship services

Customers experiencing financial hardship are advised to talk to their lender as soon as possible and request assistance.

It is best to refer to your specific lender's financial hardship information or contact the lender and ask to speak with its hardship team.

The lender is obliged to consider your request and get back to you with their decision within 21 days of receiving your hardship notice - if they have adequate information.

If they don't have sufficient information, they have 21 days to request further information.

The requirements for lenders responding to a hardship notice are set out on the ASIC website.

See also: Refinancing a home loan in arrears


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