ARTICLE
6 January 2025

ASIC releases report on hardship for credit providers

SG
Sophie Grace Pty Ltd

Contributor

Sophie Grace is a leading Australian firm specialising in both compliance and legal services to participants within the financial services and credit industries. We have serviced Australian and international clients across the financial sector for over a decade. From obtaining the required licences to operate your business to the provision of ongoing compliance support, many businesses have benefited from Sophie Grace’s extensive knowledge in the financial and credit space. We take pride in our ability to offer tailored solutions to a broad range of businesses whilst keeping business practicalities and obligations to regulators at the forefront of our minds when delivering services and advice. Our consultancy services can equip you with assistance and clarity in your business endeavours.
ASIC has issued Report 783 – Hardship, hard to get help: Lenders fall short in financial hardship support.
Australia Finance and Banking

A recent report by ASIC has implications for all credit providers.

ASIC has issued Report 783 – Hardship, hard to get help: Lenders fall short in financial hardship support ("Report 783") after conducting a review of ten (10) home lenders to understand how credit licensees are supporting customers experiencing financial hardship. ASIC identified that the root cause for licensees adopting poor practices was their focus on financial risk and operational efficiency instead of customer experience and outcomes. Despite the report only reviewing ten (10) home lenders, the findings of Report 783 are relevant and applicable to all credit providers.

Expectations of Lenders

Compliance with the financial hardship requirements remains an enforcement priority for ASIC for 2025. It is important that lenders ensure their systems and processes are sufficient to appropriately respond to hardship notices and work to implement some of the good practices mentioned below.

Lenders should consider taking the following action:

  • ensure customers are aware of the availability of hardship assistance;
  • allocate a person or team responsible for hardship assistance and dealing with customers who request this;
  • liaise with customers to develop tailored solutions rather than applying a generic or standardised approach;
  • identify and support customers experiencing financial hardship or vulnerability e.g. refer customers to support services;
  • respond to hardship notices in a timely manner;
  • ensure hardship assessment processes are easy and efficient for the customer;
  • ensure updates are provided to customers on the progress of their hardship notice;
  • monitor compliance with legislative timeframes including dates of information requests and customer outcomes;
  • keep open lines of communication with the customer during and at the end of the hardship assistance period;
  • communicate to the customer clearly regarding the outcome of the hardship notice, including providing specific and detailed information where the application has been denied; and
  • provide new and refreshed training to staff in handling hardship notices and vulnerable customers.

Key Findings

Report 783 outlines four (4) key findings which have been summarised in the table below. We have also included some examples of good and poor practices:

Finding 1: Accessibility of hardship assistance
Examples of good practices observed:

  • making it easy for a customer to give a hardship notice, including when and how to request hardship assistance;

  • expanding financial hardship solutions to support the individual needs of customers e.g. introducing interest only periods and loan term extensions;

  • communicating in a timely manner after customers have missed payments; and

  • including hardship information on a variety of communications, including statements or in notifications about interest rate increases.
Examples of poor practices observed:

  • failing to identify when a customer was giving a hardship notice;

  • not being proactive in informing customers about financial hardship;

  • providing inadequate information about hardship assistance;

  • lack of understanding policies and training material on hardship notices i.e. focus on hardship being short-term and resulting from a specific event; and

  • customer-facing staff failing to refer customers to the hardship team.
Finding 2: Simple processes for assessing hardship
Examples of good practices observed:

  • accepting hardship applications over the phone;

  • introducing streamlined assessment processes to limit the amount of supporting documentation required from the customer; and

  • following up customers after requesting information.
Examples of poor practices observed:

  • failure to tailor the hardship assistance to the customer;

  • customers being required to explain their hardship to multiple representatives of the lender;

  • lenders issuing onerous requests for documents that were irrelevant to the hardship notice; and

  • lenders providing short-term assistance (up to three months)
Finding 3: Communicating effectively with customers
Examples of good practices observed:

  • explaining the impact of hardship assistance on a customer's credit report and what is needed from the customer;

  • introducing app notifications to update the customer on the status of their hardship notice;

  • consistent communication during and at the end of the hardship assistance period; and

  • providing multiple contact attempts using different contact channels at the end of the hardship assistance period to ensure the customer understood what was required of them at all stages of the hardship assistance.
Examples of poor practices observed:

  • providing broad and ambiguous reasons for declining hardship;

  • providing inconsistent information about the impact of hardship on credit reporting; and

  • inconsistent communication during and at the end of the hardship assistance period.
Finding 4: Supporting vulnerable customers
Examples of good practices observed:

  • providing training to staff in relation to identifying customer vulnerability in a timely manner; and

  • providing additional support to vulnerable customers e.g. referring customers to support services.
Examples of poor practices observed:

  • requiring that vulnerable customers continuously explain their circumstances, despite this being distressing; and

  • failing to act in accordance with the vulnerable customer's requests regarding their preferred communication channels.

Background

Section 72 of the National Credit Code enables customers to advise their lender of their inability to meet their obligations under a credit contract. Credit licensees must, therefore, consider whether to vary the customer's credit contract and assist the customer in meeting their obligations. This may include a reduction in payments, deferral of payments or an extension on the term of the loan.

Further Reading:

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