Banks doing a better job handling hardship cases

Lenders are doing a better job dealing with customers in financial difficulty, according to a survey of financial counsellors.

Financial Counselling Australia's Rank the Bank survey, based on the responses of 357 financial counsellors surveyed in December and January, shows that most lenders have improved their ratings since the 2013 survey, with Westpac recording the biggest increase.

Counsellors were asked to rate hardship policies and practices. Westpac received an average score of seven (out of ten) - up from five in the 2013 survey. National Australia Bank was rated 6.7 (6.2 in 2013), ANZ 6.4  (5.9 in 2013) and Commonwealth Bank 5.3 (4.4 in 2013).

While the big banks' scores improved, there was a wide distribution in the responses. Ninety-three respondents gave Westpac five or less, and 123 respondents gave CBA five or less.

Respondents were also asked to rate whether the hardship arrangements offered by the banks were fair, reasonable and appropriate. Sixty-nine per cent said the arrangements offered by Westpac were "always" or "often" fair, reasonable and appropriate. In NAB's case 65 per cent said "always" and "often", 55 per cent for ANZ and 31 per cent for CBA.

Counsellors said they were more likely to take a matter to the Financial Ombudsman Service when dealing with CBA.

When asked what made a bank a poor performer, counsellors listed delays, lack of knowledge in the hardship team about available options, lenders asking if family members could pay the debt, outsourcing to debt collectors while negotiations were going on, losing paperwork and inconsistency.

Among other credit providers Citibank's rating rose from 3.5 in 2013 to 5.4 in the latest survey and GE's rose from 5.6 to 5.7.

The FCA said its counsellors dealt with both groups on a regular basis. It said Citibank's improvement was significant. However, it said counsellors had expressed concerns about the appropriateness of hardship options offered by both organisations.

Small banks tended to have lower ratings than the big banks. AMP Bank was rated five, Bank of Queensland 5.1, Bendigo and Adelaide Bank 5.4, Bankwest 4.5, HSBC 4.7 and ING Direct 4.4. Most had improved on their 2013 ratings.

One of the issues with smaller organisations was that they did not have dedicated staff to liaise with counsellors.