Banks making progress in dealing with hardship

The financial services industry's treatment of customers with long-term hardship issues is improving, with progress over the past year on several initiatives aimed at reducing the burden on vulnerable consumers.

Financial Counselling Australia's 2013/14 annual report, released yesterday, provides updates on the National Hardship Register pilot, the establishment of the Debt Recovery Service and other developments.

"We are changing industry practices in assisting customers with unrecoverable debt and long-term hardship," the FCA annual report said.

The National Hardship Register is a co-operative project involving the FCA and the Australian Debt Collectors and Buyers Association. Its purpose is to protect consumers in long-term financial hardship from further debt collection activity.

This group of people has low incomes, no significant assets and neither of these circumstances is expected to change.

Once a person is included on the register, debt collectors involved in the NHR (there are currently 13) cease any debt collection activity. At the end of three years the debts may be waived.

The pilot began in January last year and at the end of June about 30 people were on the register. Feedback from registered debtors was that the NHR was a positive step, the FCA said.

The FCA and a group of banks are working on the development of a secure web portal where counsellors and banks can exchange documents.

"The banking industry recognises that there is a small group of customers experiencing long-term financial hardship. Productive discussions continue towards an industry-wide response," the report said

The FCA is also working on the establishment of a free Debt Recovery Service. The idea of the DRS is to assist consumers who have the ability to repay a portion of their debts but not the entire amount. The service negotiates an affordable repayment arrangement, usually for a portion of the debt with no interest. Consumers make payments to the DRS and that money is distributed to creditors.

The DRS was incorporated in January last year and accepted its first clients towards the end of the year.

The FCA is working with the University of Melbourne Law School on a research project to assess the effectiveness of Australia's insolvency laws, which will be undertaken this year.

One area where the FCA saw problems was with the introduction of the new comprehensive credit reporting regime. It said it was concerned that consumers were not being given equal access to free credit reports, as required by law. It was also concerned that the free reports were not providing the same amount of information as paid reports.