More repayment holidays planned
The Commonwealth Bank got the jump on its rivals last week when chief executive Ralph Norris announced that the bank had made a significant change to its hardship provisions, by providing for mortgage repayment holidays of up to a year, but rival banks will not be far behind.
The Australian Bankers Association is working on changes to the hardship provisions in the industry's voluntary code, the Code of Banking Practice. A spokesperson said the present hardship provision was "very general" and the ABA was aiming to make it more detailed and specific.
CBA will offer a standard six month mortgage repayment holiday for home loan customers who lose their jobs. It will look at the customer's situation at the end of that period and has the option of extending the repayment relief for another six months.
In an ABC radio interview last week Norris said: "I think it's in the best interest of the bank, as it is of our customers, to have a situation where we don't have forced sales that obviously end up in poor outcomes for the customer. Normally they don't get the real value of their property.
"From the bank's perspective it's a very costly process and it's one that often leads to a lot of ill will. Looking at the current times, we've really got to look for different solutions."
"We're saying that all of our customers who have mortgages and who lose their jobs can talk to our customer assistance people and we will endeavour to make sure that they can participate in this program."
Consumer groups have said the downside of the repayment holiday plan is that interest continues to accrue. Some borrowers may end up in more trouble at the end of the 12-month period.
Norris said: "Their repayments will continue at the same level that they were at the time the repayment holiday came into effect. What we're doing is actually increasing the term of the loan.
"Capitalising interest at what are record low interest rates is probably not a situation that would cause anybody any significant additional hardship."
The CBA and ABA moves come against the backdrop of a review of the Code of Banking Practice, published in December after a long consultation period last year.
The review, by Jan McLelland and Associates, recommended that the Code be more specific in setting out the way banks will deal with customers experiencing hardship.
The review, which is now under consideration by the banking industry, recommended an expansion of Clause 25.2 of the Code, the financial hardship section, to spell out more about the processes involved in dealing with hardship cases.
It recommended that banks make a commitment that only qualified staff deal with such cases, that customers will never be asked to get money out of their superannuation fund to repay a debt and that no enforcement action be started while negotiation is going on.
The review recommends that the Australian Bankers Association work with consumer groups and regulators to develop a set of protocols so that there would be common ground between the banks and some key principles in their application of hardship provisions.
The review said the banks' handling of hardship cases has been a common cause of complaints to the Financial Ombudsman Service.