ASIC has written to lenders calling on them to make sure they provide appropriate support for customers experiencing financial hardship.
It said its expectations are that lenders will proactively communicate how and when customers can seek assistance, genuinely consider customer circumstances to develop sustainable solutions and communicate regularly with the customer throughout the assistance period.
The regulator said: “ASIC is seeing evidence that an increasing number of customers are experiencing financial distress and difficulty due to cost-of-living pressures. In this context, it is critically important that lenders have appropriate arrangements to respond to and support consumers experiencing financial hardship.”
It cited a 28 per cent increase in calls to the National Debt Helpline, compared with the same time last year, and surveys indicating growing financial stress.
It said financial hardship would be an area of increased focus over the coming year.
It is collecting financial hardship data from 30 lenders and starting a review of 10 large home lenders to understand their approach to financial hardship.
Banks and other lenders have had mixed reviews for their handling of hardship over the past few years. In March last year, Australian Financial Complaints Authority chief executive David Locke said the banks did “an astonishing job” helping their customers through the COVID lockdowns.
Locke said the investments banks made in systems to manage loan repayment deferrals and other forbearance measures during the first two years of COVID had resulted in a permanent improvement in the way a number of them handle customer hardship notifications and disputes.
He added that the improvement was not industry-wide and some financial institutions had gone backwards, but overall things had improved.
But in July this year, AFCA reported an “unprecedented” 34 per cent increase in complaints lodged with the service in the year to June – a record 96,987 disputes.
Locke said: “We are deeply concerned by the volume of complaints consumers are having to escalate to AFCA. It’s not fair on consumers and not good for business. We need to see a significant improvement from firms.
“We want to see banks and other finance providers continue to take active steps to identify and support customers who are experiencing financial difficulty.”
In March, the Banking Code Compliance Committee reported that a number of incidents involving delays in responding to hardship applications, failure to document and communicate outcomes, and ongoing collection activities when customers are in hardship arrangements were a cause for concern.
It reported that in the first six months to 2022, one major bank failed to respond to 1068 hardship requests from customers and another failed to respond to 247 requests within the required timeframe. These failings were caused by a range of issues, including deficiencies in processes, human error and insufficient training.
One bank charged arrears fees to 10,437 home loan accounts that had hardship arrangements.
It also found that some banks continued collection activities while customers’ hardship applications were being processed. One bank issued default notices to 42 customers who were on hardship arrangements and another failed to record agreed hardship arrangements for 122 customers.