Law firm Herbert Smith Freehills has warned banks and other lenders that they face “a tsunami of complaints” as they work through options with their customers in the wake of deferral and other relief arrangements.
In a note to clients, the firm said consumers who are not satisfied with actions taken or proposed by lenders are likely to consider a complaint to the Australian Financial Complaints Authority as one of their options.
Last month, the Australian Securities and Investments Commission published guidance for lenders, setting out its expectations when deferrals end.
Herbert Smith Freehills said the approach taken by ASIC, which emphasises flexibility, tailored assistance and the desirability of keeping consumers in their homes, creates the conditions for “a significant increase in the number of complaints being raised with lenders and with… AFCA”.
In its guidance ASIC said: “Lenders must do all things necessary to ensure that the credit activities authorised by their licence are engaged in efficiently, honestly and fairly.
“As such, we expect lenders to have processes in place that will allow for an orderly transition and, importantly, deliver appropriate and fair outcomes.
“ASIC expects lenders to make all reasonable efforts to work with consumers to keep them in their homes if that is in their best interests.”
To fulfil their obligations, lenders should make reasonable efforts to contact consumers prior to their repayment deferral expiring. Where they are not able to make contact directly, they should try a range of communication channels.
They should give consumers information that will assist their decision-making.
In circumstances where a lender determines that it would be appropriate to offer further assistance to a consumer, their process “should be flexible and empower staff to offer tailored assistance that genuinely addresses the needs of the consumer”.
In situations where a consumer’s financial difficulties are so severe that they will not be able to repay their loan over the longer term, ASIC expects lenders to make all reasonable efforts to work with consumers to keep them in their homes if that is in their best interests.
In cases where further assistance may make their situation worse, there must be a “high level of engagement” with those affected.
Lenders should keep records setting out the assistance options offered in each case and they must notify consumers of their right to complain to AFCA.
Herbert Smith Freehills said there was some uncertainty about the approach AFCA would take to such complaints under its “fairness approach” and how much the ombudsman would take ASIC’s guidance into account when make adjudications.
It said lenders were on tricky ground when they were being advised not to rely solely on their responsible lending obligations in response to hardship.
On Monday, the Australian Banking Association provided an update on six-month loan assessments, reporting that of more than 900,000 loans subject to deferral, around half will be assessed in the coming weeks as they approach the end of their initial deferral period.
Of the 900,000 loans put on deferral, 13 per cent had resumed repayments by the end of July.
The ABA said that “next steps” that will be presented to customers include resumption of payments where that can be done, loan restructures or variations for those still in difficulty, or a further deferral.
“Customers who will be unable to pay their loan over the longer term will be offered tailored assistance that addresses their needs,” the ABA said.