AFCA joins ASIC in urging mortgage lenders to improve help for hardship customers

Getting a home loan approved is cause for celebration, as you’re one step closer to owning your home. It’s typically a nice conversation.

Conversely when finances tighten, there are some tougher conversations to be had, so feeling like you can depend on your lender in such circumstances is important. Your choice of home loan provider truly matters! 

To this end, you may have read last week that some home loan lenders have made accessing financial help so difficult that more than one-third of Australians dropped out of the application process at least once.

The Australian Securities and Investments Commission (ASIC) covered this in its latest report, Hardship, hard to get help: Findings and actions to support customers in financial hardship, in which it notably found hardship notices had ramped up over the course of 2023 to as many as 53,000 in the December quarter.

ASIC’s chair Joe Longo said that in the worst cases, lenders ignored these notices, basically abandoning customers who needed their support. 

“Too many Australians in financial hardship are finding it hard to get help from their lenders and it’s time for meaningful improvement,” Longo said.

This view was widely supported and concern about it spread across various media outlets. Part of the issue, it seems, is that in an effort to be efficient, some banks are acting with less personalisation in many instances. 

Go figure. Our world’s current obsession with efficiency doesn’t always yield the best results, perhaps. 

I asked Natalie Cameron, Lead Ombudsman, Banking & Finance of the Australian Financial Complaints Authority (AFCA) about the situation and she said that while greater automation can be positive, it means some banks may not always respond with the attention needed to the individual customer’s situation.

She says lenders need to take care that automated processes don’t result in them failing to give genuine consideration to such requests.

In fact, AFCA points out that lenders are required to work with customers on each case. The organisation is seeing too many complaints where a lender has provided a standardised or a cookie cutter approach that does not reflect what they are actually obligated to do.

Improving conversations with mortgage customers

ASIC’s report reviewed 10 large home lenders. The review found they should be doing more to support Australians who were struggling to meet repayments.

The report also found 40% of customers who received hardship assistance through reduction or deferral of payments fell into arrears right after the assistance period ended.

So the conclusion has been that lenders must improve the way they deal with hardship cases. 

“ASIC has made this a priority focus area, and where appropriate, we will not hesitate to take enforcement action to protect consumers,” Longo said.

The so-called cookie cutter approach is really the sticking point here because it seems to get in the way of proper communication. Clearly each circumstance is different and each conversation needs to be had with the appropriate level of nuance.

There’s also the very basic idea of suitably responding to people who have genuinely flagged a need for help. In many cases the response appears to have been poor. 

ASIC has said it expects all lenders to act on the findings outlined in this report and prioritise improving their approach to supporting customers experiencing financial hardship. Reviewed lenders will be asked to prepare an action plan outlining how they will respond to the issues raised.

If you need help resolving an issue with a financial firm you can make a complaint to AFCA. 

If you’re worried about your own financial hardship, there are a number of people who can help.