Banks not doing enough to help struggling borrowers, says ASIC

The corporate watchdog says banks and other mortgage lenders have made it too hard for struggling borrowers to get help from their financial institution, after a review found accessing hardship assistance was too often confusing and frustrating for customers who were already stressed.

The Australian Securities and Investments Commission (ASIC) says there was a 54 per cent rise in hardship notices – where a borrower tells their lender they cannot meet the terms of their loan – in the final quarter of 2023, compared with the same period a year earlier.

The number of borrowers falling behind on repayments has increased along with interest rate hikes.Credit: Jason South

While banks report that the proportion of customers behind on their repayments is still lower than it was before the COVID-19 pandemic, the regulator is urging banks to lift their game in how they deal with struggling borrowers.

Under the law, lenders must consider whether to give short-term help to customers who ask for assistance because they can’t afford to meet repayments. The help can include measures such as a temporary deferral of repayments, an interest-only period, or an extension of the term of the loan.

ASIC reviewed the hardship arrangements of 10 bank and non-bank lenders and found the industry was generally making it too hard for borrowers to obtain help. More than 35 per cent of customers were dropping out of the application process at least once.

ASIC’s report, to be published on Monday, said experiences were mixed between lenders but in the worst cases some lenders had ignored requests for help, “effectively abandoning customers who needed their support”.

The assessment looked at the lenders’ internal policies, analysed data and examined eight customer case studies from each lender. It said some lenders failed to identify that a customer was experiencing hardship, which meant floundering borrowers were not always quickly referred to hardship teams to discuss their options.

ASIC also said that sometimes lenders did not take extra care with vulnerable customers. It cited an example of a borrower who was experiencing family violence and sought to defer her home loan payments, so she could move into an apartment. ASIC said it was five weeks before the lender approved a three-month deferral of loan repayments. It did not name the lender.

ASIC chair Joe Longo said improving how banks dealt with customers in hardship was a priority for the watchdog and it would take enforcement action if appropriate.

“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.

“What we have seen is simply not good enough – struggling customers deserve the right support in their time of need.”

The review covered Commonwealth Bank, Westpac, National Australia Bank, Macquarie Bank, Bendigo and Adelaide Bank, Bank of Queensland, ING and non-bank lenders Pepper Money, Resimac and Liberty Financial.

The regulator said the practices of the lenders it reviewed “varied significantly” but in general, banks performed better than non-banks – and larger banks better than smaller banks.

In the latest round of profit results, banks said the number of customers falling behind on their repayments was increasing but remained low by historical standards.

Australian Banking Association chief executive Anna Bligh said banks would consider the report’s findings and work with ASIC “on any further ways to support customers”.

“Every single week banks help thousands of Australians in financial trouble with a range of practical tools including restructuring loans to lower repayments, moving people to interest-only arrangements or potentially deferring payments for a period,” Bligh said.

“Customers who are feeling the pinch financially should take heart from the fact that the report finds that 94 per cent of all completed applications for assistance are approved.”

Bligh noted the industry had been running a campaign urging customers facing financial stress to contact their bank.

The association has urged customers in trouble to contact their lender. It has said the average rate of mortgage arrears had jumped to 1.3 per cent, though this was still lower than pre-COVID levels of 1.5 per cent.

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