APRA suggests lenders help ease borrowers back into payments after COVID break

The nation’s lenders ‘could improve their plans’ for getting hard-hit borrowers back onto loan repayment schedules.

The first major tranche of mortgage repayment holidays are due to hit the six-month mark at the end of this month. Picture: iStock.

The prudential regulator has suggested some of the nation’s lenders could improve their plans for getting hard-hit borrowers back onto loan repayment schedules, as it detailed better practice guidelines days out from the first major tranche of mortgage repayment holidays hitting the six-month mark.

After reviewing the banks’ plans for the assessment and management of loans with repayment deferrals, the Australian Prudential Regulation Authority, in a letter sent to each of the nation’s lenders on Tuesday, detailed some suggestions for lenders when moving borrowers back onto loan repayments.

While most plans allowed for sufficient time to contact customers and arrive at a credit decision prior to the expiry of the loan deferral, better practice would include multiple means of contact over an extended period of up to six weeks prior to deferral expiry, APRA said.

Further, while most had considered the treatment of loans for uncontactable customers, APRA suggested close monitoring of the performance of those loans switched back on to a repayment schedule even when the borrower couldn’t be contacted.

The advice from the regulator comes after NAB boss Ross McEwan earlier this month told a parliamentary committee that 20 per cent of the bank’s customers with deferred loans had failed to respond to its most recent round of check-ins.

“The thing that distresses me right now is, when we’re making calls to customers to check in, 20 per cent won’t pick the phone up or call back, even if we text, email and phone,” Mr McEwan told the committee.

“We need to get over that. I think that openness and customers picking up the phone are going to be the vital pieces of this,” he warned.

The regulator also cautioned that banks should put in place contingency plans for training and allocation of additional resourcing at short notice, should call volumes exceed best estimates, and called for credit management and resourcing to have regular oversight by executive management.

APRA noted that lenders’ plans included clear credit assessment processes in circumstances where the borrower required additional assistance either through restructuring the loan, extending the deferral, or hardship but said banks should have strong quality assurance processes and controls in place to ensure consistency in customer outcomes.

The regulator also called for regular reporting to senior management as more borrowers come to the end of their repayment holidays, to enable timely escalation of issues.

Before signing off, APRA warned banks of their financial advice obligations after it found some lenders were looking at the early super access scheme as a way for borrowers to make their loan repayments.

“ASIC notes that some plans included reference to borrowers accessing their superannuation as an option that could potentially be considered if borrowers are unable to resume repayments.

“ADIs should have appropriate controls in place to ensure that if they are informing borrowers about their ability to access superannuation, they are not providing unlicensed financial product advice and are ensuring compliance with requirements for giving financial product advice.”

More than 900,000 loans have been deferred since late March, at least half of which are due to hit the six-month mark in the coming weeks.

These include 105,000 business loan deferrals to small and medium businesses and 260,000 mortgages, all of which are due to be assessed before the end of October.