Hardship jump in banking code review as cost of living bites

The Banking Code Compliance Committee has warned it is seeing an increasing number of breaches by banks failing to support customers facing financial difficulty.

The Banking Compliance Committee has warned it was seeing an increasing number of breaches by banks failing to support customers facing financial difficulty.

The body charged with overseeing good behaviour from the nation’s banks has warned an increasing number were failing to support customers facing financial hardship, in some cases sending debt collectors after borrowers despite agreeing to recovery plans.

In a report issued on Thursday the Banking Code Compliance Committee said it had seen a 40 per cent increase in the number of breaches by banks when it came to vulnerable customers.

The report, covering the period of January 2023 through to June came as interest rates climbed three times from 3.1 per cent to 3.85 per cent.

Since then rates have soared a further 50 basis points to 4.35 per cent, leading to a massive jump in debt costs for borrowers.

BCCC chair Ian Govey said banks had been given “ample time to anticipate the surge in financial hardship requests and implement measures to manage them effectively” but many were failing.

The BCCC said the increase in hardship breaches came as overall breaches reported to the compliance body fell by 9 per cent to their lowest levels recorded.

BCCC chair Ian Govey said more effort had to go into supporting customers facing financial difficulty.

“The current state of increased living costs makes these obligations more important than ever, and we are concerned to see this increase in breaches,” he said.

The report found three of the four major banks had seen a fall off in breaches, while one unnamed institution had seen a lift in the January to June period compared to July to December 2022.

The BCCC said nine of the 13 non-major banks also saw an increase in breaches.

However, the four major banks accounted for 82 per cent of all breaches.

The BCCC said it was finding banks were persisting with debt collection despite hardship arrangements and neglecting the terms of hardship arrangements.

“Failing to support customers experiencing financial difficulty can lead to unmanageable debt, delayed recovery from financial strain and emotional stress,” the BCCC report noted.

The report found a bank had sent debt collectors after one borrower after it “failed to implement a complaint resolution in a timely manner”.

Another bank was found to have “sold debt to an external agency while the customer was complying with a payment arrangement”.

The ABA responded that its member banks have been reaching out to customers who may be experiencing financial difficulty to explain what banks can do to help.

“Banks will continue to focus on making improvements in this critical area in support of their customers. It is pleasing to see the significant improvement in overall breaches in this latest report, with the lowest number recorded since the inception of the BCCC,” it said.

BCCC chief executive Prue Monument said there were many barriers to customers seeking help and seeing banks fail to act or respond wrongly was not good to see.

“When people reach out the banks need to get it right,” she said.

Ms Monument said the BCCC was concerned the retreat of banks from branches and use of Bank@Post could lead to more failures to assist customers.

She said it was important the frontline staff providing banking services at post offices identified hardship or vulnerability.

“At this stage the committee has identified there’s a need to improve that,” she said.

The report noted banks pointed to human error, process or procedure failure, or system error as the cause of 94 per cent of all breaches.

But the BCCC report noted “while human error remains the main cause of breaches across the industry, there is a significant variation in the proportion of breaches caused by human error among individual banks”.

The BCCC’s report also noted its concerns about suspicions banks were underreporting breaches of the code of conduct.

Mr Govey warned underreported “not only jeopardises a bank’s ability to identify and address issues and make improvements, but it also calls into question the industry’s commitment to the Code and the principles of the self-regulatory model”.

The BCCC’s findings come as the Australian Securities and Investments Commission is running a review of financial hardship practices.

ASIC recently sued Westpac for failing to respond to hardship notices.