ASIC warns banks to not drop the ball on stressed borrowers

The corporate regulator has warned the nation’s lenders they must meet their obligations to support borrowers facing financial hardship, pointing to signs of increasing financial hardship across the country.

The Australian Securities and Investments Commission (ASIC) revealed on Wednesday that the financial hardship processes at Australian banks will soon be under the microscope as part of a review of the practices of 10 large lenders.

ASIC commissioner Danielle Press. Credit: Eamon Gallagher

The regulator penned an open letter to the bosses 30 lending groups, including the big four banks, calling on them to ensure they meet their responsibilities to support customers facing financial distress.

“ASIC is aware of increasing evidence suggesting that some consumer cohorts are experiencing financial distress and hardship due to increasing cost of living pressures,” the letter from commissioner Danielle Press said.

This evidence includes a 28 per cent increase in calls to the National Debt Helpline in 2023 compared with 2022, the watchdog said, as well as rising levels of delinquencies and financial hardship applications made to lenders.

The regulator pointed to 12 actions banks need to complete to meet their obligations for customer support, including proactively communicating about where hardship support is available, making sure staff are trained in identifying consumers under pressure, and providing written reasons when an application for hardship support is declined.

The letter also suggests that ASIC will be taking a closer look at the hardship practices of the major banks, confirming it will launch a review of 10 lenders’ practices that will involve a review of documents, questionnaires and meetings with staff.

“We will also review case studies and conduct a hypothetical applicant exercise to understand differences in lenders’ approach to hardship,” ASIC said.

Australian Banking Association Anna Bligh said the letter to lenders did not come as a surprise, with ASIC issuing a similar reminder during the COVID-19 pandemic.

“Bank teams are already proactively reaching out to customers who may be at risk,” she said.

“Assistance will depend on individual circumstances but could include: restructuring loans, for example lengthening the term of the loan to reduce payments, enabling customers to make interest only payments for a period of time, offering payment deferrals for a period of time [or] debt consolidation.”

The focus on hardship comes as a range of consumer data continues to show households are struggling under the pressure of interest rate rises and cost of living inflation seen over the past 12 months.

Roy Morgan data released on Monday suggests that 29.2 per cent of Australian mortgage holders are now at risk of mortgage stress, a jump of 9.8 per cent on last year. The “at risk” definition looks at households paying between 25 per cent and 45 per cent of their take home pay towards their mortgage, depending on their income.

Consumer Action Law Centre chief executive Stephanie Tonkin said National Debt Helpline counsellors were regularly speaking to people struggling to get financial hardship support from their financial institutions.

“The banks need to broaden their support for customers who are weathering this cost-of-living crisis and ASIC’s focus on banks’ hardship responses is therefore very welcome as such scrutiny is vital,” she said.

Finder’s most recent Consumer Sentiment Tracker, which covers a sample of 53,000 Australians, found one in four consumers report being “extremely” stressed about their current financial situation.

Household budgets have remained resilient despite sustained rate rises, with data from Commonwealth Bank’s most recent financial results showing that home loans more than 90 days behind in payments made up 0.47 per cent of its book in June, a decline on the 0.49 per cent seen at the same time in 2022.

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