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PRINCIPLES - A COMMON APPROACH FOR ASSISTING BORROWERS FACING FINANCIAL HARDSHIP

A Common Approach for Assisting Borrowers Facing Financial Hardship

The deteriorating domestic and international economic outlook will place continued financial pressure on households, as those affected find it more difficult to service housing and personal debt.

It is important that financial institutions have clear and effective arrangements to manage borrowers who are facing financial hardship. In particular, institutions should have in place arrangements that assist borrowers who are experiencing temporary financial hardship.

The Government and Australia’s financial institutions through ABACUS and the ABA have agreed to a common approach for assisting borrowers facing financial hardship.

The Principles, which apply in relation to all consumer credit contracts, establish temporary and standardised arrangements that are designed to assist borrowers that are unable to meet their contractual obligations due to unemployment or as a result of other (reasonable) causes.

Participating financial institutions will apply the following principles on a case by case basis to assist borrowers manage their way through temporary financial hardship.

In these circumstances, the financial institutions will support their borrowers by:

1.             Temporary assistance options

• Financial institutions will provide temporary assistance to borrowers who are experiencing financial hardship and have become unemployed or are in difficulty more generally.
• The financial institutions will work with borrowers to determine the most appropriate assistance option for each borrower. Options include:
  
  –      in relation to mortgages, postponing for up to 12 months the dates on which payments are due under the contract (with interest to be capitalised into the loan);
  –      extending the period of the contract and reducing the amount of each payment due under the contract;
  –      reducing the limit available to customers on credit contracts;
  –      short-term reductions in interest rates, or repayments due under the contract;
  –       offering different financial arrangements that will better suit the customer’s needs;
  –       temporary overdrafts on a one-off and temporary basis to suit short-term needs;
  –       providing interest-only repayment options on loans; and
  –       providing fee waivers.
• These options will be made available in circumstances where the borrower will be able to meet the new repayment terms and will be able to meet their new contractual obligations in the long-run.

2.             Identification of borrowers in hardship

• The financial institutions will have systems in place to assist in identifying borrowers who may be experiencing financial hardship.
• The financial institutions will monitor borrowers and may contact borrowers who default on their contractual obligations. If contacted, the financial institution will explain, in detail, why an individual has been contacted and explain what assistance may be available to the individual if it is found that they are experiencing financial hardship.
• The financial institutions may contact customers that exhibit other potential signs of borrower distress, which may include:
  – unusual patterns of usage of credit card products; and
  – requests for significant increases in credit card limits.

3.             Staff training

• The financial institutions will ensure that they have staff trained to deal with hardship cases.
• Financial institution staff will be trained to refer borrowers to appropriate services if they are possibly experiencing financial hardship.
• The financial institutions will implement and maintain procedures and guidelines to ensure that all staff responsible for dealing with hardship cases perform their duties in a sensitive and effective manner.

4.             Streamlined processes

• Each financial institution will have in place and publicise a toll free hotline through which borrowers can access a dedicated financial hardship team who can assist borrowers across all consumer credit contracts.
• Borrowers experiencing financial hardship can apply for assistance using this hotline.
• The financial institutions will also ensure that mechanisms are in place to allow borrowers to seek information about hardship assistance over the internet or at their financial institution’s nearest branch.
• Access to information about hardship via the toll free hotline, internet or through financial institution branches will be open to borrowers without requiring borrowers to provide evidence of their hardship.

5.             Information on hardship processes

• The financial institutions will ensure that information is available on hardship processes.
• The financial institutions will ensure information about its hardship arrangements is made available throughout the branch network, via the internet or is sent to borrowers on request.

6.             Timely assistance

• The financial institutions will deal with requests for hardship assistance in a timely manner.
• The financial institutions will ensure that hardship applications are dealt with as quickly as possible.

7.             Financial information and counselling services

• The financial institutions will provide access to fee free internal financial information services on financial hardship or, where requested by the borrower, details about external financial counselling services.

8.             Needs based assistance

• The financial institutions will provide temporary financial hardship assistance based on information about the borrower’s individual needs.
• Borrowers who apply for temporary assistance may need to provide evidence of financial hardship. This will help the financial institutions develop tailored solutions for individual borrowers.
• Evidence of financial hardship can be satisfied through the provision of the following documents that show a change in their personal circumstances:
  –               payslips;
  –               financial statements;
  –               medical certificates;
  –               welfare payment statements; or
  –               a statement of financial position and/or income and expenditure.