In response to the pandemic and its adverse economic impact, Australian Securities and Investments Commission (ASIC), as regulatory body for consumer lending, issued on the 29th April 2020 what it expected of the lenders.
ASIC reminded lenders of their obligations under the section 72 of the National Credit Code, whereby a lender must consider varying a consumer credit contract if a consumer notifies them that they are or will be unable to meet their credit obligations. ASIC further stressed that lenders must also do all things necessary to ensure that the credit activities authorised by their licence are engaged efficiently, honestly and fairly.
In response, lenders provided appropriate hardship support for home loan borrowers in financial difficulty due to COVID-19. This support was largely providing the borrowers with loan repayment deferrals of up to 6 months.
The end of this deferral period for many loans is fast approaching and ASIC issued further updates detailing expectations on lenders when the loan deferrals end. ASIC expects lenders to have processes in place that will allow for an orderly transition to deliver consumers appropriate and fair outcomes.
The following is what ASIC expects such processes should include:
Contacting consumers prior to the expiry of their deferral
- Lenders should make reasonable efforts to contact consumers prior to their repayment deferral expiring. This contact should be timely and allow for consumers to have reasonable time to consider their options.
- ASIC continues to expect lenders to provide consumers with information that will assist their decision-making in accordance with ASIC’s earlier expectations.
- In circumstances where a consumer does not respond to a communication, lenders should try to contact the consumer using a range of communication channels. Lenders should be able to use evidence that they have made reasonable efforts to contact consumers.
Consumer repayments on mortgages
- If a consumer identifies that they cannot resume full repayments on their mortgage, ASIC expects lenders to make reasonable efforts to interact with the consumer directly (for example, via a phone call). ASIC considers that a conversation or other direct interaction with a consumer will allow lenders to gather more personalised information about the consumer’s circumstances to make a decision about the consumer’s loan in a fair and appropriate manner.
- In circumstances where a lender determines that it would be appropriate to offer further assistance to a consumer, lenders’ processes should be flexible and empower staff to offer tailored assistance that genuinely addresses the needs of the consumer. Lenders should keep records which set out the assistance options they are providing to each individual consumer.
Dissatisfied or defaulting consumer
- If a consumer is dissatisfied with a lender’s response or actions, lenders must ensure they comply with the requirements set out in ASIC’s Regulatory Guide 165: Internal and external dispute resolution. Importantly, in accordance with s72 of the National Credit Code, if a consumer notifies a lender that they will be unable to meet their repayment obligations after the expiry of a repayment deferral and a lender makes a decision to not provide further assistance by way of varying the consumer’s credit contract, a consumer must be notified of their right to complain to the Australian Financial Complaints Authority.
- In circumstances where a consumer’s repayment deferral expires and they miss a repayment, lenders should make reasonable efforts to contact the consumer and assess the appropriateness of further assistance being offered to them.
- Lenders should have in place processes that are easy for consumers to understand and navigate.
And then a little more…
ASIC expects that:
- Lenders take steps to help consumers make informed decisions during the above process and that more can be done by lenders to provide consumers with personalised information or examples about how assistance arrangements may affect the consumer’s repayments and costs over the longer-term.
- Where a lender identifies that a consumer’s financial difficulties are so severe that they will not be able to repay their loan over the longer-term, ASIC expects lenders to make all reasonable efforts to work with consumers to keep them in their homes if that is in their best interests. ASIC recognises there will likely be some circumstances where offering a consumer further temporary assistance may make their situation worse. Such situations will need to be carefully identified by lenders and involve a high level of engagement with those affected consumers.
By the way…
Lenders that are authorised deposit-taking institutions (ADIs) also need to be mindful of expectations issued by the Australian Prudential Regulation Authority (APRA). ASIC and APRA have conveyed that they will endeavour to align their expectations. An example of alignment is where an ADI provides an eligible borrower with an eligible repayment deferral, the period of deferral does not need to be treated as a period of arrears for prudential purposes, nor do the loans need to be regarded as impaired. An ADI may pause the counting of days past-due from the date on which the repayment deferral is granted.
Whilst the expectations are not prescriptive as to what a lender must do, it is clear that a lender must have adequate resources and policies in place to commence personalised and informative discussions with consumers before the end of a deferral period. This will endeavour to achieve an efficient, honest and fair opportunity for the consumer. Lenders should document the whole process. Such personalised attention is a logistical challenge, so the earlier the endeavours the lesser the likelihood of disputes, bad publicity and/or prosecution against lenders.
If you are a lender requiring assistance in documenting and implementing the policies and processes above, then please contact our Banking & Finance team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.