Home loans the top reason for hardship 

Home loans are the primary product that individuals are currently requesting hardship assistance with, leading to several organisations calling on lenders to improve their response to hardship requests and services.

Speaking at the Australian Securities & Investments Commission’s (ASIC) Annual Forum 2023 yesterday (21 November), Suneeta Sidhu, ASIC’s senior executive leader, strategic surveillance and data, revealed that there had been more than 430,000 hardship applications from more than 170,000 customers since 2022.

Ms Sidhu stated: “The data is showing that the number of hardship applications is increasing, with some lenders receiving more than double the applications that they received this time last year.

“About 40 per cent of all applications are related to home loans and, more interestingly, over 80 per cent of these are in relation to owner-occupier loans.

“We’re seeing the number of applications relating to home loans increase more quickly than for other product types.”

At the forum, Travers McLeod, executive director of the Brotherhood of St Laurence, a social justice organisation that works to prevent and alleviate poverty, revealed that the Consumer Action Law Centre had seen its average number of weekly calls for assistance rise significantly.

“The average weekly calls in Victoria are up 36 per cent compared to the same period last year and 28 per cent higher than the pre-COVID-19 period and mortgage arrears is the most common issue that’s been raised” Mr McLeod stated.

The chief executive of the Australian Retail Credit Association, Elsa Markula, added that the association was seeing an increased reluctance from individuals to take on hardship provisions, due to concerns and misconceptions that it would have an ongoing impact on credit ratings.

She said: “The reality is that it’s actually better for individuals to seek hardship assistance. It doesn’t impact your credit rating score, it does go on your credit report and stays there for 12 months, but that information doesn’t act as a black mark for somebody to be automatically rejected for credit.”

Lynda Edwards, Financial Counselling Australia’s financial capability coordinator, commented that the hardship system did not sufficiently provide access for First Nations people or those with English as a second language, with most lenders requiring the completion of an online form to commence the process.

Ms Edwards stated: “When you think about the hardship system, it isn’t really tailored to First Nations people, especially when English is their second language or third language or out in community, where there are no communications or services and very little access to banking.

“The majority of First Nations people don’t feel like they are part of the process and there needs to be a lot more information on the ground for people to participate.”

Mr McLeod emphasised that the way lenders look to deal with hardship requests also needed to be reviewed, even though the goodwill might be there.

He commented: “Often that goodwill is not matched by the humanity of the hardship processes people are asked to take part in nor is it matched by the capability of those that are responding, humans responding to that process, and their ability to do so with empathy and with an understanding.”

He added that the hardship process can be “incredibly stressful and traumatic”, with those vulnerable in the community such as single-parent families, those from culturally or linguistically diverse backgrounds, or people with a disability the ones facing the “incredibly confusing” processes.

Because “it’s easier to do”, he said the organisation had found struggling consumers are now utilising buy now, pay later (BNPL) products for everyday spending such as groceries, rather than facing the struggle that the hardship application process proposes.

He called for “much tougher regulation” on the BNPL industry, which he stated, “to some extent do prey on that vulnerability, including the advertising, which targets vulnerable consumers”.

Indeed, the CEO and chief ombudsman at the Australian Financial Complaints Authority (AFCA), David Locke, said the organisation had seen the number of consumers utilising BNPL products grow, with complaints for the products also having increased 57 per cent.

Mr Locke added that in the last financial year, the organisation received just under 5,000 financial hardship complaints, with 2,800 of those situations wherein people requested assistance and received no response.

He stated that home loans, personal loans, credit cards, and business loans were the leading financial products that consumers were requesting hardship assistance with, declaring that the failure to provide proper hardship arrangements or failure to comply with timelines “will be a focus for AFCA”.

While Mr McLeod called for the improvement of the hardship process, he also called on the industry to “think about sorts of programs that proactively respond to vulnerability and hardship rather than doing it reactively”.

“We want to be the fence at the top of the cliff, not the ambulance at the bottom, which often many of the hardship programs are focused on very reactive late relief, rather than proactive, structural, and sustained relief,” he concluded.

[Related: ASIC urges banks to improve customer hardship support]