Retail lending: dealing with customers in financial difficulty

The Banking and Financial Services Ombudsman has set out the guidelines he follows when customers write to his office to complain that a credit provider has refused to agree to a proposed repayment plan for a debt that the customer is unable to repay because of general financial difficulties.

The guidelines apply where there is no maladministration or other breach in relation to the original lending but there has been a subsequent change in the customer’s circumstances. And if there is a breach of statutory provisions to do with misleading, deceptive or unconscionable conduct or unjust or unfair contracts, his approach will be different.

The new Code of Banking Practice introduced an obligation to try to help individual and small business customers overcome their financial difficulties and to provide information about the UCCC hardship variation processes if they could apply to the customer’s circumstances. Even if the Code does not apply to you, the Ombudsman comments that non-subscribing banks and other credit providers should consider implementing the guidelines.

Acting fairly and reasonably, in the Ombudsman’s view, requires that credit providers:
• give genuine consideration to a repayment proposal or hardship variation application and any reasonable alternatives that will help the customer overcome their financial difficulties;
• give reasons for any rejection of the proposal, preferably in writing;
• ensure that those reasons reflect legitimate considerations and are referable to the particular customer’s circumstances;
• not start or conclude enforcement action before a decision is made and communicated; and
• respect the customer’s appointment of an advisor and, if one is appointed, not deal directly with the customer.

Acting consistently and ethically, in the Ombudsman’s view, requires that credit providers:
• have clear and reasonable internal processes for assessing hardship variation or enforcement postponement requests and other repayment proposals;
• be able to demonstrate that their staff have followed those processes;
• record and keep any promises made, for example, about suspending enforcement action, and record and keep to any agreement reached. If that includes that the arrangement be reviewed at a certain date, credit providers should not seek to review the arrangement earlier if the customer is keeping to it. Any review should be based on a genuine consideration of the customer’s position at that time;
• ensure that any collection related correspondence is consistent with what has been promised or agreed; and
• confirm in writing any agreement reached and ensure that collection agents and/or later assignees have a copy.

Finally the Ombudsman’s view is that "informing a customer of the UCCC provisions includes telling the customer, at the time of any rejection of a hardship variation application, that they can apply to the relevant court or tribunal under s 68 of the UCCC for an order changing the contract. This information should be given whether or not the credit provider thinks that the application would succeed – the obligation is to do so if those provisions could apply to the customer’s circumstances."

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