Complaints rise over lenders and customer hardship help

Complaints about how lenders handle requests for hardship assistance are on the rise, the financial sector ombudsman has reported.

Financial difficulty complaints increased by 25 per cent in 2023 and the Australian Financial Complaints Authority says it is concerned by the growth.

Of the 5,396 complaints received, a third related to home loans and more than half were about a lender’s failure to respond to a request for help.

“We are concerned about the increase in complaints about financial hardship and about the practices of some lenders,” Chief Ombudsman and Chief Executive Officer David Locke said on Wednesday.

“We urge all lenders to identify hardship early and to ensure they provide genuine consideration to a customer's request for hardship assistance.”

Given the challenging economic environment, it's not surprising there has been an increase in borrowers seeking hardship assistance, Mr Locke said. 

“Lenders were preparing for this too and we acknowledge the investments some have made in specialist hardship teams and better processes," he said.

"But the rise in complaints tells us there is still work to do.”

The practices of some smaller lenders and buy-now-pay-later providers were the most concerning, the report revealed.

“These are not complaints about what the lender’s decision was, but consumers saying there was no response at all," Mr Locke said.

"Failure to respond to such a request is a breach of the lender’s obligations and there is no excuse for this."

The authority has also received complaints about lenders providing a standardised response that did not consider customers' individual circumstances. 

“Lenders are required to give genuine consideration to hardship requests," Mr Locke said.

“Care needs to be taken with automated processes."

Under the National Credit Code and the Banking Code of Practice, banks are required to work with customers to find a sustainable solution to financial hardship and consider their individual circumstances.

The authority's lead ombudsman for banking and finance, Natalie Cameron, said some lenders were issuing default notices to consumers who had agreed to repayment arrangements.

Others were instigating debt recovery action while complaints were before the authority, which is not permitted.

Ms Cameron said some lenders were also placing unnecessary barriers on financial counsellors attempting to assist consumers.

“Vulnerable complainants are not always identified or given the care required,” she said. 

“Sometimes they are simply not in a position to navigate the process and provide the required information in the requested format.”

Ms Cameron said borrowers should contact their lender to request hardship assistance as soon as they start finding themselves in financial difficulty.

The authority also recommended consumers seek out help from a free financial counsellor.

Borrowers who are not happy with a response to a hardship request can make an internal complaint to their lender to have the decision reviewed. 

They generally have 30 days to respond to a complaint.

If the customer is unhappy with the response or the complaint has not been considered in time, they can contact the authority for help to resolve the problem.

The Australian Securities and Investments Commission has been reviewing hardship applications and wrote to lenders last year calling on them to make sure they supported customers appropriately.

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