ASIC’s latest investigation has found lenders are not doing enough to support customers facing hardship.
In this article, we unpack ASIC’s key recommendations for lenders to improve their hardship processes and provide some practical tips to help implement these.
Recommendations:
- Integrating hardship processes across all areas of the business
- Simplify the process for customers to make hardship claims and for staff to identify hardship
- Have policies, systems and processes to ensure that a range of different hardship claims can be made by customers through a variety of different communication channels.
- Offer flexible assistance arrangements tailored to the customer’s specific hardship situation.
- Improve communication and flexibility when handling hardship claims.
What is the hardship obligation?
Under section 72 of the National Credit Code, customers give a hardship notice if they advise their lender that they are unable to meet their obligations under a credit contract. It does not need to be given in a specific manner or by following a certain process and lenders need to be alert to anything a consumer says that might amount to a hardship notice and action it appropriately.
When assessing a hardship claim, lenders can determine what remedy (if any) to offer and must notify the customer of their decision.
Hardship notices also benefit lenders as they minimise default costs by enabling their customers to ultimately meet their obligations under the contract. Although hardship notices can assist financial outcomes for lenders, ASIC encourages a customer-centric and empathetic approach.
As financial uncertainty continues in the market, it is expected that hardship notices will increase. Lenders should take this opportunity to uplift their hardship processes to ensure compliance with their obligations and avoid ASIC action.
ASIC reviewed data from 10 large lenders to look at how they are meeting their hardship obligations. This review has culminated in Report 782 – Hardship, hard to get help: Findings and actions to support customers in financial hardship (REP 782). The 151-page report provides a detailed overview of current practices relating to hardship, whether these practices meet ASIC’s expectations or fall short and includes recommendations for practices that lenders should be implementing to meet their hardship obligations.
Recommendations for Lenders
Recommendation 1: Integrating Hardship
ASIC notes that when lenders silo the hardship process from other areas of their business, those lenders generally have poorer outcomes for borrowers. Many borrowers did not even know that hardship assistance is available to them.
To combat this, ASIC recommends that hardship should be integrated into all areas of the business from customer facing activities such as customer support and complaints through to collections, risk management and assurance. Borrowers should be familiar with the hardship process before, during and after financial hardship even arises.
Frontline staff must have an understanding of what a hardship claim is and must be able to identify or make further enquiries. Some lenders did not adequately recognise the broad range of circumstances that could be considered a hardship claim, and instead limited hardship to temporary, unexpected changes in circumstances rather than inclusive of long term permanent changes such as an inability to afford payments due to rising cost of living expenses. Lenders need to be able to use the data that they hold to identify potential hardship before it occurs and proactively engage with borrowers.
Communication with customers was generally poor and lenders with better practices knew when to refer a customer to the hardship team and ensured that customers were not required to constantly repeat their circumstances.
On the back end, lenders should make sure that hardship is part of meeting customer needs and not simply damage limitation. This includes providing adequate oversight for handling hardship claims with a focus on helping customers and including hardship in various quality assurance forms such as complaints and survey results.
Lenders must ensure that they are adequately addressing and processing hardship complaints. ASIC found that lenders did not provide clear communication to customers that they could complain about both:
- how their hardship claim was handled; and
- the outcome of the hardship claim.
Lenders should ensure that they are meeting their complaints obligations including those specific to hardship claims.
Recommendation 2: Identifying and Receiving Hardship Claims
ASIC recognised a broad failure of lenders to identify and receive hardship notices.
Frontline staff were often unable to identify that a customer had notified them that they could not meet their obligations under a credit contract, particularly where the customer themselves was unaware of their hardship rights. In some cases, customers were directly transferred to collections to make alternative arrangements without consideration as to whether they were currently experiencing hardship.
When customers gave a hardship notice, ASIC noted that 35% of customers withdrew from the hardship process or were denied assistance for not responding to information requests. ASIC noted that almost half of these individuals lodged a further hardship claim within 3 months. ASIC attributed this to unnecessarily administrative processes that required several supporting documents and a lack of clear communication with customers. ASIC recommended that supporting documentation should not be required for a first time claim with a short-term adjustment.
ASIC generally expects lenders to have policies, systems and processes to ensure that a range of different hardship claims can be made by customers through a variety of different communication channels. ASIC encourages a customer-centric approach for lenders to identify and receive hardship complaints.
Recommendation 3: Improved Communication and Flexibility
REP 782 illustrates areas for improvement across the end-to-end hardship process from assessment through to the end of the assistance period. Lenders can significantly improve their customer experience by improving communication. In particular, lenders are encouraged to have a more empathetic approach to customers and should communicate regularly throughout the hardship process as well as ensure that they do not rely on only one communication channel. ASIC noted that lenders should communicate with customers before providing the outcome of the hardship assessment and prior to the end of the hardship arrangement.
When handling hardship claims, ASIC expects lenders to be flexible with the arrangements that they offer to customers. The assistance arrangements should be suitable for the nature of the customer’s hardship (such as whether it is long term or short term) and should be explained to the customer so that they can make an informed decision.
REP 782 also notes that particular care should be taken where a customer is experiencing both hardship and vulnerability. ASIC noted that some lenders failed to consider how a customer’s vulnerability would impact their hardship claim, which led to poor outcomes for the customer. This was prevalent in circumstances where the customer making a hardship notification was also experiencing domestic violence. In some cases, lenders failed to direct communications to the correct people or did not understand that the customer would not have access to supporting documents.
Practical Implementation Tips for Lenders
Lenders should manage their financial hardship cases by focusing on customer experience, providing comprehensive oversight, and ensuring effective operations through several key measures:
- Customer Experience and Outcomes:
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- Focus on customer experience and outcomes in the hardship team’s purpose and KPIs.
- Ensure senior management oversees the hardship function and is informed about customer outcomes.
- Implement quality assurance to evaluate the end-to-end hardship process from a customer’s perspective.
- Communication and Information:
- Provide clear, accessible information on hardship assistance across multiple channels.
- Encourage customers to seek help early, before missing payments, and clarify that hardship assistance is available regardless of specific life events.
- Use data to identify at-risk customers and communicate proactively.
- Contact customers promptly after a missed payment with information on hardship assistance.
- Communicate decisions regarding hardship notices clearly, including the effects on the customer’s loan and rights to make complaints.
- Maintain structured communication with customers throughout and after the assistance period.
- Training and Processes:
- Train all customer-facing staff to recognise and handle hardship notices, including understanding that specific terminology is not required.
- Ensure processes are in place for recording hardship notices at the first point of contact and managing transfers effectively.
- Treat customers empathetically, minimise the need for them to repeat their circumstances, and keep them updated.
- Collect relevant information to identify suitable assistance options and maintain flexibility to address diverse needs.
- Systems and Monitoring:
- Implement systems and technology for managing the hardship process, ensuring data capture and compliance monitoring.
- Conduct regular reviews for continuous improvement informed by hardship-related complaints.
What’s Next?
Hardship claims are forecast to increase and ASIC has identified this as an area of concern. If you are a lender, we strongly encourage you to review your current hardship practices and procedures. REP 782 provides a series of recommendations for best practices that can provide a valuable benchmark.
Reach out if you would like a comprehensive review of your hardship practices.
For more information, please contact Jaime Lumsden, Nicholas Pavouris or Annabelle Parmegiani.
