COVID-19 and financial hardship: ASIC’s expectations of retail lenders when loan repayment deferrals end
13 August 2020
In response to COVID-19, lenders offered consumers the ability to defer repayments on their mortgage for a period of up to 6-months. A significant portion of these repayment deferrals will be expiring over coming months.
Lenders must do all things necessary to ensure that the credit activities authorised by their licence are engaged in efficiently, honestly and fairly. As such, we expect lenders to have processes in place that will allow for an orderly transition and importantly, deliver consumers appropriate and fair outcomes. We consider that such processes should include the following:
Contacting consumers about 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.
- We continue to expect lenders to provide consumers with information that will assist their decision-making in accordance with our 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 evidence that they have made reasonable efforts to contact consumers.
If a consumer cannot resume repayments on their mortgage
- If a consumer identifies that they cannot resume full repayments on their mortgage, we expect lenders to make reasonable efforts to interact with the consumer directly (for example, via a phone call). We consider 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.
- If a consumer is dissatisfied with a lender’s response or actions, lenders must ensure that they comply with the requirements set out in ASIC’sRegulatory 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.
While these expectations are focused on how lenders should manage the expiry of repayment deferrals on mortgages, we also expect lenders to consider these expectations more broadly when responding to consumers experiencing financial difficulties due to COVID-19 across other credit products and assistance arrangements.
ASIC is closely monitoring how lenders are assisting consumers experiencing financial difficulties due to COVID-19. As part of our monitoring activities, we have been meeting with a range of lenders including ADIs and non-ADIs. Based on this engagement:
- To help consumers make informed decisions, we think more can be done by lenders to provide consumers with personalised information or representative examples about how assistance arrangements may affect their repayments and the cost of their loan over the longer-term. We think this is important for lenders to consider in the context of providing consumers with further assistance at the expiry of a repayment deferral.
- Some lenders have raised queries with ASIC about how to approach situations where they identify 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 that 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.
- Most lenders have informed us that they are regularly reviewing and re-assessing their approach to consumer engagement—for example, incorporating consumer feedback into consumer communications. We encourage all lenders to build continuous improvement into their processes as this will likely result in better consumer experiences and outcomes.
We continue to encourage all lenders to work closely with their customers to develop solutions that not only provide consumers with relief but are sustainable and can assist consumers over the longer-term. It also remains important that lenders continue to ensure that information about assistance is relevant, accessible and available to all consumers.
ASIC is also working closely with APRA to ensure that our expectations of Authorised Deposit-taking Institutions (ADIs) and how they are handling loans impacted by COVID-19 are aligned. APRA has issued a consultation letter regarding ADI capital measures and reporting requirements for loans impacted by COVID-19, and an update to its FAQs.
If lenders have any concerns or questions about ASIC’s expectations, please contact us at ASICHardship@asic.gov.au.