Financial difficulty

Customer owned banks that subscribe to the Code have made a commitment to try to help their customers experiencing financial difficulty:

Part C Key Promise 4: ‘We will lend responsibly, and will try to assist you if you find yourself in financial difficulties.’

Part D section 24: ‘We will work with you in a constructive way if you experience genuine difficulties in meeting your financial commitments to us. With your agreement and commitment, we will try to assist you to overcome those difficulties. We will do this whether or not you have a right to seek a hardship variation or change under consumer credit laws.’

Financial difficulty defined

The Code Compliance Committee has adopted the following definition:

“Financial difficulty occurs when a consumer is unexpectedly unable to meet their repayment obligations. This can be as a result of a variety of causes including accident, separation, death of a family member, unexpected medical or funeral expense, reduction of work hours, redundancy or a downturn in business.”

The FOS Approach to Financial Difficulty, April 2013

Laws that apply

Several laws and regulations apply to the handling of financial difficulty matters including the National Consumer Credit Protection Act 2009.

Under section 26 of the Code, Code Subscribers have also agreed to comply with ASIC and ACCC’s Debt Collection Guideline for collectors and creditors. These guidelines need to be considered when pursuing a debt from a customer experiencing financial difficulty.

Common compliance pitfalls

Our recent inquiry found that Code Subscribers are genuinely willing to work with their customers experiencing financial difficulty, but are broadly interpreting and inconsistently applying these obligations.

We recommend that Code Subscribers:

  1. Do not pressure a customer to borrow from family and friends to pay out a debt or to access their superannuation early as this is inconsistent with the Debt Collection Guideline.
  2. Review procedures to ensure your customer owned bank is not listing a default on a customer’s credit reference file and will not sell the debt to a debt buy-out business while the customer’s application or request is being considered, unless legally required to do so.
  3. Place information on your website to ensure consumers know where and how they can ask for assistance if in financial difficulty.

Good industry practice

The way you comply with your Code obligations will differ depending on the size, nature and complexity of your market. However, it is important that Code Subscribers:

  • document procedures
  • monitor staff conduct
  • tailor repayment arrangements
  • proactively engage with customers in financial difficulty, and
  • provide consistent advice.

Find out more

Financial difficulty compliance checklist for Code Subscribers (PDF, 219 KB, one page)

Customer Owned Banking Association Compliance Manual (contact COBA for a copy)

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