ABIO Members Conference Topic “Fairness in
Debt Collection
“If, taking the relevant facts into account, it appeared
that the bank’s legal entitlement and overall
commercial position would not be materially prejudiced
by allowing a reasonable amount of time to the
complainant to sell the property, this office may
conclude that it is appropriate for the bank to delay
legal action and to do otherwise would be unfair.”
The Journey - 2002
ABA Code of Banking Practice
“With your agreement, we will try to help you
overcome your financial difficulties with any credit
facility you have with us. We could, for example, work
with you to develop a repayment plan. If, at the
time, the hardship provisions of the Uniform Consumer
Credit Code could apply to your circumstances, we will
inform you about them.”
The Journey - 2003
BFSO Bulletin 46
Acting fairly and reasonably, in our 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.
The Journey - 2005
BFSO Bulletin 46 Acting consistently and ethically, in our 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.
The Journey - 2005
Permanent Custodians v Upston
– The UCCC refers to the reason for hardship as being
“illness, unemployment or other good reason”
– Under the UCCC, a “good reason” is not confined to
people who experience hardship for reasons that are
involuntary
The Journey - 2006
The Court said:
“the words “other reasonable cause” are to be read
with a wide application in accordance with their
ordinary meaning. Their effect is that the court looks at
what was the cause for the debtor being unable
reasonably to meet his or her obligations and then
determines, on the facts of a particular case, whether
the cause was reasonable.”
The Journey - 2006
BFSO Bulletin 53
We expressed the following concerns
– staff appearing not to respond when a customer indicates that he or she is in
financial difficulty and so information about how to obtain assistance with
their financial difficulty is not given. In some cases it seemed that the bank
member did not respond at all unless and until the words “financial difficulty”
or “hardship” were used by the customer and then the response was driven by
the UCCC rather than the broader CBP obligations;
– Requiring customers to show that there is a “reasonable cause” for their
financial difficulty which indicates a UCCC focus rather than looking at what
the financial position of the customer is, separate from the cause;
The Journey - 2007
– Customers being told that, if specified information was not returned within
comparatively short time frames, the account would automatically be referred
back to collections meaning that the application would also be automatically
rejected.
– Procedures which limit available responses to short term solutions of three
months duration rather than looking at longer term solutions which may be
more appropriate.
– Requiring the customer to apply to access their superannuation before an
application for assistance will be accepted; and
– Not applying clause 25.2 processes to small business or investment loans or if
the loan value is over the UCCC threshold,
The Journey - 2007
We also dealt with the issue of repeat requests for
assistance and expressed the following views:
– If it is apparent that the bank gave genuine consideration to the
initial request for assistance and that the disputant’s financial
position has not changed since that assessment, there may be
little this office can do.
– This is because we cannot require the bank to agree to extend an
arrangement or enter into another arrangement where we are
satisfied that the initial arrangement was reached after an
appropriate consideration of the disputant’s financial position.
– If, however, there has been a change in the disputant’s financial
situation, it would be appropriate for the Scheme member to again
undertake an assessment of the disputant’s financial position in
order to comply with clause 25.2 and/or section 66.
The Journey - 2007
FOS Bulletin 60
– We expressed the view that the COBP represented
good industry practice and encouraged non-
subscribers to implement our guidelines
– We also said that we expected customers to: be willing to work with their financial services provider, for example
respond promptly to reasonable requests for information;
provide current and accurate details of their financial position when
requested;
propose a realistic repayment plan that will result in the eventual
repayment of the debt;
make whatever payments they can while their application is being
considered and/or while we are considering any subsequent dispute.
The Journey - 2008
FOS Circular 2 – Financial Difficulty and Small
Business
FOS Circular 5 – Financial Difficulty Hot Topics – Requesting customers to provide excessive documentation, such as:
rental agreements
specialist certificates where a doctor’s certificate has already been provided
utility bills, or
rates notices
can be a barrier to dealing with hardship assistance.
– Our view is that an FSP should make an assessment based on the information it
has available. Where assumptions have been made (for example, that the monthly
wages relied upon have not been verified) the FSP should identify any
assumptions made and what, if any, additional documentation will be required from
the customer before a repayment arrangement can be entered into.
The Journey 2010-11
Apply only to contracts entered into on or after 1 March 2013
No longer limited to loans under $500,000
Consumer can now give FSP a “hardship notice” either orally or
in writing if they believe they will not be able to meet their
obligations
FSP has specific timeframes to comply with when responding to
hardship requests depending on whether it requires further
relevant information to help it assess the application. The
request can be oral or in writing
Within the specified period, the FSP must advise if they agree to
the variation or reasons why they have not. The notice must
include EDR scheme details
Changes from 1 March 2013
Timeframes for FSP to provide
response If:
The period is:
1
The credit provider does not require
information
21 days after the day
of receiving the
hardship notice
2
The credit provider requires information but
does not receive any information in
compliance with the requirement
28 days after the
stated date of the
notice
3
The credit provider requires information
and receives information in compliance
with the requirement
21 days after the day
of receiving the
information
Changes from 1 March 2013
The FSP need not agree to change the credit contract,
especially if the FSP:
a) does not believe there is a reasonable cause (such as illness or
unemployment) for the debtor’s inability to meet his or her obligations; or
b) reasonably believes the debtor would not be able to meet his or her
obligations under the contract even if it were changed.
Applications to vary a credit contract are no longer limited to
extending the period or postponing payments. A new s 72(2)
provides:
The court may, after allowing the applicant, the credit provider and any guarantor
a reasonable opportunity to be heard:
a) by order change the credit contract (but not so as to reduce the amount
ultimately payable by the debtor to the credit provider under the contract),
and make such other orders as it thinks fit; or
b) refuse to change the credit contract.
Changes from 1 March 2013
An FSP cannot begin enforcement proceedings until 14 days
after it has responded to a hardship notice if:
– No hardship notice has been given in the previous four months; or
– If one has been given in the previous four months, the FSP
reasonably believes it is not a materially different event of hardship
An FSP can commence proceedings if it reasonably believes it
is necessary to protect mortgaged goods
If the FSP has served a section 88 notice, and App requests a
postponement of enforcement action, the FSP must give a
written response within 21 days
FSP cannot begin enforcement proceedings until 14 days after it
has responded to a postponement request (new s 94(3))
Commencing enforcement proceedings in breach of these
provisions is a strict liability offence
Changes from 1 March 2013
Until 1 March 2014, credit providers and lessors are
exempt from having to confirm in writing for all credit
contracts and leases:
– Where there has been an agreement to a change under the
contract, until 30 days after the agreement has been made;
and
– Where the change is a "simple arrangement", of the
particulars of the change to the contract. A simple
arrangement is an agreement that defers or reduces the
obligations of a debtor or lessee for a period of no more than
90 days.
Relief until 1 March 2014
Consumer can now give FSP a “hardship
notice” either orally or in writing if they believe
they will not be able to meet their obligations
FOS considers that the “trigger” for the hardship provisions is any expression by
a debtor that they are unable to make payments under their credit contract as
and when due, but not a “simple arrangement” (ie one that is a realistic variation
of less than 90 days).
It does not include where a debtor disputes their liability to pay, as they are
displaying an unwillingness, rather than an inability, to do so. In that event, the
debtor’s response should be treated as a complaint and dealt with in accordance
with the FSP’s internal dispute resolution process.
ASIC is in the process of consulting on this and other aspects of
the changes
What is a Hardship Notice
For those who have been applying our Bulletins and Circulars
over the years, there should be no significant problems
implementing the changes
Our general approach is that common sense prevails
If an FSP is doing their best to engage with the customer to
identify hardship, obtain relevant information and reach a
hardship agreement, then FOS will not be too concerned about
technical breaches.
We believe that the changes merely reflect what we first said in
2005
FOS Approach to the 1 March 2013 Changes
Acting fairly and reasonably, in our 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.
BFSO Bulletin 46
ASIC has updated its Information Sheet 105
and also takes a common sense approach ... there may be circumstances where it is appropriate to allow for
flexibility in meeting the obligations – for example, where the debtor
experiences a delay in getting medical reports from doctors, or certain
financial information from an employer. The debtor’s circumstances
may also make it difficult for them to respond to the information request
in a timely way.
For these reasons, where a debtor has shown a willingness to comply
with the request but is not able to provide all the information in the
timeframe required, we are of the view that a credit provider may
exercise their discretion to wait until all the requested information is
received. This means that the final 21-day period to respond to the
hardship notice will not commence until that information is received.
ASIC’s view
ABA releases industry guideline on financial
hardship, saying that banks should – Respond to a hardship notice, requests for hardship assistance
and/or information about their hardship policies and programs in a
timely, efficient and fair manner without unnecessary delay.
– Only request information from customers that is reasonably
necessary to assess their situation and determine an appropriate
response. Banks will endeavour to minimise the amount of
information requested from customers in order to ensure prompt
assessment of a hardship notice.
– Ensure policies regarding the assessment of a hardship notice
involving joint borrowers are clear and appropriate. For example, as
a joint account is set up to allow joint borrowers to operate with
several and joint liability, banks should not always require both
borrowers to make a hardship notice, especially in circumstances
where there is a relationship breakdown.
The Journey continues - 2013
ABA Members agree to implement a direct link on
the front page of their websites to their financial
difficulty information
ABA and FCA implement a common statement of
financial position and agent authority
FCA launches debt help website
– www.debtselfhelp.org.au
The Journey continues - 2013
Financial Difficulty disputes from 2010
0
100
200
300
400
500
600
700
Jun-1
0
Jul-1
0
Aug-1
0
Sep-1
0
Oct-
10
No
v-1
0
De
c-1
0
Jan-1
1
Feb
-11
Ma
r-1
1
Apr-
11
Ma
y-1
1
Jun-1
1
Jul-1
1
Aug-1
1
Sep-1
1
Oct-
11
No
v-1
1
De
c-1
1
Jan-1
2
Feb
-12
Ma
r-1
2
Apr-
12
Ma
y-1
2
Jun-1
2
Jul-1
2
Aug-1
2
Sep-1
2
Oct-
12
No
v-1
2
De
c-1
2
Jan-1
3
Feb
-13
Ma
r-1
3
Apr-
13
Ma
y-1
3
Jun-1
3
Jul-1
3
Less than 30 days 19%
31 to 60 days 22%
61 to 90 days 18%
91-180 days 20%
Total less than 180 days 79%
Financial Difficulty Average Resolution Timeframes Jan – Aug 2013
All prior Bulletins in relation to Financial Difficulty have
now been consolidated into a series of plain English
articles – the FOS Approach.
Circular 13 provides a link to the FOS Approach to
Financial Difficulty disputes
Relevant information
Telephone: 1300 78 08 08
Website: www.fos.org.au
Mail: GPO Box 3
Melbourne Victoria 3001
FOS contact details