Since the introduction of the National Consumer Credit Protection Act or NCCP much has changed with credit providers in relation to offering their clients financial relief when required.
Prior to the National Consumer Credit Protection Act or NCCP it was a credit providers moral obligation to offer financial relief or assistance to their client’s, now due to various legislation it is very much their legal obligation.
While there are a number of legal passages that relate to Financial Hardship the most noted are:
1. Code of Banking Practice (2003)
• 2.2, 2.3, 25.2
2. National Consumer Credit Protection Act (NCCP)(2009)
• 1 (4)(3)(72)
- Schedule 1
- Part 4
- Division 3
- Section 72
3. ASIC Regulatory Guide
• RG 165.88
The Inquiry into Bank compliance with Clause 25.2 by the Code Compliance Monitoring Committee states:
The Committee takes the view that the words “with your agreement” indicate that the bank’s obligations under clause 25.2 of necessity involve a communication process. This process may begin, for example, when a customer contacts the bank in response to a default letter on a credit facility. Although a bank is generally not required to “try to help” a customer who consistently fails to respond to bank letters or collection activity, the Committee expects banks to be considerate of the fact that some customers deal with their financial difficulties by trying to avoid their creditors. This issue is also dealt with under the “Best Practice” section of this report.
The Committee expects that in trying to help a customer in accordance with clause 25.2, a bank will have regard to the customer’s personal circumstances.
The Committee is of the view that consideration of the clause 25.2 is closely linked to a banks’ obligations under clause 2.2 to act fairly and reasonably in a consistent and ethical manner. In that regard the Committee agrees with the approach set out in the Banking and Financial Services Ombudsman’s Bulletin 46.
The Bulletin states that acting fairly and reasonably requires a bank to:
• 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 concerns 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 adviser and, if one is appointed, not deal directly with the customer.
It is not appropriate for a bank to have a “one size fits all” approach to hardship applications, and to apply a formula in responding to those applications. Such an approach does not fulfill the obligations under clauses 2.2 and 25.2. Compliance with Code obligations requires an assessment of each customer’s personal circumstances when hardship is raised.
While there are other legal provisions in relation to financial Hardship the above legislation is highly relevant for a credit provider when determining a financial hardship application.