Coronavirus bank loan repayment deferral guidance issued by regulator ASIC
When the COVID-19 pandemic reached Australia’s shores in earnest in late March, banks and other lenders were quick to extend assistance to customers who lost their income during the lockdowns.
By the end of May, the banking sector had provided repayment holidays on around half-a-million home loans worth more than $190 billion.
That means, at the peak of deferrals, around one-in-10 home loan customers had been allowed by their bank to stop making repayments without going into default, and most of those customers indeed stopped paying.
But the repayment holidays can’t last forever.
Even though they have access to cheap money from the Reserve Bank, there’s a limit to how long financial institutions can get by without 10 per cent of their loan customers making payments.
With interest still accruing on the deferred loans, there’s also a limit as to how long customers can afford not to make repayments while still being able to afford the loan when the holiday ends.
With three-month reviews conducted by many banks on whether customers still needed a deferral, some have started paying again.
In its profit results this week, the Commonwealth Bank revealed that the number of its home loan customers who have deferred repayments had fallen from a peak of 154,000 to 135,000 by the end of July.
But the next big test will come at the end of September, when the blanket approach to loan deferrals ends and the banks try to get many of their COVID-19-affected customers paying something again.
Ahead of that D-Day, financial regulator ASIC has issued guidelines telling them how they should do it.
If you’re on a loan repayment deferral, this is how you should expect your bank to go about ending it.
Customers should have ‘reasonable time to consider their options’
If you are on a repayment deferral, you should not have to chase your bank to find out when it is ending, they should contact you.
“Lenders should make reasonable efforts to contact consumers prior to their repayment deferral expiring,” ASIC advises financial institutions.
“This contact should be timely and allow for consumers to have reasonable time to consider their options.”
If the lender doesn’t hear back from a customer, they should try other methods of getting in touch. This means your bank can’t just send you one letter or an email and assume you received it.
On the other hand, you can’t just ignore your lender and hope they will go away. “Reasonable” does not equal herculean efforts to contact you.
That communication should clearly set out your available options and provide some information that will help you make a decision.
“This should include details of how different assistance options will affect the consumer’s loan and repayments over the short and long term.”
Your lender should let you know how much your future repayments will be and there should be consideration of whether you will be able to afford them.
You should also be told how any assistance may affect the total cost of your loan, such as the extra interest you will pay if the term, or length, of the loan is extended.
For those of you financially able to resume making full repayments, this should (hopefully) be straightforward.
What if I can’t afford to resume repayments?
If, when your bank contacts you, you tell them that you can’t afford to resume full repayments, ASIC expects them to get in touch with you directly, like through 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.”
With the banking sector committing to a further four-month deferral for those still in severe hardship at the end of September, ASIC says lenders should be “flexible” and “empower staff to offer tailored assistance that genuinely addresses the needs of the consumer”.
Overall, the regulator’s guiding principle is to avoid defaults, evictions and forced sales where possible.
“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.”
You may think that surely it’s in everyone’s best interests to stay in their home? But remember, repayment holidays don’t come free. The repayments you don’t make now have to be made later, with interest.
Some people, either because they are likely to be out of work for a long time or because they were too close to the edge on keeping up their repayments even before COVID-19, may be better off leaving their home.
If that’s the case for you, ASIC says you should expect your lender to engage in a detailed discussion with you.
“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.”
And even if you hadn’t spoken to your bank about being unable to resume repayments, ASIC says they should speak to you.
“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.”
What if I disagree with my lender’s actions?
The overriding legal principle is that “lenders must do all things necessary to ensure that the credit activities authorised by their licence are engaged in efficiently, honestly and fairly.”
If you are unhappy with the decisions or actions of your lender, and complaints to them are fruitless, you can make a complaint to the Australian Financial Complaints Authority (AFCA).
AFCA is a free and independent service to help you reach an agreement with your lender and its decisions are legally binding on them.
It has set up a coronavirus pandemic hotline (1800 337 444).
There are also a range of financial counselling and legal centres that can assist you if you are in dispute with your lender.
These include the Financial Rights Legal Centre, based in New South Wales, which runs the National Debt Helpline (1800 007 007), and various state consumer credit legal centres or legal aid agencies with contact details on ASIC’s Money Smart website.