Coronavirus bank loan deferral guidance issued by ASIC regulator
When the COVID-19 pandemic hit Australian shores in earnest at the end of March, banks and other lenders quickly extended their assistance to customers who lost their income during the lockdowns.
- Financial regulator ASIC has established guidelines lenders must follow when ending COVID-19 loan repayment deferrals
- Your lender must contact you to inform you of the end of your deferral
- If you can’t afford to take back full repayments, your lender should have a conversation with you and “be flexible” with personally “tailor-made assistance”
By the end of May, the banking sector had provided repayment holidays on roughly half a million home loans worth over $ 190 billion.
This means that at the height of the postponements, about one in ten mortgage customers had been authorized by their bank to stop repaying without defaulting, and most of those customers did in fact stop paying.
But the payback vacation can’t last forever.
Even though they have access to cheap money from the Reserve Bank, there is a limit to how long financial institutions can get by without 10% of their lending clients making payments.
As interest continues to accrue on deferred loans, there is also a limit on how long clients can afford not to repay while still being able to pay off the loan at the end of the vacation.
With three-month reviews conducted by many banks to see if customers still needed a deferral, some have started paying again.
In its earnings results this week, the Commonwealth Bank revealed that the number of its mortgage customers who deferred repayments had risen from a peak of 154,000 to 135,000 at the end of July.
In a business update today, NAB also said it saw a slight reduction in mortgage deferrals from 96,000 to 86,000, but that only 16% of the clients it has contacted so far have chose to resume refunds.
But the next big test will take place at the end of September, when the comprehensive approach to loan deferrals ends and banks try to charge many of their COVID-19 affected customers again.
Before D-Day, the financial regulator ASIC issued guidelines telling them how to proceed.
If you have a loan repayment deferral, this is how you should expect your bank to end it.
Customers should be given “reasonable time to consider their options”
If you are on a deferral, you shouldn’t have to chase after your bank to find out when it ends, they should contact you.
“Lenders should make reasonable efforts to contact consumers before their deferred repayment expires,” ASIC advises financial institutions.
If the lender does not have a response from a customer, they should try other methods of contacting. This means your bank can’t just send you a letter or email and assume you’ve received it.
On the other hand, you can’t just ignore your lender and hope they’ll go away. “Reasonable” does not amount to Herculean efforts to contact you.
This communication should clearly state your available options and provide information that will help you make a decision.
“This should include details of how the different assistance options will affect the consumer’s loan and repayments in the short and long term.”
Your lender should let you know the amount of your future repayments and you should determine if you will be able to pay them.
You should also be aware of how any help may affect the total cost of your loan, such as the additional interest you will pay if the term or term of the loan is extended.
For those of you who are financially able to start paying off in full again, this should (hopefully) be straightforward.
What if I can’t afford to resume refunds?
If, when your bank contacts you, you tell them that you cannot afford to take back full refunds, ASIC expects them to contact you directly, for example through a phone call.
“We believe that a conversation or other direct interaction with a consumer will allow lenders to gather more personalized information about the consumer’s situation to make a decision regarding the consumer loan in a fair and appropriate manner.”
With the banking industry pledging to a further four-month postponement for those still in difficulty at the end of September, ASIC said lenders should be “flexible” and “empower staff to offer assistance. tailor-made that truly meets the needs of the consumer ”.
Overall, the regulator’s guiding principle is to avoid defaults, evictions and forced sales to the extent possible.
Maybe you think it’s in everyone’s best interests to stay at home? But keep in mind that reimbursement holidays are not free. Repayments that you don’t make now must 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 to maintain their reimbursements even before COVID-19, may be better off leaving their homes.
If that’s the case for you, ASIC says you should expect your lender to engage in a detailed discussion with you.
“ASIC recognizes that there are likely to be circumstances in which offering additional temporary assistance to a consumer may make their situation worse.
“Such situations will need to be carefully identified by lenders and involve a high level of engagement with affected consumers.”
And even if you hadn’t told your bank about not being able to resume refunds, ASIC says they should talk to you.
“In cases where a consumer’s deferral of repayment expires and a repayment is missed, lenders should make reasonable efforts to contact the consumer and assess the suitability of further assistance available to them.”
What if I disagree with my lender’s actions?
The overriding legal principle is that “lenders should do whatever is necessary to ensure that the credit activities authorized by their license are carried out in an efficient, honest and fair manner”.
If you are not satisfied with the decisions or actions of your lender and the complaints to them are unsuccessful, you can file a complaint with the Australian Financial Complaints Authority (AFCA).
AFCA is a free, independent service to help you reach an agreement with your lender and their decisions are legally binding on them.
It has set up a coronavirus pandemic hotline (1800 337 444).
There is also a range of financial advice and legal centers that can help you if you are in conflict with your lender.
These include the New South Wales-based Financial Rights Legal Center, which operates the National Debt Helpline (1800 007 007), and various state consumer credit legal centers or legal aid agencies with contact details on ASIC’s Money Smart website.