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Banks’ handling of financial difficulty not up to scratch

Banks need to improve the way they deal with customers struggling with financial hardship, a review has found. The Banking Code Compliance Monitoring Committee released a review of banks’ performance in this area, and it wants changes.

The review found that banks have programs that meet Banking Code of Practice requirements but there are areas of bad practice. A number of banks fall short of good industry practice when it comes to making assistance accessible. CCMC wants the banks to ensure that financial difficulty assistance information is prominently presented and readily accessible.

Banks’ obligations are set out in Clause 28 of the Code. The general obligation is to try and help customers overcome their financial difficulties with any of the bank’s credit facilities. A revised Code, which takes effect in July next year, increases banks’ commitments in this area and creates new commitments to vulnerable customers.

Banks received 298,000 requests for financial difficulty assistance in 2017/18, growing by 47 per cent since CCMC started collecting data in 2012. Of those requests, assistance was granted in 207,000 cases.

The main reason for financial difficult assistance requests is employment related, accounting for 42 per cent of requests. Other reasons include over-commitment to credit, and injury or illness.

The committee made 14 recommendations for improvements to the way banks help customers with hardship. It is not satisfied that staff outside specialist financial difficulty teams are equipped to recognise when customers are in difficulty. “Lending staff are often unaware of their financial difficulty obligations,” the review says.

It has called for branch and call centre staff, lending staff and debt collections staff to receive regular financial difficulty training.

It wants banks to ensure that assessments consider whether the customer would benefit from a longer-term solution, rather than a short-term fix.

Failure to provide supporting information and documents is the main reason customers’ requests for assistance are declined. The CCMC has previously recommended that banks take a flexible approach to documentation requirements. Around one-third of banks now have policies that relax documentation requirements in certain circumstances.

“Those banks that have not yet done so should adopt financial difficulty policies that set out when documentation requirements can be limited or waived.”

Some customers engage with financial difficulty processes via a financial counsellor or other representative. Consumer advocates report that banks’ authorisation processes for dealing with representatives can be cumbersome and applied inconsistently. The CCMC says it expects banks to have streamlined authorisation processes for dealing with representatives.

Banks must recommend that customers seek independent advice before applying for early release of superannuation benefits to repay a debt. CCMC found that banks were inconsistent in their compliance with this obligation and their monitoring of this part of the process was inadequate.