COVID-19 has changed the landscape of traditional financial hardship. This new environment poses greater risks of increased hardship, with reducing government financial support, economic recession, and the looming ‘edge of the cliff’, threatening further harm and hardship for countless Victorians. Financial counsellors are concerned that financial hardship in Victoria will reach a level that hasn’t been seen before.
An initial key issue of concern for financial counsellors is that creditor responses over the past six months have involved automatic deferrals of repayments on mortgages or other debts. This places clients at risk of future hardship, due to escalating debt and making resumed repayments unaffordable.
Between September and December this year, FCVic is conducting a series four forums for financial counsellors to meet with representatives from the Banking, Energy, Telecommunications and Tenancy sectors. The Hardship Forum is a process designed to facilitate structured engagement on hardship, between financial counsellors and creditors. The first session in this series was held last month and brought together industry representatives from the banking sector and Victorian financial counsellors to discuss how best to respond to hardship in the rapidly evolving context of the health pandemic and economic recession.
FCVic would like to acknowledge and thank the Australian Banking Association (ABA) and Customer-Owned Banking Association (COBA) for helping us to organise the Banking Hardship forum. 46 financial counsellors from across Victoria met with representatives from ANZ, Bank Australia, CBA, Geelong Bank, NAB and Westpac.
Financial counsellors posed questions to the banks around the landscape of hardship experienced by their customers, what tailored responses were on offer, and what considerations had been given to managing longer-term hardship.
The Big Four banks all reported high numbers of deferral requests for home loan customers – largely in Victoria – most of whom received an initial six-month deferral of repayments around March. Since then, the banks have begun offering a further four-month extension of the deferrals, but under guidance from the Australian Prudential Regulation Authority (APRA) these deferrals must end by 31 March 2021.
According to the banking representatives, more resources are being directed towards conducting proactive phone calls and individual assessments with customers to offer further tailored hardship options and arrangements. Some banks have undergone significant recruitment and staff training to manage the increased demands for assistance. Click here to read a detailed summary of the banks’ responses.
The COVID storm brings a lot of uncertainty, compounded by bushfires, gambling and family violence. The volume of customers experiencing hardship is quite astounding, and recovery will be a challenging and unique process for each of them. The banks’ development of more tailored responses and solutions to hardship cases was welcomed by financial counsellors as a positive step.
A whole lot of banking staff are now face to face with customers, and they are becoming more aware of hardship arrangements and financial counsellors. Training staff around customer hardship is imperative, and where possible, the involvement of financial counsellors to help build that understanding and connection with our sector should be encouraged. The banks recognised the expertise that financial counsellors offer in proposing solutions to assist the banks in developing options for their customers.
It was noted that engagement and referrals to financial counsellors is occurring but might require further design for it to become more effective. Financial counsellors also suggested that the banks consider a case management approach for customers in hardship to ensure continuity and consistency; providing customers and financial counsellors with designated contact persons.
At the forum, some financial counsellors reported that they are starting to see some mortgage clients, and there has been an increase in referrals from family violence family break ups, and clients wanting assistance with debts. In the Western metro region, financial counsellors are seeing a lot of unsecured debts – car loans that haven’t been paid for seven months or more. There is concern that a loan variation would put the loan amount at a higher value than the market value of the car.
Customers are feeling really uncertain about their long-term future and will be looking to the Australian Financial Complaints Authority (AFCA) and the Australian Securities and Investments Commission (ASIC) to continue to provide protection. However, we have growing concerns about responsible lending and what is going to happen in the future.
The Federal Government recently announced its proposal to repeal responsible lending laws. Our sector is very alarmed by the proposed changes – it is not something that financial counsellors have been consulted about, and has the potential for extremely detrimental consequences. It fundamentally undermines the recommendations from the Banking Royal Commission. This is an urgent and new issue that our sector is deeply concerned about.
This discussion highlights the shared terrain and concerns between the banking and the financial counselling sectors. There is real desire within our sector to talk with the banks to reduce risk and harms wherever possible. There is a sense that we currently have a window which might soon be closing – now is the time to be reflecting and talking with each other before demand becomes too overwhelming. The banks have been faced with high numbers of hardship cases for quite a while, and the forum provided a valuable opportunity to hear how they have been managing.
FCVic acknowledges the importance of collaborative engagement between financial counsellors and the banking industry. This is not a one-off conversation; we see this as the start of another level of conversation that we can all benefit from, and will lead to better outcomes and reduced harms for vulnerable people.