Financial Hardship: What to do about it

Tough times often result in financial and/or mortgage stress, as consumers struggle to make ends meet and try to ride out the bad times in the hope that something better is just around the corner. The smart thing to do, however, is to address the problem upfront before it gets to the point of no return.

The Credit Ombudsman for the non-bank credit industry, Mr Raj Venga, urges borrowers finding it difficult (or who are unable) to meet their loan repayments because of short-term financial difficulties, to speak to their lenders as soon as possible.

"In order to avoid defaulting on loans, incurring default fees and enforcement expenses and ultimately losing their homes, borrowers must approach their lender with haste and seek to vary their repayment obligations on grounds of financial hardship," said Mr Venga.

"Financial counseling services and community and consumer credit legal centres are an invaluable resource that borrowers shouldn’t overlook."

Mr Venga added that if the lender is a member of the Credit Ombudsman Service and does not agree or respond to a request for a hardship variation, the borrower should refer this to the Credit Ombudsman quick smart.

"We can generally consider a complaint where a lender has declined or not responded to a request for hardship relief at any time up until judgement for possession. Once we receive the complaint, the lender will generally suspend or withdraw recovery action until we have considered the merits of the case," said Mr Venga.

The Credit Ombudsman Service Limited (COSL) is an external dispute resolution scheme for the non-bank credit industry, approved by the Australian Securities and Investments Commission (ASIC). Its role is to provide consumers with an alternative to legal proceedings for resolving credit-related and other complaints about members of COSL.

A new guideline on Financial Hardship has just been released by COSL with the aim of giving struggling borrowers a fair go.

Under the new COSL Guideline, a lender must provide the borrower with a timely response and not impose additional conditions before agreeing to the variation, such as requiring the early release of the borrower's superannuation.

"Although we do not substitute our decision for that of the lender's where an assessment has been properly made, we will ask the lender to reconsider it's decision where, for example, the borrower has put forward a reasonable repayment proposal or where the lender has taken into account factors that they should not have, such as the borrower's prior payment history or the high loan-to-value ratio on the loan," said Mr Venga.

Useful Links

Credit Ombudsman Service Limited (COSL) – COSL is the external dispute resolution scheme for the non-bank credit industry. www.cosl.com.au

Banking and Financial Services Ombudsman (BFSO) - BFSO deals with complaints about financial services providers including banks, foreign exchange dealers, deposit takers, credit providers, mortgage brokers and some insurance and investment providers. www.bfso.org.au

Credit Union Dispute Resolution Centre (CUDRC) - CUDRC deals with complaints about most Australian credit unions. www.cudrc.com.au

Financial Co-operative Dispute Resolution Scheme (FCDRS) - The FCDRS deals with complaints from consumers about those Australian credit unions and building societies who are members of the scheme. www.fcdrs.org.au

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