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03 Sep 2020

ASIC's expectations of lenders when COVID-19 loan repayment deferrals end

By Narelle Smythe, Rowena Low and Cloe Jolly

Banks and other retail lenders will need to ensure they have adequate and appropriate resources, and processes and policies, to be able to meet ASIC's expectations when dealing with customers as their loan repayment deferrals come to an end.

The loan repayment deferrals introduced in response to the COVID-19 pandemic are due to expire in the coming months. In preparation for this, on 13 August 2020 ASIC published its expectations of how lenders should handle the deferrals when they end.

ASIC has stated that it will continue to closely monitor how lenders are assisting customers who are experiencing financial difficulties due to COVID-19. It expects lenders to do all things necessary to ensure that the credit activities authorised by their licence are engaged in efficiently, honestly and fairly.

ASIC has emphasised the need for lenders to have processes that not only ensure an orderly transition but that also deliver appropriate and fair outcomes to customers who cannot resume their loan repayments.

Lenders, if they have not done so already, will need to consider what resources they will require to meet these expectations. ASIC expects lenders to make reasonable efforts to contact all customers before their deferral ends and where the customer indicates they are unable to resume their repayments, to communicate with the customer directly (for example via a telephone call) and provide them with personalised and tailored assistance.

ASIC's expectations

Contacting customers prior to the expiry of their deferral

Prior to the expiry of customers' repayment deferrals, lenders:

  • should make reasonable efforts to contact them so that customers have reasonable time to consider their options;
  • are expected to provide customers with information that will assist them in their decision making in accordance with the earlier expectations ASIC released on 29 April and updated on 9 June. The earlier expectations stated that lenders when responding to customers in financial difficulty should take into consideration the following in their processes:
    • communicate with customers about the different options that may assist them, depending on their circumstances;
    • be flexible and offer tailored solutions to customers where a standardised 'one-size-fits-all' approach may not meet a particular customer's needs. For example, lenders should ensure that any plan on how a customer will catch up on missed repayments is manageable and offer alternatives;
    • ensure all communications with customers are clear and provide customers with sufficient information to make an informed decision about the assistance available. This should include details on how different assistance options will affect the customer's loan and repayments over the short and long term, including the impact of interest where it is capitalised;
    • have ongoing communications with the customer throughout the period of assistance to ensure that any assistance offered remains appropriate and continues to meet their needs; and
    • communicate with customers as their period of assistance comes to an end to understand their financial circumstances at that time, respond as appropriate and ensure each customer understands what will happen next;
  • should, where a customer fails to respond to a communication, try a range of communication channels in order to make contact with the customer. ASIC expects that lenders should be able to provide evidence that they have made reasonable efforts to contact customers.

If a customer cannot resume their mortgage repayments

Lenders:

  • are expected to make reasonable efforts to communicate directly with the customer (for example, via a telephone call) where a customer indicates that they cannot resume their full mortgage repayments. ASIC considers that a conversation or other direct interaction with a customer will allow the lender to obtain more personalised information about the customer's circumstances so they are able to make a decision about the customer's loan in a fair and appropriate manner;
  • where they determine that it would be appropriate to offer further assistance, should have processes in place that are flexible and empower staff to offer tailored assistance that genuinely addresses the needs of the individual customer. Further, lenders should keep records setting out the assistance options provided to each individual customer; and
  • are expected, where they identify that a customer’s financial difficulties are so severe that they will not be able to repay their loan over the longer-term, to make all reasonable efforts to work with the customer to keep them in their home if that is in the customer's best interests. However, ASIC recognises that there will be some circumstances where offering a customer additional temporary assistance could make their position worse. Such situations will need to be carefully identified by lenders and a high level of engagement will be required with those affected customers.

Other issues lenders need to consider

Lenders:

  • must ensure that they comply with the requirements set out in ASIC's RG 165: Internal and external dispute resolution[1] if a customer is not satisfied with a lender's response or actions. Importantly, customer's must be notified of their right to lodge a complaint with the Australian Financial Complaints Authority (AFCA) if a customer advises a lender that they will be unable to meet their repayment obligations after the expiry of a repayment deferral, and the lender makes a decision to not provide further assistance by way of varying the customer's credit contract (in accordance with s 72 of the National Customer Credit Code);
  • should make reasonable efforts to contact the customer and assess the appropriateness of further assistance being offered where a customer's repayment deferral expires and they fail to make a repayment;
  • are encouraged to work closely with customers in difficulty to develop solutions that not only provide customers with short-term relief but are sustainable and can assist them over the longer term;
  • are expected to apply ASIC's expectations broadly across all credit products and assistance arrangements when responding to customers experiencing financial difficulties due to COVID-19;
  • should have processes in place in relation to COVID-19 loan deferrals that are easy for customers to understand and navigate. ASIC also stated that it is important that lenders ensure information about assistance is relevant, accessible and available to all customers. This means that the processes, information and communications to customers need to be up to date, easy for customers to access and clearly and simply set out and explained; and
  • have advised ASIC that they are regularly reviewing and reassessing their approach to customer engagement by incorporating customer feedback into customer communications. ASIC stated that it encourages all lenders to build continuous improvement in their processes as this will result in better customer experiences and outcomes.

Along with the announcement of its expectations, ASIC has also stated that it has been working with APRA to ensure ASIC's expectations of ADIs and their handling of loans impacted by COVID-19 are aligned. APRA has also issued a consultation letter regarding ADI capital measures and reporting requirements for loans impacted by COVID-19 and an update to its FAQs.

Next steps

ASIC's expectations are focused on ensuring that lenders are personally engaged with affected customers and work closely with them to develop flexible and personally tailored options that provide customers with both short-term assistance where they are experiencing difficulty due to the impacts of COVID-19 as well as long-term sustainability due to changes in employment, the economy and community expectations post COVID-19.

Banks and other retail lenders will need to ensure they have adequate and appropriate resources, and processes and policies, to be able to meet ASIC's expectations when dealing with customers as their loan repayment deferrals come to an end.



[1] Note that RG 165 will be updated with ASIC's new Regulatory Guide, RG 271: Internal dispute resolution, which comes into effect on 5 October 2020.Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.