Authored by Jack Wheatstone, Josephine Bui, and Clinton Walsh
ASIC’s Key Issues Outlook 2025 identified borrower financial hardship as a significant concern requiring continued scrutiny. Over the past 18 months, ASIC has published an open letter to CEOs, issued multiple best practice ASIC Reports and taken enforcement action against Membo for hardship failures. ASIC has signalled that compliance with financial hardship obligations will remain a priority until 2028, with enforcement action for non-compliance.
What should retail lenders be concerned about?
ASIC’s review of lenders’ policies, procedures and individual case studies on handling home loan customers experiencing financial hardship revealed that:
It was not easy for customers to give a hardship notice: Inadequate information to customers led to customer confusion about eligibility for hardship. ASIC noted inconsistencies in identifying and referring hardship cases, with policies often mis-defining hardship by focusing on short-term issues rather than recognising any inability to meet payments.
Assessment processes were difficult for customers: Some lenders required customers to complete detailed application forms, provide excessive documentation and required customers to explain their circumstances to multiple different people.
Lenders did not communicate effectively with customers: Lenders often failed to explain why hardship notices were declined, leaving customers unclear about the decision.
Vulnerable customers often weren’t well supported: Despite training, Lenders often didn’t promptly recognise or support vulnerable customers, who were sometimes required to repeatedly explain distressing situations.
Our Recommendations – What can Lenders do to ensure compliance?
Proactive Customer Communication: Actively inform customers about hardship assistance through multiple channels.
Be flexible and open-minded in assessments: Hardship can arise from any unexpected circumstance, and customers do not need to explicitly state they are experiencing hardship for a hardship request to be initiated. Lenders should ensure their procedures and training equip staff to remain flexible and open-minded during assessments to consider other hardship circumstances relevant to the individual.
Comply with regulatory timeframes AND expedite where appropriate: Lenders must ensure they communicate with customers in the timeframes stipulated by the National Credit Code. In some circumstances, lenders should try to expedite the process (for example, when dealing with a vulnerable customer such as someone who is experiencing family violence).
Be mindful of vulnerable customers: Assessments of hardship applications should also consider if a customer is vulnerable due to their circumstances, such as whether they lack digital literacy and English proficiency. Procedures should be tailored to provide appropriate support, including transferring them to specialised staff, expediting processes, connecting them with external assistance, or easing the requirements to demonstrate hardship where possible.
Make the assessment process efficient and easy: Lenders should consider what additional documents, if any, are necessary, having regard to what the customer may be experiencing and what is appropriate in the circumstances, and what they may be comfortable sharing. Staff should receive training on how they can work with customers to develop customer tailored solutions, rather than a “one size fits all” approach.
To have a conversation about your hardship compliance, or learn more, please contact Tim Bednall , Director Owl Advisory by KWM or Himashi Cameron, General Manager, Compliance Advisory, Owl Advisory by KWM.
This publication is a joint publication from King & Wood Mallesons, and KWM Compliance Pty Ltd (ACN 672 547 027) trading as Owl Advisory by KWM. KWM Compliance Pty Ltd is a company wholly owned by the King & Wood Mallesons Australian partnership. KWM Compliance Pty Ltd provides non-legal compliance and governance risk advisory services for businesses. KWM Compliance Pty Ltd is not an incorporated legal practice and does not provide legal services. Laws concerning the provision of legal services do not apply to KWM Compliance Pty Ltd.