4 December 2018
If you are in financial difficulty and you ask your bank for help, you’re more likely to get it from some banks than others.
A report by a committee set up by the Australian Banking Association (ABA) has found that while one of the big four banks grants 90 per cent of requests, two smaller banks grant just over 50 per cent of requests.
The Banking Code Compliance Monitoring Committee report, Assisting Customers in Financial Difficulty, specifically looks at how the banks deals with customers in financial difficulties.
In a sign that many Australians are doing it tough, requests by those in financial difficulty to their banks for assistance have increased by 47 per cent since 2011-12. Most of that increase occurred between 2011-12 and 2014-15 and has remained elevated since.
Employment-related issues, such as reduced working hours or unemployment, is the most common reason for seeking assistance, the 24 members of the ABA told the committee.
After employment issues, which were cited 42 per cent of the time as the reason for assistance, next comes “over-commitment” at 17.5 per cent followed by “injury or illness”, including mental illness, at 6.9 per cent.
Low wages growth
The report comes as figures released by the Australian Bureau of Statistics show that despite a fall in the jobless rate to 5 per cent, underemployment remains high at 8.3 per cent.
Shane Oliver, the chief economist at AMP Capital Investors, says as a result of high under-employment a “significant acceleration in wages growth looks likely to remains some way off”.
The savings rate, the amount of savings as a percentage of wages, remains extremely low, leaving consumers exposed should they fall behind on repayments on their loans.
The report finds almost 300,000 people a year in financial hardship ask banks for help.
Gerard Brody, chief executive of the Consumer Action Law Centre, says the actual number of the banks customers in financial difficulties is likely to be much higher.
“The [report’s] data shows that fewer than 300,000 Australians are seeking assistance from banks when they are in difficulty each year.
“However, we also know from reports by the Australian Security and Investments Commission into credit that 1.9 million people struggle with problematic credit card debt; so most people [are not seeking] help,” Brody said.
“Banks need to do more to make the assistance they offer known and easy to access so that people are not tempted by other strategies like borrowing from payday lenders or seeking help from a debt vulture,” he says.
Brody says “another key question” is the extent to which assistance actually helps the customer.
Alexandra Kelly, principal solicitor at the Financial Rights Legal Centre, says those in financial difficulties should first see what options are available with their credit provider.
For more vulnerable consumers who cannot do it for themselves, advice and representation from a financial counsellor can improve outcomes, Kelly says.
“We had one man who was about to go into palliative care and his credit card debt was really preying on his mind.
“He got no help from his [bank] branch and was getting quite stressed and it was not until one of our counsellors intervened on his behalf that the debt was waived on the spot,” Kelly says.
ABA members will have to abide by a new code of practice that comes into effect from the middle of next year.
It increases the protections for consumers over and above the current code, which has been in force since 2013.
The ABA brought forward its scheduled review of the 2013 code following a string of scandals among the big banks and AMP that has left their reputation in tatters.
Ignorance of obligations
One of the problems identified by the committee in its report is that lending staff are often unaware of their obligations to those customers in financial difficulty.
“To build awareness, banks should ensure that appropriate staff, receive regular financial difficulty training that equips them to identify customers who may need assistance.”
The report finds banks rely too heavily on short-term options, particularly three-month repayment moratoriums, at the expense of longer-term solutions.
“To fulfil the code obligation to try to help customers overcome their financial difficulty, banks should have a mechanism for providing longer-term assistance at the first instance, such as a process for referring certain customers to a specialised case management team for a customised plan,” the report says.
Super release procedures need improvement
The new banking code to come into effect from the middle of next year and the current one prohibit banks from requiring a customer to apply for early release of super their superannuation benefits.
They also require banks recommend to customers they obtain independent advice before seeking early release of their super.
Those in financial difficulty usually have other options and only very rarely need to consider accessing their super to repay debts.
However, the Banking Code Compliance Monitoring Committee’s report finds that whereas a significant majority of the members of the Australian Banking Association “embed” the policy, some banks did not have a documented policy on early release of super.
“More concerningly, two banks did not provide information about their procedures,” the report says.
Because early superannuation release is such a significant step for customers, banks must promptly and clearly recommend customers seek independent advice.
But the report finds the banks’ understanding of this obligation is “comparatively weak”.
“Several banks do not have a clear approach to advising customers to seek financial advice,” the report says.