ASIC issues post-mortgage deferral guidance

Australian lenders responded to the economic impacts of the coronavirus pandemic earlier this year by offering to defer loan repayments of their business customers as well as home loan customers for six months.

The Australian Banking Association (ABA) recently confirmed that lenders would be extending loan deferral periods for distressed customers who are unable to meet their obligations due to income loss linked to COVID-19 by up to four months (no later than 31 March 2021).

At the outset, ASIC has directed lenders to make “reasonable efforts” to contact consumers before their repayment deferrals are due to expire, allowing consumers sufficient time to consider their options.

For consumers who cannot resume repayments on their mortgage, ASIC stated that it expects lenders to make reasonable efforts to communicate with the consumer directly (for example, via a phone call).

“We consider that a conversation or other direct interaction with a consumer will allow lenders to gather more personalised information about the consumer’s circumstances to make a decision about the consumer’s loan in a fair and appropriate manner,” ASIC said.

Where a lender considers that it would be appropriate for a consumer to receive further assistance, lenders should implement processes that are flexible enough to allow staff to offer tailored assistance that genuinely fulfils the consumer’s needs, according to ASIC.

If a consumer’s repayment deferral expires and they miss a repayment, lenders should make reasonable efforts to contact the consumer and assess the suitability of further assistance being offered to them, ASIC added.

The corporate regulator stressed that lenders should keep records that specify the assistance options they are providing to each individual consumer.

If a consumer informs a lender that they will be unable to meet their repayment obligations after the expiry of a repayment deferral and a lender decides not to provide further assistance through modifying the consumer’s credit contract, a consumer must be notified of their right to complain to the Australian Financial Complaints Authority (AFCA), ASIC warned.

“While these expectations are focused on how lenders should manage the expiry of repayment deferrals on mortgages, we also expect lenders to consider these expectations more broadly when responding to consumers experiencing financial difficulties due to COVID-19 across other credit products and assistance arrangements,” ASIC said.

ASIC monitoring lender activities

The corporate regulator said that it has been meeting with various lenders, including authorised deposit-taking institutions (ADI) and non-ADIs, to monitor how lenders are assisting consumers experiencing financial difficulties due to COVID-19.

Based on this activity, ASIC recommended that lenders can do more to provide consumers with personalised information or representative examples about how assistance arrangements may affect their repayments and the cost of their loan over the longer term.

“We think this is important for lenders to consider in the context of providing consumers with further assistance at the expiry of a repayment deferral,” ASIC said.

ASIC has encountered enquiries from some lenders about how they should assist consumers whose financial difficulties are so severe that they will not be able to repay their loan over the longer term.

“ASIC expects lenders to make all reasonable efforts to work with consumers to keep them in their homes if that is in their best interests,” the corporate regulator said.

“ASIC recognises that there will likely be some circumstances where offering a consumer further temporary assistance may make their situation worse. Such situations will need to be carefully identified by lenders and involve a high level of engagement with those affected consumers.”

ASIC said it is also working closely with the Australian Prudential Regulation Authority (APRA) to ensure the two regulators’ expectations of how ADIs are handling loans impacted by COVID-19 are aligned.

APRA has issued a consultation letter regarding ADI capital measures and reporting requirements for loans impacted by COVID-19.

[Related: Deferral extensions ‘significantly raise’ credit quality risks]