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Calls to redesign mortgages to prevent financial abuse

by Kate Aubrey13 minute read
Calls to redesign mortgages to prevent financial abuse

There are calls to redesign home loan products to prevent or minimise financial abuse.

The report, Designed to Disrupt by the Centre for Women’s Economic Safety (CWES), examined how the finance sector can play a key role in preventing economic harm by adopting safe principles in the design of its products and services.

For mortgages, the report suggested notifying customers at the point of origination about mortgage liability and options should a separation occur.

For example, the report recommended offering choices about the type of contract, including 50-50 liability or another percentage.

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It added numerous offset accounts could be linked to one mortgage, with financial benefits typically associated with a joint offset account accrued from accounts held in individual names.

At the point of separation, the report recommended lenders could offer to switch transaction accounts to low or no fee on disclosure of financial abuse and permit a victim-survivor to borrow against current equity pending resolution of property matters.

To support single parents to stay in a family home, it recommended a sliding shared equity refinancing option, which could allow removal of the perpetrator from the title and discounted repayments at an affordable level for an agreed amount of time.

Financial abuse relates to a pattern of control, exploitation, or sabotage of money and finances that undermines a person’s financial security and limits their potential for self-sufficiency.

Separation can be the catalyst for financial abuse and mothers who separate from violent partners experience a drop in income of 34 per cent, the report highlighted.

Further, the financial cost has been estimated at $5.7 billion a year, with costs to the economy estimated at $5.2 billion per year in lost productivity, additional health care costs, foregone revenue, and additional expenditure.

Delayed property settlement, forced sole liability for joint debt, bankruptcy and insolvency, debt arrears, and challenges with repairing credit ratings are some of the hardships encountered.

Centre for Women’s Economic Safety head, Rebecca Glenn, said banks had an important role to play in preventing financial abuse.

“Perpetrators of financial abuse misuse a range of different banking products … credit cards, joint accounts and mortgages, Ms Glenn said.

“Women are more than twice as likely as men to experience economic abuse, and they do so against existing structural economic inequity which compounds the negative consequences.”

She added this combined with an insufficient public safety net can force women to choose between violence and poverty.

The report included comments from victims of financial abuse, including several where a partner had stopped paying their share of a mortgage.

“(He) refused to pay loan repayments during the separation period and the home was going to be sold in about six months time. I was not working at the time and … (he) told me that my credit rating would be impacted,” one member of the panel reported.

Another member said: “We had around $12,000 in redraw against our home loan for the home we lived in. When I left, he stopped paying the mortgage, and so the payments were taken from the redraw funds. By the time we did our property settlement, all of the redraw was gone. He had been earning a full time salary without having to make any rent/mortgage repayments.”

Last year, the Centre for Women’s Economic Safety (CWES) published a report that found people experiencing financial abuse were more likely to seek help from their bank than they were from a domestic and family violence service.

Banking sector making strides

Given the important role of the banking sector, significant strides have been made to improve the experience and outcomes for customers who disclose domestic and family violence.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was a catalyst where practices across banking, superannuation, insurance, and advice were reviewed and improved.

One of the relatively new regulatory changes is the design and distribution obligation (DDO) regime, which promotes positive consumer outcomes and builds confidence and trust in the financial system.

Member of the National Plan Advisory Group and report author, Catherine Fitzpatrick, said the industry has primarily focused on addressing the harm to victim-survivors after it has occurred and was encouraging banks to “go further” by taking steps to prevent or minimise the harm.

“Australian banks have been leading in their approach to tackling abuse sent by customers using digital payment platforms, attempting to prevent harm by intervening early and sending a strong message to perpetrators that bank accounts are no place for abuse,” Ms Fitzpatrick said.

But the report called for banks to go further by warning or banning customers who misuse products or services and in some circumstances reporting tactics to law enforcement.

“We believe the finance sector can demonstrate its obligation to consider customer vulnerability in product design and distribution by making changes to their existing suite of products to prevent financial abuse,” Ms Fitzpatrick said.

One possible solution to reducing financial abuse is for the financial sector to adopt the eSafety Commission’s Safety by Design protocols, Ms Fitzpatrick said.

The eSafety Commission has developed Safety by Design for the technology sector to minimise online threats by anticipating, detecting, and eliminating online harms before they occur.

“These principles are supported by interactive assessment tools, resources for investors and financial entities, and engagement with the education sector to embed Safety by Design into multi-disciplinary curricula around the world,” she said.

[Related: Brokers urged to watch out for financial abuse in clients]

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