Lenders too harsh with hardship cases, rules Credit Ombudsman

John Kavanagh
Lenders are failing to give proper consideration to applications from borrowers suffering financial hardship. The Credit Ombudsman Service, which released its 2011 annual report yesterday, identified this as the biggest issue it faced in the cases it handled last year.

COSL said 34 per cent of all complaints it received during the 2010/11 financial year related to financial difficulties, specifically the failure of a lender to agree to a payment variation on grounds of financial hardship.

COSL chief executive Raj Venga said: "In about 72 per cent of those cases the borrower had been served with a default notice or the lender had commenced legal proceedings, repossessed the security or issued a notice to vacate.

"Yet we achieved a satisfactory outcome for the consumer in 46 per cent of the financial hardship cases we closed.

"This suggests that not all lenders are properly considering the possibility that the borrower may be in financial hardship or that a change in the borrower's payment obligations may be appropriate."

Common complaints involving hardship were that the lender failed to offer a payment variation, failed to respond to an application for a payment variation, or offered an inappropriate payment variation.

COSL found that the underlying causes of financial hardship were unemployment or reduced income (in 30 per cent of cases); cost of living issues, including other debt (21 per cent of cases); illness (19 per cent); business failure (14 per cent); interest rate increases (eight per cent), and relationship breakdown (seven per cent). Natural disaster accounted for only one per cent of the hardship cases determined by COSL.

Apart from financial hardship, systemic issued identified by the Ombudsman concerned deferred establishment fees, default listings and motor vehicle leases.

With respect to deferred establishment fees, borrowers complained that amounts were excessive, that they were not aware of the fee or that they should have to pay the fee because of circumstances causing them to refinance.

Common complaints relating to default listings were that there were no overdue payments at the time the listing was made, the borrower was not informed about the overdue payment and that the overdue amount had been paid but the listing remained in place.

Disputes over motor vehicle leases included complaints about the quality of the vehicle, the availability of the warranty and the amount of termination fees.

Other common complaints were that the financial institution failed to follow instructions, incorrectly listed, incorrectly stated the amount of debt, applied the wrong interest rate, made mistakes regarding direct debits, provided finance that was inappropriate or behaved in a misleading way (particularly in relation to fees).

The finance product that was the cause of most complaints was the home loan.

Of complaints that were closed during the year, 17 per cent were by mutual agreement of the complainant and the financial institution, another 17 per cent were resolved in favour of the complainant, 14 per cent were not substantiated and 32 per cent were discontinued.

COSL membership increased from 12,724 to 15,535, a lift assisted by the wider reach of national consumer law.