Are banks really helping their struggling clients?

If you asked the banks this question you would almost certainly receive an overwhelming yes.

While the banks are quick to look like the nice guys, especially at the moment with the royal commission uncovering all sorts of nasties, I feel the question warrants a closer look.

Before I begin, let me take you back to a time before the National Consumer Credit Protection Act (NCCP) and the Banking Code of Practice. At this time the banking industry was a little more, shall we say, subjective, and the decision to help a client or throw them under the bus was really an internal decision based on their own policies at the time. Even the Ombudsman had little to no power to intervene if it was thought that a lender was acting inappropriately regarding hardship.

While I’m the first to admit that the introduction of legislation can often be a long and painful process, in this case, it was well overdue. The good news is, credit providers are now under an obligation to assist individuals and small business customers to overcome their financial difficulties.

Sounds good, right? In principle it is, however the Code and the NCCP are a little lacking in detail on how this help is to be provided. I feel that some lenders, including a few of the major banks, are still putting themselves first and acting in their own self-interest rather than doing all that they should to help their clients.

When a credit provider agrees that their client is suffering financial hardship, which is not always as easy as it should be, they are able to offer a number of solutions, such as extending the term of a contract to lower payments, adjusting or stopping payments and/or interest for a period of time or even agreeing to settle an account for less. What approach they take is really up to the creditor.                    

A credit provider would say that each client is different and therefore the type of assistance provided needs to be different. I understand and agree with this, however the open-ended nature of the Code and the NCCP are unfortunately open to interpretation and therefore occasional abuse.   

While some credit providers do the right thing and offer effective assistance to their clients, I have witnessed many examples to the contrary. Every lender has its own culture around dealing with hardship and while some are clearly on the client’s side, others are still reluctant to offer a real solution even when it’s clearly needed.

Applying interest to an account while under hardship is an example of this. Some credit providers are willing to stop or at least reduce the amount of interest charged during a period of relief, typically 60 or 90 days, while others will not.

While not having to make repayments for a period may seem like a big help to a borrower who is struggling, if full interest is being applied to the account during this period they will have to contend with an even larger debt once the relief period ends.

Good for the lender, not so great for the borrower.

A lender’s attitude towards their client is on full display when they are dealing with a borrower in hardship. It’s not uncommon for creditors, including some banks, to challenge a client’s position and dismiss that they are struggling.

It also never fails to sadden me how some of these “not so helpful” lenders will try and play hardball with a borrower that is going through a difficult time when the debt in question was provided in perhaps an overzealous or inappropriate way. A lender may have approved a number of high interest accounts that perhaps may not have been in the borrower’s best interest to begin with, however when they fall on hard times, do you think they are willing help?

As I said, this is not an attack on all lenders; there are some that really do go above and beyond to help their client. Due to the pressures of life, we are seeing more and more people struggling with debts. In these cases, it’s important for a creditor to take a practical view and genuinely provide options that will give that person every chance to recover, and not to just play lip-service to their obligations, after all, isn’t that ultimately in everyone’s interests?

John Dickinson is the director of DebtX Mediation Services, a debt mediation company focused on helping people regain financial control through the reduction and elimination of their debts. Learn more at debtx.com.au.