Senator Nick Sherry, Minister for Superannuation and Corporate Law, has announced that the Rudd Government will make it easier for consumers to request changes to their credit contracts if they can demonstrate they are in financial hardship.
The Government will strengthen the regulation of consumer credit contracts in order to better assist consumers by significantly increasing the thresholds under which consumers can request a change to certain terms of their credit contract on the grounds of hardship, or a postponement of enforcement proceedings.
"Front and centre of our national consumer credit protection regime will be a dramatic increase in the monetary thresholds under which consumers can get help if they are struggling with a mortgage," said Minister Sherry.
The threshold to access the hardship arrangements is set according to a complex formula that caps the access point at 110 per cent of the average loan size for new dwellings in NSW as set by the Australian Bureau of Statistics monthly. It is currently $312,400 but that is set to change again on 12 May.
"Many Australian families may be missing out on the help these hardship provisions can provide – help that may keep people in their homes during challenging economic times."
"We don't believe that either the current amount or the way it's calculated is in the best interests of hard-working families, so we're increasing the threshold to $500,000."
"This means if homeowners find themselves in financial hardship they will be able to request help. That might be a change to certain terms of their credit contract on the grounds of hardship or a postponement of enforcement proceedings."
"We're also putting in place a new, simple and clear way of adjusting the threshold upwards in future, if we need to," said Minister Sherry.
"This measure will also provide greater certainty to credit providers – because the threshold has varied from between $295,790 and $368,390 since 2004, making it difficult for providers and consumers to know if a loan qualifies."
The changes are contained in the National Consumer Credit Protection Bill 2009, to be released in full for public exposure on Monday, April 27, 2009.
The threshold changes will take effect once the National Consumer Credit Protection Act commences, which is expected to occur on 1 November 2009.
The Government announced on 4 April 2009 a new agreement with the four major banks, to assist borrowers facing financial hardship. The Government is working with industry associations to encourage the adoption of these principles by all lenders.
27 April, 2009
CANBERRA
Hardship Provisions Under Credit Contracts
For a consumer to seek possible assistance from their lender under the hardship provisions they must contact their lender directly to discuss their options. They may be required to provide their lender with evidence of their financial hardship.
If a consumer is assessed as being in financial hardship, they may ask their lender to extend the period of their contract and reduce the amount of their repayments. They can also request a repayment holiday.
For further information on such hardship arrangements, consumers should contact their lender directly. Borrowers facing hardship who are customers of one of the four major banks can contact them on:
- ANZ: 1800 252 845
- NAB: 1300 661 114
- CBA: 1300 720 814
- Westpac: 1800 067 497
- Suncorp: 1800 225 223
It is important to note that that there is no automatic right to have the contract changed and the lender may refuse a hardship application. Whether a lender will agree to a hardship variation or not will depend on whether the borrower is having difficulty meeting repayments because of a short-term or long-term change in their finances. A variation will only be agreed if the lender believes the change is likely to result in the debtor being able to meet their obligations.
If their lender refuses to grant a hardship variation, consumers may be able to seek further assistance from the Financial Ombudsman Service on 1300 78 08 08 or at www.fos.org.au.
Membership of an External Dispute Resolution scheme such as the Financial Services Ombudsman is not universally mandated by the States and Territories. Some lenders may have joined voluntarily, or membership may be required by some industry associations.
Compulsory membership will be an important new feature of the new national consumer credit licensing regime.