1. Financial Hardship
September 2017

2. Snapshot What is hardship?
Where does the right to request hardship assistance arise?
Types of outcomes
Payment arrangement or moratorium
Time to sell
Time to refinance
Personal hardship
Effects of hardship notices on enforcement

3. What is hardship?
Financial hardship is when a customer is willing to meet their contractual obligations, but is unable to because of an unexpected event or unforeseen changes that impacts cash-flow.
For example:
Changes in income or expenditure
Changes in employment status (such as losing a job or having hours reduced)

4. Where does the right to request hardship assistance arise?
National Credit Code – Sections 72 & 177B
MFAA Code of Practice – Clause 13
COB Code of Practice – Clause 24
Code of Banking Practice (ABA) – Clause 28
ACDBA Code of Practice – Part E
Debt collection guideline – Part 2, Section 14

5. Some other reference points
CIO Position Statement 2 – Financial Hardship
CIO Position Statement 3 – Stay of Execution of Default Judgment Orders
CIO Rules 10th Edition - Rule 18

6. The hardship provisions changed!
Pre and Post 1 March 2013
The hardship provisions changed!
Hardship Application vs Hardship Notice
21 days for IDR vs up to 63 days
Courts only had power to make three types of changes, now their power is limitless

8. Financial hardship outcomes
A payment arrangement or moratorium
Reduced payments for a nominal period
Extension of the loan term
Capitalise all (or part of) the arrears
Waive/reverse default fees and default interest
Time to sell property
Time to refinance the debt
Stay an eviction (only in very limited circumstances – CIO Position Statement 3)

9. Payment arrangement or moratorium
Under the NCC, and most industry codes of practice, a debtor can request that their creditor vary their payment obligations, if the debtor is finding it difficult to make payments. 
The creditor is not required to agree to a debtor’s request.  However, where the creditor does not agree to the proposed change, CIO may, if appropriate, require the creditor to make the change.
For example: If the debtor can show us that by changing their payment obligations in a particular way they can get back on track, we may vary the credit contract and require the creditor to accept that variation. However, we may find another arrangement to be more suitable.

10. Payment arrangement or moratorium
We generally consider 3 to 6 months to be a reasonable period for a debtor to get back on track with meeting their obligations. This includes their obligations to make their minimum payments and clear any arrears. However, this is case-by-case as we have seen viable arrangements which go longer than that.
We are here to help facilitate a fair and reasonable resolution for both parties!
If we find an arrangement which may not be what the consumer has asked for, but still will see them getting back on track with their obligations under the loan agreement, we may discuss that as an option.

11. What about debt purchasers?
Where reasonable, we can require a debt collector to enter into a payment arrangement with the debtor, if the debtor can demonstrate either:
that if the debtor was given a short-term payment arrangement that their financial situation could improve so that they could later pay the debt in full within a reasonable period of time; or
that the debtor can now make sufficient payments to pay the debt in full within a reasonable period of time.
We would generally consider that about three to five years would be a reasonable period of time to pay off a debt in full. Also, the payments would have to be sufficient to cover fees and interest, if applicable
There are exceptions to this – such as longer-term arrangements where the debt is not decreasing.

12. Does this change if a court has granted judgment?
YES!
Permanent Custodians Limited v Carolyn Joy Upston [2007] NSWSC 223
Once a court has granted judgment in favour of the FSP, the consumer is no longer entitled to hardship relief. Therefore, the FSP can refuse to give the consumer a financial hardship arrangement such as a payment arrangement or moratorium.
This is because the debt is now owed under the judgment and not the credit contract. The NCC only provides consumers with avenues for hardship relief under credit contracts, not judgments made by a court.
See also Grace v ING Bank (VCAT)(September 2009)
BUT… that does not mean you can continue with enforcement action after agreeing to a hardship arrangement!

13. Time to sell
We consider that a lender should allow a borrower reasonable time to sell a security property when the sale of that property is likely to discharge the loan in full. This is consistent with hardship provisions under the NCC in that the sale would enable the borrower to meet their obligations under the loan. In this case, the payments could be reduced or postponed during the time to sell period depending on the level of equity.
If a borrower asks for time to sell a property, we generally require the following to assess the borrower’s capacity to clear the loan in full:
a copy of the sales agency agreement,
(if it is not in the agency agreement) a letter from the agent with an estimated sale price,
a copy of advertisements for the sale of the property, and
a copy of other relevant documents, including proof that the borrower is paying rates on the property and that the property remains insured in accordance with the terms of the loan contract.

14. Time to sell
Emerald David Komba v National Australia Bank Limited [2010] VSCA 232
Post judgment - the Court considered that it was reasonable to stay an eviction for 4 weeks to give the Applicant time to sell his home for the best possible price.
The Court initially thought a period of 4 to 6 weeks was enough time, but it then considered the long amount of time that proceedings had been going on for and the long amount of time that the Respondent had been deprived of payment.   The Court then ordered that the eviction which was scheduled for the day of the hearing be stayed for four weeks.  The Applicant had only employed a real estate agent and had said that there were interested prospective purchasers.

15. Time to refinance
We consider that a lender should allow a borrower reasonable time to refinance a loan where:
there is a realistic prospect of this occurring, and
the financial position of the lender is fully protected because the value of the security significantly exceeds the outstanding balance of the loan.
This is consistent with the provisions of the NCC in that the refinance would enable the borrower to meet their obligations under the loan by paying it in full.
Where the borrower requests time to refinance, we will consider:
whether the borrower’s efforts to refinance the loan have proceeded in an orderly man­ner, and
the likelihood that the debt can be refinanced.

16. Time to refinance
National Australia Bank Limited v Convy [2007] NSWSC 1039
“The issue is... whether or not… it would be just in the circumstances to grant the stay which the defendant seeks. Again, although the evidence was not particularly satisfactory, it seems likely for the foreseeable future, (and by that I mean the period from 15 October this year if a campaign for the sale of the property on behalf of the plaintiff were commenced on that day) that the plaintiff will be adequately protected by the margin between the value of the property and the debt it secures (at para 25).”
“…even though a resort to a balance of prejudices, which might potentially afflict the competing interests in this case, is not the proper test, or is not the only test, there seems little doubt that if one had resort notionally to a balance of convenience it would favour a grant of the stay which the defendant seeks (at para 27).”
“… the value of the property remains a fruitful source for recovery of the defendant's outstanding indebtedness, even in the face of a continuing delay and accruing interest (at 28).”

17. Personal Hardship
If a borrower is experiencing temporary personal hardship and requests a stay of an eviction because they are unable to leave the property in an orderly manner, we are likely to consider whether the lender should stay the eviction on compassionate grounds. If this is the case, the stay would only be for a nominal period (i.e. two weeks).
In order to assess whether the FSP should hold the eviction on compassionate grounds, we consider the following:
information on the borrower’s circumstances, including evidence that the personal hardship is likely to be temporary, and
a copy of any other relevant documents (for example: doctor’s certificate).

18. Personal Hardship NAB v Meyers [2008] NSWSC 247
The Court stayed the writ of possession for 8 weeks, to enable the debtor time to move out and try to find a place to rent.
Mrs Meyers was experiencing difficulties in understanding her estranged husband’s financial situation.
She had current proceedings in the Family Court.
She was 65 years old and only had casual work as an Avon representative, earning on average $10 per week. She also received a part aged pension.
She lived in the property with her son, who contributes $50 per week to cover his expenses.
Her husband was in default of his spousal maintenance obligations, which included the payments towards the mortgage.
She suffered from asthma, arthritis, depression and an under-active thyroid.
She was being treated by various specialist and was on medication for this.
See also IMB Limited v Great Wall Resources Pty Limited [2012] NSWSC 612.

19. How does a hardship notice affect enforcement action?
National Credit Code – Sections 89A & 179F
MFAA Code of Practice – Clause 13.2(b)
COB Code of Practice – Clause 24.2
Code of Banking Practice (ABA) – Clauses 19.2 & 32.3
ACDBA Code of Practice – Part E, Section 5.4
Debt collection guideline – Part 2, Section 14(c)
Credit Reporting Code – Paragraphs 9.1 & 9.2

20. What are the main things to remember?
A decision needs to be in writing!
If it is a decline, you need to:
give the reasons why,
give the name and contact details of the approved EDR scheme for which you are a member, and
wait until 14 days after the notice is given before continuing enforcement action or listing a default.

21. What are the main things to remember?
If you are agreeing to an arrangement, you need to:
clearly outline the terms of the arrangement, and
hold all further enforcement action while the consumer is meeting their obligations under the agreed arrangement.

22. Real life examples of what is not acceptable
Agreeing to an arrangement, but continuing with enforcement action because “the arrears are still too high”
Having a clause in the arrangement which says the consumer consents to judgment
Continuing with enforcement action despite being notified of a complaint by one of our staff over the phone

23. Any questions, feel free to contact me or my team
James Beaumont Erika McRae
Senior Manager – Financial Hardship Dispute Resolution Specialist – Financial Hardship
(02) (02)