ABA shakes up hardship rules, introduces savings buffer

The Australian Banking Association (ABA) has announced a revamp of its hardship support guidelines, as the rate of customers seeking hardship assistance falls across the nation.

As Australia begins to slowly emerge from COVID-19 related lockdowns, the rate of home loan customers applying for hardship assistance has begun to decrease, according to the ABA.

Last month, the ABA recorded the smallest increase in hardship assistance approvals (12,000) since the second COVID-19 package of assistance was announced in July this year.

Since 8 July, almost 69,000 customers have received hardship assistance, including more than 27 home loan deferrals and over 4,000 business loan deferrals.

Chief Executive Officer of the Australian Banking Association, Anna Bligh, said while the data shows people still require assistance, it is reassuring to see people are getting back on their feet.

“Banks have been on-hand to assist their customers throughout the pandemic, however it’s heartening to see the need for assistance declining as many States and Territories come out of lockdown and as borders begin to open,” Ms Bligh said.

“The majority of hardship approvals came from customers in NSW and Victoria, which is obviously no surprise given the recent lockdowns, however we did see thousands of customers across the rest of Australia seek support and talk to their bank.”

ABA announces a new Financial Difficulty Guideline

Off the back of the reduced number of Australians seeking hardship assistance, the ABA has reviewed industry guidance for banks’ programs aimed to support customers in financial difficulty and has today announced a new Financial Difficulty Guideline.

According to the ABA, the guideline “promotes good practice across the industry, which includes a framework for banks that balances the need for consistent, standardised access to financial difficulty assistance with the need for flexibility when responding to customers’ unique personal and financial circumstances.”

Part of the new Financial Difficulty Guideline includes the option of customers in financial difficulty using a savings buffer. This savings buffer allows individuals on a payment plan to have their bank set aside a small amount of funds for “unexpected expenses or emergency bills”.

A savings buffer as additional support may see more Australians in financial distress pivot away from payment deferrals. This may be beneficial for some customers, as payment deferrals are not “free”, with pausing your repayments often resulting in more interest being charged over the life of a loan.

The ABA expects that by the end of 2023, all banks will consider providing this option to customers on financial hardship repayment plans.

Big four bank, Westpac, today announced it welcomed these new guidelines, particularly the new savings buffer for customers in financial difficulty. Westpac was an early adaptor of these changes, introducing them to customers entering financial hardship agreements across mortgages, consumer credit products and some business loans as of May this year.

Westpac’s Director of Customer Vulnerability and Financial Resilience, Catherine Fitzpatrick, said: “Since leading the industry and introducing the savings buffer earlier this year, 535 customers have had a savings buffer built into their hardship agreements providing them with breathing space to save for unexpected expenses.”

“We have been really encouraged by the results so far and are already seeing less customers falling back into repeat hardship,” Ms Fitzpatrick said.

“It helps these customers to keep extra money in their pockets to use as it best suits them – potentially for life events like medical emergencies, fixing a household appliance or a car breakdown, or even paying down their debts.”

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