CREDIT CARDS

Page last updated on 08/07/2020
More information
What do the changes mean?
- The approach for financial hardship is going to be very similar to the approach taken before the COVID-19 pandemic
- It should be easier to get interest stopped and fees waived
- Waivers or reductions in debt should be available for people in significant long-term financial hardship
- Stimulus payments and the coronavirus supplement should mean that some people can settle long term debt for a reduced amount as a full and final settlement offer
- You need to consider immediately cancelling the direct debit for any existing repayment arrangement your client can no longer afford. Talk to the lender about different methods for making payments.
- Credit card debt remains a low priority debt
What do you do differently?
- Do inform the lender if your client has been financially impacted by the COVID-19 pandemic.
-
Do let the lender know if your client is receiving JobSeeker or JobKeeper payments. -
Take extra care to avoid deferring payments where interest and fees are still being charged -
Make sure you consider the following issues in your negotiations: -
Late fees and default/legal fees not to be charged -
Interest not to be charged -
If the lender will not stop interest, consider negotiating a reduction in the interest rate to a lower amount, say 10% p.a. -
Repayments must be affordable -
Repayment arrangements will need to be reviewed because the pandemic is likely to be causing an impact for many months (and likely more than a year) -
Where your client is in significant medium term to long term financial hardship a waiver or part waiver may be considered -
Negotiate a debt reduction in full and final settlement if the client has funds and the settlement would help financial stability -
Ask for your client’s credit report to be marked as paid for the purposes of repayment history information (‘0”) if a repayment arrangement is made (and your client keeps to it) -
Ask for all enforcement to stop and that the lender contact you before they start/re-start enforcement action
-
Common problem: cancelled credit cards
Lenders may cancel credit cards to manage the risk of default. The lender can cancel a credit card at any time for no reason at all.
Warn your clients that this may occur. Ensure they have a back-up plan to cover basic expenses. It is not recommended that people rely on their credit card for basic living expenses.
Common problem: full and final settlement – reduced lump sums
The stimulus payment, coronavirus supplement or payments to cover holiday leave may mean that clients have access to lump sums.
When negotiating:
- Make it clear that the reduced lump sum offer is in full and final settlement of the debt
- Tell the creditor that the negotiations are on a “without prejudice” basis
- Keep a detailed file note of all conversations
- If the creditor agrees to your offer, make sure you confirm the settlement in writing via email.
- Get instructions from your client about when they can make the payment and how.
- Make sure the client has the money in their account before making an offer
Resources
FCA Toolkit - Bank responses (credit cards)
Australian Banking Association: Support during COVID-19 – The Personal Relief Package (announced March 2020)
Customer Owned Banking Association: COVID-19
Australian Finance Industry Association: Supporting Customers in Financial Difficulty
Australian Financial Complaints Authority: Coronavirus (COVID-19) pandemic – support hub.
What has not changed?
-
Credit card defaults can still be sent to debt collection
-
Lenders can start legal proceedings to seek a court judgment for the debt (if it is in default)
-
You should always check if the lending for the credit card, or the limit increase, was irresponsible and run a dispute if it was.