What do the changes mean?

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• 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

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What do you do differently?

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• 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

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Common problem: cancelled credit cards

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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.

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Common problem: full and final settlement – reduced lump sums

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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

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Resources

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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.

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What has not changed?

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• 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.

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