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Help to borrowers in financial difficulty outlined

The FMA and Commerce Commission have given lenders a steer on how to help customers in financial difficulty.

Tuesday, September 19th 2023, 10:49AM 1 Comment

by Sally Lindsay

The joint message outlines ways financial service providers, including consumer lenders, can support people getting into financial difficulty as the impact is not only monetary, but can affect wellbeing, households and the wider community.

Addressing customers experiencing financial difficulty fosters good customer outcomes and confidence in the financial sector as a whole, says the FMA and Commerce Commission. 

They outline ways lenders can be proactive  by complying with regulatory obligations in relation to financial difficulties, being ready to assign sufficient support resources  and  providing customers with fair treatment.

1. Expectations

It is good practice for providers to be aware of potentially changed circumstances among their customer base, and responsive to any such changes.

Providers should proactively identify and help customers experiencing, or likely to experience, financial difficulty.

They should ensure staff are trained to recognise signs of difficulty such as:

  • a pattern of missed, insufficient or late bill payments or exceeding credit limits;
  • requests to refinance or repeated and/or frequent requests to change repayment dates;
  • information about a significant change in a customer’s circumstances (for example serious illness or injury, recent redundancy, a relationship breakdown, or a death in the family);
  • requests to cut expenses, e.g. cancel products, lower premiums, reduce contributions; and
  • requests to liquidate investments (e.g. KiwiSaver) or make significant and unusual withdrawals.

If appropriate, providers should be willing to contact the customer early to provide information about the customer’s rights and the consequences of repayment difficulties. Providers should have conversations that help them understand each customer’s circumstances, to provide tailored support.

If financial difficulty is confirmed, it is important to make it clear to the customer they have options that can be pursued with the help of the provider and/or a licensed financial advice provider and/or financial mentoring service. Consumer lenders may also need to discuss with the borrower their options regarding unforeseen hardship.

At the same time, all providers should be aware that short-term solutions, including those requested and/or preferred by a financially stressed customer, may not be in the customer’s best interests. Proper consideration and weight should be given to long-term impacts, and customers made aware of these so that they can make informed decisions.

2. Assisting customers in financial difficulty

Providers should discuss with customers the range of solutions with all payment and support options clearly explained, including clear information about their potential costs (including long-term costs).

Practical ways customers might be helped could include:

  • repayment relief such as payment deferrals or other arrangements that postpone the due date for missed payments (where this will not significantly worsen the customer’s position);
  • encouraging them to seek professional independent advice from a licensed financial advice provider and/or advice from a financial mentoring service;
  • not unfairly penalising payment difficulties;
  • working with the customer to avoid the need to cancel necessary products;
  • reassessing whether all products or services used by the customer are necessary and/or suitable due to the customer’s change in circumstances;
  • removing barriers to switching or exiting products or services, if appropriate; 
  • considering debt consolidation, debt forgiveness, or pro-active write-offs; and
  • referring customers to financial mentoring services that can provide support across providers, and working with financial mentoring services to support customers in financial difficulty.

In some cases, the best outcome for the customer may be the suspension or termination of an important product or service, or the liquidation of a significant asset such as property. It may be appropriate for providers to make this clear to the customer, but this should be done with empathy and full consideration of the effect on the customer.

Frontline staff should also know how to identify when a financially distressed customer is making a complaint, and providers should be clear about their dispute resolution process including any obligation to disclose details of their dispute resolution scheme.

3. Having financial difficulty policies and staff

Providers should have policies and plans for meeting the needs of vulnerable customers. These should be reviewed regularly and updated to reflect current and expected economic conditions.

In April 2021 the Council of Financial Regulators (CoFR) presented its Consumer Vulnerability Framework to help providers develop approaches to assisting vulnerable consumers.

CoFR says it anticipates providers will consult widely in developing their own terminology, procedures, and processes for assisting vulnerable consumers.

In September 2021, the FMA published an updated customer vulnerability information sheet, emphasising that anyone who provides financial services, no matter the size or business focus, must have appropriate support systems for customers in vulnerable circumstances.

This says providers should ensure any such policies and procedures for assisting vulnerable customers are clearly communicated and understood by all staff and intermediaries, and that customer-facing teams may need guidance and training on implementing vulnerability processes and procedures.

4. Proactive and regular communications

Covid-19 saw numerous examples of providers being proactive and using multiple communication channels to assist vulnerable customers. For example, some proactively contacted customers in specific groups (elderly, new investors, small businesses) to confirm if they needed assistance.

Providers should make reasonable efforts to contact customers in difficulty using their preferred channel of communication and should encourage anyone in difficulty to be proactive about getting in touch early and communicating, openly and honestly with the provider.

Acceptable marketing and advertising standards must be maintained, including not using heightened financial difficulty as a customer acquisition tool.

Lastly, if a provider plans to increase their fees or other costs payable by the customer, customers should receive information about those changes before they take effect. At the same time customers should be provided with additional options if they are facing affordability issues. Providers who are consumer lenders should also ensure fees are reasonable.

Tags: Lending

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Comments from our readers

On 19 September 2023 at 11:34 am JeffQV said:
It's all very well for the FMA and Com Com to issue such a narrative.
What they need to do is remove or postpone CCCFA as in it's current form banks are duty bound to reassess in full any change of circumstance. Absolutely ridiculous when a customer is in trouble and are seeking relief. Lenders need to be able to exercise 'captain sensible' policies to ensure customers are looked after.
Example? Recently had a customer paying 12.4% for an investment loan, perfect history. Looking to refi to a bank at say 7% two year rate. Application failed as it did not meet the banks test servicing rate yet the customer clearly demonstrated the ability to pay at 12.4%. Nuts.

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ANZ 8.64 7.99 7.49 7.35
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BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
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CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
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Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
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ICBC 7.85 7.05 6.85 6.59
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Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
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Liberty 8.59 8.69 8.79 8.94
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Pepper Money Advantage 10.49 - - -
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Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
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TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
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Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
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Median 8.64 7.45 7.37 6.77

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