A recent case, investigated by dispute resolution service Financial Services Complaints Limited (FSCL), highlights that a hardship relief agreement with a lender is a short-term stop gap when a consumer’s circumstances change, and cannot be used as a long-term method of managing debt.
“Under the Credit Contracts and Consumer Finance Act 2003, which is further expanded on in the Responsible Lending Code, lenders are obliged to help borrowers experiencing financial hardship,” explains FSCL CEO, Susan Taylor.
“The Responsible Lending Code guidance makes it clear that hardship relief is intended to help the borrower overcome short-term financial difficulties so that they can repay the debt, without prolonging financial difficulty.”
In the complaint brought to FSCL, Tony was dissatisfied after his lender would no longer offer him any further hardship relief.
In January 2020, after Tony’s wife became unwell, he left his job and started working as an Uber driver because the more flexible hours would allow him to care for his wife. Tony contacted his lender, said his circumstances were changing, and asked for temporary relief while he established himself as an Uber driver.
At this point Tony’s account was $600 in arrears and he discussed a repayment plan with the lender’s hardship team. Tony agreed to pay $80 a week for three months. He paid the first $80 but made no other payments.
Towards the end of March 2020, during the first Covid-19 lockdown, Tony contacted the lender explaining that he had lost his entire income and could not afford even the $80 weekly payments. The lender agreed to defer the payments and waived interest and fees until the end of May 2020.
Over the following year Tony continued to experience financial difficulty. From time to time the lender deferred payments, interest, and fees but Tony was unable to keep to the agreed repayment plans.
Tony said he had tried to contact the lender on numerous occasions, but they would not offer him any further hardship relief.
The lender said they had provided Tony with hardship relief by deferring payments and waiving interest and fees on occasion, but his financial position did not improve.
The lender agreed to defer payments and waive interest and fees for one final three-month period but said that, when the three months ended, Tony’s payments would revert to the contracted amount and if he could not pay, they would take recovery action.
“Our review showed that the lender had restructured payments so that Tony could afford to repay the debt but deferring payments and suspending interest and fees was only ever a short-term solution,” says Ms Taylor, adding that if a consumer’s circumstances change affecting their ability to repay debt, they should contact their lender immediately, before they have missed a payment.
“By 2021, if Tony was unable to keep to agreements it was reasonable for the lender to decline further hardship applications and start recovery action. While a lender is obliged to provide temporary relief, perhaps by deferring payments and suspending interest and fees, this relief is not indefinite, and may not be in the borrower’s best long-term interests”
You can read our case note here.