Key points

In December 2021, ASIC released a consultation paper (available here) seeking feedback on whether or not the relief currently in place for ‘simple arrangements’ for hardship should be extended.

If a lender agrees to defer or reduce a borrower’s obligations for no more than 90 days in response to a hardship application, ASIC’s Class Order [CO 14/41] provides that the lender does not need to give the borrower written notice:

• stating that the lender has agreed to the change; or
• giving details of the change.

ASIC is considering whether to extend [CO 14/41] beyond its current expiry date of March 1, 2022, or whether to allow it to expire. Our view is that an extension is sensible.

Background

A hardship application will have one of two outcomes.

1. The credit provider agrees to change the credit contract. If this occurs, the credit provider must give the consumer a written notice stating that the change has been agreed and setting out the details of the change (see sections 72(4)(a), 73(1), 177B(4)(a) and 177C(1) of the National Credit Code). The current class order applies so that these provisions do not apply if the arrangement applies for no more than 90 days.
2. The credit provider does not agree to change the credit contract. If this occurs, the credit provider must give the consumer a written notice that includes the reasons for the credit provider’s decision, the contact details for the AFCA scheme, and information about the consumer’s rights under that scheme (see sections 72(4)(b) and 177B(4)(b) of the National Credit Code).

Simple arrangements vs temporary arrangements

ASIC observes that lenders often respond to borrowers experiencing financial difficulty by offering informal temporary arrangements that do not involve a change to the credit contract, and so these are not ‘simple arrangements’. Accordingly, the NCC hardship notice provisions do not apply to these types of informal temporary arrangements, and [CO 14/41] would also not be relevant.

In terms of whether a short term arrangement would be considered to be a ‘simple arrangement’ or a ‘temporary arrangement’, ASIC notes that:

• where the lender acknowledges or represents to the borrower that they will not enforce their rights under the credit contract if the arrangement is complied with, there is likely to be a change to the credit contract for the purpose of the NCC provisions (i.e. likely to be a ‘simple arrangement’);
• conversely, if the lender reserves its right to enforce the terms of the credit contract, notwithstanding a short term arrangement that allows non-compliance with the contract, it is less likely that the credit contract has been changed (i.e. more likely to be a ‘temporary arrangement’). We consider that this will rarely occur (see the table below).

Financial hardship information

Changes to the credit reporting system coming into effect from July 1, 2022 will introduce reporting of ‘financial hardship information’.

Financial hardship information must be reported for arrangements which are either:

• a permanent variation to the terms of the credit contract; or
• providing temporary relief or deferral of the borrower’s obligations.

Under proposed changes to the Credit Reporting Code, lenders will likely need to notify borrowers about any financial hardship information that may be disclosed to a credit reporting body (including in connection with simple arrangements, temporary deferrals or promises to pay).

ASIC appears to therefore query the extent to which the relief provided by [CO 14/41] will remain of utility once the obligation to report financial hardship information commences.

Submissions to ASIC on the consultation are due by February 1, 2022.