Hardship and financial difficulty: ASIC actions, compliance obligations and industry guidelines

Consumer creditBusiness financeDisputes and enforcement

19 Aug

Introduction

Over the last few years, Australian borrowers have experienced increasing mortgage stress under high interest rates, potentially putting many more people into hardship circumstances. A June 2024 report by the consumer credit regulator, the Australian Securities and Investments Commission (ASIC), showed that 47% of Australians with debt had experienced difficulties in making repayments in the previous 12 months.

Providers of regulated consumer credit have obligations under the National Credit Code (NCC) to deal with hardship requests from their customers, and ASIC has been calling out conduct by credit providers on hardship matters which it considers to be falling short of expectations.

Following on recent ASIC actions, the Australian Banking Association (ABA) has recently released a major update of its guideline on financial difficulty programs.

Inevitably, some customers in financial difficulty are unable to reach a resolution with their credit provider, and sometimes that means the matter is escalated to the Australian Financial Complaints Authority (AFCA). According to a summary of its monthly complaints data for December 2024, AFCA received 281 hardship related complaints in that month out of a total of 6,770 complaints – around 4%. AFCA has also published documents on its approach to financial difficulty issues.

It’s time that we overviewed the regulator actions, compliance obligations and industry guidelines to get some indicators of how credit providers can improve their processes for customers experiencing hardship or financial difficulty.

In this article we cover:

Recent ASIC hardship actions.
Recap of the NCC hardship provisions.
Penalties for non-compliance.
Banking Code of Practice and Customer Owned Banking Code of Practice.
The ABA’s new financial difficulty guideline.
AFCA’s approach to financial difficulty.
Lessons for credit providers.

Recent ASIC hardship actions

April 2023 - ASIC succeeds against ClearLoans: The Federal Court found that Membo Finance Pty Ltd and its credit representative, both trading as ClearLoans, did not act efficiently, honestly and fairly in dealings with debtors in financial hardship. They were ordered to pay over $6 million in penalties.

September 2023 - ASIC sues Westpac: ASIC launched civil proceedings against Westpac Banking Corporation (Westpac) for failing to respond to 229 customer hardship notices between 2015 and 2022 within the required timeframe. The notices were submitted via Westpac’s online system. Some customers were subjected to debt collection while awaiting a response.
May 2024 - ASIC report 782 on hardship: ASIC released a report on credit providers’ support for customers in financial hardship - Hardship, hard to get help: Credit providers fall short in financial hardship support (REP 782) - following a review of 10 large Australian home credit providers. The report highlighted failures to identify customers in financial distress, shortcomings in handling of hardship requests, onerous assessment and approval processes, and poor communications with customers.
November 2024 - ASIC sues NAB: ASIC began legal proceedings against National Australia Bank Limited (NAB) and its subsidiary, AFSH Nominees Pty Ltd (AFSH), for failing to respond to certain hardship applications on 345 occasions within the required timeframe over a period from 2018 to 2023. On 13 August 2025, judgment was delivered. NAB was ordered to pay a civil penalty of $13 million and AFSH was ordered to pay a civil penalty of $2.5 million.
March 2025 - ASIC review of motor vehicle finance sector: ASIC announced a review of compliance practices of credit providers, brokers, and intermediaries in the motor vehicle finance sector. One focus area is hardship practices.
May 2025 - ASIC sues Resimac: ASIC filed civil penalty proceedings against Resimac Limited (Resimac), alleging systemic failures in handling hardship applications from home loan customers.

Looking at these cases, what were the causes of the breaches alleged by ASIC?

Westpac case: The failures occurred across Westpac's multi-step processing system for hardship, where online applications moved through various systems before reaching the Customer Assist team. ASIC says that both technical system errors and human processing mistakes contributed to customers being denied proper hardship assessment, despite submitting valid applications.
NAB case: NAB and AFSH used a system called PowerCurve to manage hardship notices. The failure to provide responses to hardship notices was caused by staff incorrectly selecting an option in PowerCurve that removed the relevant customer’s account from the hardship workflow, so that a response notice was not sent. It seems that the issue was not identified until NAB received information requests from ASIC in 2023 as part of its review of hardship practices across 10 credit providers.
Resimac case: Unlike the Westpac and NAB cases, the Resimac case is not about failing to respond to hardship notices (or not responding in time), but rather about how Resimac dealt with them. In basic terms, ASIC is alleging that Resimac was too inflexible in its approach. ASIC claims that:
- Resimac routinely demanded a full statement of financial position and extensive documentation from all debtors without assessing whether the information was relevant or reasonably necessary in the circumstances.
- If a debtor failed to return the requested documents, Resimac typically rejected the hardship application outright, without considering alternative ways to assess the debtor’s situation or using information already known to them.
- Until October 2023, Resimac lacked documented procedures to identify and support vulnerable debtors.
- Resimac did not consistently offer additional support to vulnerable debtors, such as simplifying requests or extending deadlines.

In the Resimac case, ASIC’s focus is on the obligation of a credit licensee to do all things necessary to ensure that the credit activities authorised by its credit licence were engaged in efficiently, honestly and fairly (s 47(1)(a) NCCPA), when responding to vulnerable debtors’ hardship notices.

Recap of the NCC hardship provisions

The National Credit Code (NCC) has hardship provisions for credit contracts and consumer leases. While they have proven to be challenging to comply with, the provisions are not extensive and are quite straightforward.

Below is a summary of the provisions for credit contracts in the NCC. The provisions for consumer leases are basically the same.

A debtor who considers that he or she is (or will be) unable to meet his or her obligations under a credit contract may give the credit provider a notice, either orally or in writing, of their inability to meet the obligations. This notice is referred to as a hardship notice (s 72(1)).

Upon receiving a hardship notice, the credit provider has 21 days to request relevant information from the debtor if needed, either orally or in writing. The information must be relevant to deciding whether the debtor is or will be unable to meet their obligations under the contract, or relevant to deciding how to change the contract if the debtor is or will be unable to meet those obligations (s 72(2)).
The debtor must provide this information within 21 days of the request from the credit provider (s 72(3)).
The credit provider must respond to a hardship notice within strict timeframes: 21 days if no additional information is requested; 28 days if requested information is not provided; and 21 days after receiving requested information (ss 72(4), (5)).
When responding to a hardship notice, the credit provider must give notice stating either agreement to change the contract terms, or refusal to change the contract. In the case of a refusal, the notice must include reasons for refusal and details about the AFCA scheme and the debtor’s rights under the AFCA scheme (s 72(4)).
The formal response notice requirements do not apply to temporary arrangements that defer or reduce obligations for 90 days or less (a Temporary Arrangement) (s 72(4A)).
When contract changes are agreed, the credit provider must notify the debtor and any guarantors in writing within 30 days, detailing the specific changes (s 73(1), unless it is a Temporary Arrangement (s 73(1A)).
If the credit provider refuses to modify the contract, a debtor can apply to court for contract variation orders (s 74).

Note that the hardship provisions do not specifically require the credit provider to give fair consideration to the request in a hardship notice (or even to give it consideration at all). However, this is probably implied by the requirement that the credit provider notify the debtor of its response. What’s more, a provider of regulated credit, as an Australian credit licensee, has an obligation to do all things necessary to ensure that the credit activities authorised by its licence are engaged in efficiently, honestly and fairly. It would surely be inconsistent with that obligation to not give fair consideration to a hardship notice. The outcome of the Resimac case will be important on this point.

Penalties for non-compliance

There are truly massive potential penalties for non-compliance with the hardship provisions of the NCC. For that reason if no other, compliance is very important.

The maximum civil penalty that can be imposed on a company for not providing a response to a hardship notice is the greater of:

50,000 penalty units (a penalty unit is currently $330, so that works out as $16.5 million);
if the court can determine the benefit derived and detriment avoided because of the contravention, that amount multiplied by 3; and
10% of the annual turnover of the body corporate for the 12-month period ending at the end of the month in which the contravention occurred or began, or if the turnover percentage exceeds 2.5 million penalty units, the penalty is capped at 2.5 million penalty units - a whopping $825 million!

(See s 72(4) NCC and s 167B NCCPA.)

If that’s not enough, keep in mind that a breach of the requirement to respond to a hardship notice continues until the act is done, and a credit provider in breach commits a separate contravention of that provision for each day during which the contravention occurs (s 175A NCCPA) – so in theory, up to $825 million per day, per notice.

In the ClearLoans case, the defendants (credit provider and credit representative) were ordered to pay a total penalty of $3,000,000 for failing to respond to hardship notices given by 38 customers. That’s about $79,000 per notice.

In the NAB case, the total penalties (which were agreed between ASIC and the defendants before being approved by the court) amounted to $15.5 million for 345 instances of hardship responses not being given, which works out to about $44,927 per hardship notice.

Banking Code of Practice and Customer Owned Banking Code of Practice

The ABA’s Banking Code of Practice (BCP) and the Customer Owned Banking Code of Practice (COBCOP) published by the Customer Owned Banking Association both outline how their subscribers must support customers experiencing financial difficulty.

There are similar themes across the BCP and COBCOP about treatment of customers.

A shared emphasis is placed on early engagement, with both codes encouraging customers to initiate contact as soon as financial stress arises. Institutions are also expected to proactively identify signs of hardship, including through data analysis, and to respond with empathy and flexibility.

Publicising the availability of assistance is a key requirement. Both codes allow customers to appoint representatives such as financial counsellors, with institutions required to respect these arrangements unless direct contact is justified.

Assessment processes must be genuine and considerate, with both codes prohibiting certain practices - such as requiring access to superannuation (except for SMSF loans) or selling debt during hardship assessment. Assistance options range from payment deferrals and restructuring to, in exceptional cases, debt waivers. Debt collection practices are regulated under ACCC/ASIC guidelines, with additional protections for vulnerable customers.

The ABA’s new financial difficulty guideline

On 8 July 2025, the ABA released an updated voluntary industry guideline (the ABA Guideline) outlining best practice for banks assisting customers in financial difficulty. The revised document builds on NCC obligations and the BCP, aiming to streamline support processes and improve customer outcomes.

“Financial difficulty” as used in the ABA Guideline is broader than hardship under the NCC, which applies only to consumer credit. Financial difficulty also includes small businesses and guarantors.

The ABA Guideline defines financial difficulty as a situation where a customer:

is unable to pay what they owe;
expects to be unable to pay upcoming repayments; or
is experiencing difficulty meeting their repayment obligations.

The focus areas of the ABA Guideline are how to communicate with customers, and how to help them.

How to communicate with customers

Banks are encouraged in the ABA Guideline to:

create a safe space for customers to share their financial situation, avoiding judgmental language like “hardship”;
proactively reach out when signs of difficulty appear (e.g. missed payments, persistent debt);
provide clear, accessible information about available help through multiple channels (e.g. websites, apps, physical branches);
refer customers promptly to the right internal team to avoid repeated storytelling;
keep customers informed throughout the assistance process, including decisions and next steps; and
offer inclusive communication options, such as interpreter services and non-digital methods.

How to help customers

The ABA Guideline says that banks should tailor assistance based on individual circumstances. Support may include:

payment deferrals or reductions;
loan term extensions;
fee waivers;
consolidation of debts (where appropriate); or
moratoriums to allow time for advice or property sale.

For customers unlikely to recover financially, banks may offer alternative arrangements or refer them to free support services.

Special care is advised for:

customers experiencing vulnerability (e.g. family violence, cognitive impairment);
those impacted by natural disasters; and
customers represented by third parties (e.g. financial counsellors).

Assessment processes should be:

compassionate and flexible;
scaled to the customer’s situation;
focused on affordability and sustainability; and
designed to minimise stress and complexity.

AFCA’s approach to financial difficulty

Many financial difficulty complaints end up being considered by AFCA, and AFCA has published a series of documents on the topic:

In this article we will focus on the first of these approach documents, which sets out the broader themes of legal principles, industry codes and good industry practice.

AFCA expects financial firms to genuinely consider a consumer’s financial difficulty, including hardship requests under the NCC, and to work collaboratively to find solutions.
Key indicators of genuine consideration include early identification of financial difficulty, reasonable information requests, written explanations for declined arrangements, and consideration of long-term solutions.
When a complaint is lodged, AFCA will ask the firm to reconsider the request, facilitate negotiation or conciliation, and issue a decision if no agreement is reached.
If financial difficulty cannot be overcome, AFCA says that firms should allow reasonable time for consumers to resolve debts, including asset sales or refinancing.
Consumers are also expected to cooperate by providing requested information promptly, proposing realistic repayment plans, exploring alternatives, and making partial repayments where possible.
If a firm fails to respond appropriately, AFCA may award compensation for avoidable enforcement costs or distress.
AFCA may vary credit contracts to assist consumers, even if the firm previously acted appropriately.
AFCA says that industry codes like the BCP and COBCOP reinforce obligations to assist consumers, and provide standards of good industry practice. AFCA may apply principles of good industry practice even to financial firms that are not subscribers to those codes of practice.

On 14 August 2025, AFCA published an updated version of its Financial Difficulty External Dispute Resolution (EDR) Response Guide, to clarify expectations for how financial firms should respond to complaints involving financial hardship. The guide includes detailed lists of information to be provided and questions to be answered.

Lessons for credit providers

Drawing on ASIC regulatory actions, the ABA Guideline and AFCA’s approach, several important lessons emerge for credit providers in managing hardship and financial difficulty:

Early identification and proactive support: Detect customers experiencing hardship as early as possible, using data analytics and multiple communication channels to offer timely assistance.
Collaboration and clear communication: Work constructively with customers, facilitate negotiation, and maintain ongoing communication throughout the hardship process. Provide clear, written explanations for decisions, including reasons for declines and outlining available options and complaint rights (e.g., AFCA).
Customer-centric management: Embed fair outcomes and customer experience in hardship team KPIs, assign end-to-end process ownership, ensure management oversight, and monitor performance with quality assurance focused on the customer’s perspective.
Accessible and streamlined hardship processes: Enable customers to submit hardship notices through various channels. Train all staff to identify hardship indicators, record notices at first contact, and ensure smooth hand-off to specialist teams. Treat inability to pay as a valid hardship notice.
Empathetic and efficient assessment: Handle cases with empathy, avoid repetitive questioning, and scale documentation requests to customer circumstances. Tailor follow-up communications and requests to individual needs before declining assistance.
Tailored and flexible solutions: Provide a broad range of assistance options, educate customers on alternatives, ensure proposals are affordable and accommodate unexpected expenses, and consider long-term support for permanent financial changes. Refer customers to financial counselling when appropriate.
Reasonable timeframes for debt resolution: Allow sufficient time for customers to resolve debts, including through asset sales or refinancing, where needed.
Ongoing support and transition management: Engage regularly with customers during the hardship period, use structured approaches for broken arrangements and transitions out of assistance, and reassess customer needs as circumstances change.
Support for vulnerable customers: Train staff to respond to vulnerability, offer specialist handling or case management, and provide additional support where necessary.
Robust systems and continuous improvement: Implement systems for tracking and compliance, ensure sufficient resourcing and regular training, and use complaints and compliance reviews to enhance processes and outcomes.

If you need legal assistance with your processes for dealing with hardship and financial difficulty, we can help. Contact us for a confidential discussion.

Patrick Dwyer