​Financial hardship and credit restoration

by External19 Feb 2014
John Dickinson
John Dickinson of Clean Credit looks at how hardship provisions relate to credit repair

Few people understand financial hardship legislation, even fewer understand how financial hardship can be applied to credit restoration.

Let’s first cover what financial hardship actually means to a credit provider.

In today’s world it is common for people to have a number of debts such as home loans, vehicle finance, credit cards and personal loans. In order to approve an application for finance a credit provider will consider many things including the applicant’s ability to service the debt.

A borrower’s ability to service a debt is based on their current situation such as their employment or the income derived from a business, in other words a credit provider can only take the applicant’s current financial situation into consideration; after all, we can’t expect a credit provider to predict the future.

The reality is, however, that things change. People lose their jobs, business’ fail, marriages separate and people get sick, all of which can have a profound impact on someone’s ability to make payments on a loan.

Let’s say a bank approved a home loan with a 25-year term – the reality is a person’s income source is almost certainly going to change during this period. It would be normal for someone to have a number of careers or business’ during this period and the chances of someone having an event that will affect their ability to service their debts during this term is high.

Credit providers are well aware of this fact and for the most part have established financial hardship policies in place to accommodate for these situations.

The moment a borrower even hints that they are experiencing financial difficulty, a credit provider is under a legal obligation to offer assistance. In fact, in some cases the borrower doesn’t need to say a thing; if their repayment history changes for the worse there is a solid argument that the credit provider should have picked up on this and made contact with their client to see what was wrong and offer assistance.

As most people know little about financial hardship legislation or a credit provider’s obligations to assist, credit providers are expected to take the initiative and explain what options are available to their clients, even if they may not have asked directly for financial assistance.

What should happen and what does happen are often two different things. The truth is many credit providers are not fully aware of their obligations under hardship legislation, and therefore the correct information is not always relayed to their clients.

There have been many examples of borrowers contacting credit providers to tell them they will not be able to meet their payments due to financial hardship and the credit provider offering no assistance at all. We have even witnessed situations where credit providers have said that they don’t care and “recovery action will commence if they don’t pay” or words to that effect.

This attitude displays either an inexcusable lack of understanding of their legal obligations or a complete disregard for them, both of which are equally disturbing.

If a borrower contacted a credit provider and told them they were unable to pay due to financial distress and the credit provider did not offer the correct level of financial assistance, which is common, then there is a genuine argument that recovery action should never have commenced and in turn a payment default or court action should have not been recorded on the client’s credit file. 

It’s important to note that financial hardship legislation is there to help people during difficult times and while it is a credit provider’s legal obligation to help it should also be their moral obligation.