- NSW Floods: Helping people through insurance claims
- What’s ahead for mortgagees after COVID-19 relief measures end?
- How an end to responsible lending could affect your clients
- Debt collectors and their underhanded tactics: “Sham judgments”
- The risks with funeral insurance: Aboriginal Community Benefit Fund (now Youpla)?
- Financial Rights Community Legal Education: What’s available
1. NSW Floods: Helping people through insurance claims
People confronting the devastating loss of property amidst the NSW floods can access free, confidential legal help from specialised insurance, credit and debt lawyers and financial counsellors at the Financial Rights Legal Centre.
Many people will be facing the additional stress of discovering they are under-insured or uninsured following the devastation of losing their homes, businesses or other property amidst the NSW Floods.
Going on previous experience, it is likely hundreds of individuals and families have found themselves under-insured or uninsured leaving them unable to replace their homes or other property including vehicles, outbuildings, livestock and fencing.
The Financial Rights Insurance Law Service is a key repository of insurance law expertise with extensive resources and experience in dealing with insurance issues.
We provide vital information for consumers and professionals to assist in managing claims and disputes.
Training for managing natural disasters claims
Financial Rights offers training for your staff about how best to triage people seeking help and establishing a warm referral process.
We also offer Community Legal Education via Zoom for your staff about flood and storm insurance issues.
Supporting your work in the NSW Floods
We are happy to help you establish and optimise triage processes for people who have experienced loss and work out a system of warm referrals so we can assist the work you do.
Financial Rights can assist individuals along with small business owners and primary producers.
Financial Rights key floods and storms resources:
It can be hard for people to understand how to start an insurance claim for flood damage to their home, car or other property. The Flood Insurance Guide provides 10 key steps people should take.
This includes how to make a claim, assessing damage and gathering evidence, common problems like underinsurance, accessing emergency accommodation, managing claims and disputes.
Most policies cover you for damage caused by “storm” “rainwater” and “run-off” but it can depend on how these words are defined in your policy.
The Storm Insurance Guide explains what storm insurance is and what it covers.
If an insurer determines that a property was damaged by both rainwater and floodwater, they might reject the claim. Consumers might also face difficulties dealing with assessors, experts or other service providers.
Liability for fallen trees is a common problem. Consumers often ask whether an insurer pays for the removal of a fallen tree or damage it has caused to their property. Also what happens if a tree on a person’s property has fallen and damaged their neighbour’s property.
Whether an insurance policy covers fallen trees depends on the wording of the policy. The Fallen Trees Factsheet provides answers to these common problems.
Consumers often find insurance claims daunting. Policies can be complex and full of jargon. For this reason many are tempted by insurance claims management businesses to help them negotiate the claims maze.
Most people don’t need an insurance claims management service to help, because there are free services for legal advice and resources to inform consumers of their rights.
Claims management services typically work for a percentage of any cash settlement offered by an insurer. They may not have legal qualifications, or any qualifications. The industry is not subject to any specific regulation or oversight.
It’s critical that consumers understand the risks and alternatives before engaging an insurance claims management service. Consumers should be warned to ascertain how much it will cost, ask for independent references and read any contract thoroughly before agreeing to it.
2. What’s ahead for mortgagees after COVID-19 relief measures end?
Many lenders allowed borrowers a payment holiday on their mortgage over the course of 2020 to alleviate financial stress on mortgagees, real or anticipated, because of the economic contraction caused by COVID‑19.
In order to facilitate the anticipated deluge of applications for these hardship variations, some lenders slipstreamed the usual process. Often these would be granted on request, with low or even no documentation requirements needed to support a borrower’s inability to make scheduled payments.
What options do borrowers have now that COVID-19 relief is winding up?
Options which might address ongoing repayment affordability
There are options for borrowers whose income has not recovered to the level it was pre‑COVID.
Some of the options to explore to reduce repayments on a mortgage include:
- Using any eligible funds that you may have in your loan redraw facility
- If previously overpaying, consider reducing repayments to the minimum required amount
- Using any savings to offset your loan balance
- Talking to your bank about whether you could extend the term of your loan
- Working with your bank to consolidate all your loans and finances
- If you’re eligible, you could consider switching to an interest‑only (IO) loan
- Seeking a further hardship variation.
Different lenders will have different criteria for allowing some of these options or not. Whether a borrower can avail themselves some of these later options will probably depend on whether the loan is in arrears, how the borrower plans to pay those arrears, and what ongoing scheduled payments they can afford.
COVID-19 Deferral or Hardship Variation
Some lenders treated loans very differently depending on whether they were on a COVID-19 deferral or another form of hardship arrangement. Some borrowers who believed they were on a COVID-19 deferral were actually in another form of arrangement. This does not actually change the borrower’s rights, but it does sometimes change the way lenders are approaching the situation. For the sake of simplicity, all arrangements will be referred to as hardship variations for the remainder of this article.
When a borrower is in arrears
It is best to confirm the amount of any arrears with a lender. For some lenders, arrears could have accumulated throughout the duration of the hardship variation. In some cases the borrower may have entered their current or recent hardship variation with substantial arrears already.
For some lenders, if the loan was “current” – with no arrears before the hardship variation was granted, it may be regarded as current afterwards. This is because the suspension of repayments was automatically added to the loan (capitalised) while the loan term was extended. This was so as to keep the scheduled payments the same, once repayments were resumed by the borrower.
For other lenders, arrears accumulated despite the arrangement or deferral. In such cases the borrower needs to explicitly negotiate the method of repaying the arrears, by either making higher repayments for a period of time, or for the remainder of the loan, or by having the arrears capitalised (added to the balance and paid off at the end by extending the term).
It is best to explicitly check with the lender about the amount and age of the borrower’s arrears and the lenders approach to addressing them.
If there are arrears on the mortgage, many lenders may want to see a period of normal scheduled repayments completed – typically six months – just to be sure the borrower is “back on track”, before agreeing to an arrangement to address the arrears, such as extending the term of the loan.
Switching to interest‑only payments
With historical, record-low interest rates, some borrowers may be tempted to switch to making interest‑only payments for a period. This can often be a preferable option, if it is affordable.
It can also be a longer-term option, for around 6 months to 12 months, rather than applying for another hardship variation, which a lender is likely to want to review on a regular basis.
The longer term of the interest‑only arrangement might allow more time for the borrower’s employment and pre‑COVID income levels to recover.
The loan‑to‑value ratio (LVR) of the loan may be something the lender will consider when making a decision to allow a switch to interest‑only.
The lower the LVR, the better, because it means the mortgage is less risky for the lender.
It is very important for borrowers to understand the implication of paying interest only payments:
- The loan balance will not go down
- They will pay more interest in the long run
- If property values decrease, they may be at higher risk of negative equity (owing more than their house is worth).
Seeking a further hardship variation
Where a borrower cannot meet their repayments due to hardship, they have the right under law to apply to the lender to change the contract in such a way that they will be able to meet their obligations within a reasonable time. This may mean lowering repayments for a period of time, reducing the repayments permanently and extending the contract, or a period of no repayments followed by increased repayments or an extension of the contract.
While the lender does not have to agree any particular form of variation, many lenders have enhanced hardship options on offer at the moment as a result of the pandemic and other natural disasters. These may include:
- Reducing the interest rate temporarily or even permanently
- Longer than usual period of interest-only repayments
- Partial debt reduction (rare for secured debt, but many borrowers may have unsecured debt with the lender as well)
- Combinations of the above.
Important note: Many lenders are applying a responsible lending lens to hardship variations, including interest-only repayment periods, and expecting the debtor to be able to demonstrate their ongoing ability to repay to a high standard. This can play out harshly for people at or near retirement age, or dependent on non-traditional sources of income, like board from adult children or intermittent income.
While it is true that lenders do need to have some evidence of ongoing ability to pay, they should not be treating this like a new loan. Borrowers should be given an opportunity to demonstrate their ability to repay a reduced amount for a period of time in borderline cases.
Enforcing the borrower’s rights
Loans regulated by the National Consumer Protection Act 2009
In most cases borrowers will already be dealing with the hardship section of the lender. If not, this should be the first step in seeking any further hardship assistance. See the Financial Assistance Hub resource below.
If the lender is being unreasonable, the borrower has the option to complain to the lender’s internal dispute resolution section (“IDR”). In the event the issue cannot be resolved at IDR, then a complaint can be lodged free of charge with the Australian Financial Complaints Authority (“AFCA” – afca.org.au).
Examples of reasons to complain may be:
- The lender is asking the borrower to repay their arrears over an unreasonably short period
- The lender is unreasonably refusing to capitalise the arrears
- The lender will not agree to a further hardship variation in circumstances where the borrower can show that they will be able to pay off the loan within a reasonable time period
- The lender will not provide the borrower with a reasonable period of time to sell the property
- The lender has reported negative repayment history or a default where this was not permitted at law or at odds with representations made to the borrower
- The lender should not have lent the borrower the money in the first place (breach of responsible lending obligations) – Warning, this may reduce the debt but will very rarely allow a borrower to retain their home.
- The lender has commenced legal action
Once a borrower has lodged a complaint in AFCA, the lender cannot take steps to repossess the home, or otherwise enforce the debt, until the complaint has been dealt with or rejected for being outside jurisdiction. If the lender has already issued legal proceedings this should be clearly marked on the AFCA complaint.
Borrowers will have less options if they are dealing with an unregulated loan secured over their home, such as a business loan, or a loan from an unlicensed lender. For loans from credit providers who are members of AFCA, borrowers can still use the lender’s IDR and the AFCA system as outlined above. They will not have legal rights to hardship but AFCA will also consider industry codes of practice and fairness in all the circumstances. You can check whether a lender is in AFCA by using the Find a financial firm tool on the AFCA website.
If the lender is not a member of AFCA, the borrower will need legal advice.
Is it time for the borrower to sell?
If unaffordability is realistically going to be an ongoing challenge, the borrower should consider negotiating with the lender for time to sell. This may reduce financial stress and in some cases, preserve some equity (funds available from the sale after paying out the mortgage) for the borrower to walk away with.
Providing the lender with a signed real estate contract will document the borrower’s intention to sell. A request should also be made to the lender that the loan continue to be treated as a hardship arrangement with no negative repayment history to be reported to the credit bureaux, or in case that is refused, that no default be reported.
This might buy an extra six months or so of time to sell the property, without affecting a borrower’s external credit report.
If the lender is threatening foreclosure (and only in this circumstance), the borrower has the option of requesting the lender to provide the required documentation, that would allow the borrower to access their superannuation to make minimal payments to avoid the foreclosure. This is a last resort. We would usually advise against this unless the borrower is in a position to meet their repayments going forward and is only using their super to pay their arrears. In any event, capitalisation of the arrears is usually a preferable option.
Some lenders are offering assistance with the process of selling and moving as part of their Covid-19 response package or hardship toolkit. Talk to the lender to see if there is any relevant assistance available.
The Australian Banking Association’s Financial Assistance Hub provides a guide for borrowers who find themselves still facing financial hardship once the relief measures expire.
National Debt Helpline: 1800 007 007
Credit and Debt Legal Advice Line (NSW only): 1800 844 949
AFCA: 1800 931 678
3. How an end to responsible lending could affect your clients
The Australian Government is struggling to shore up support in the Senate to pass its proposed repeal of responsible lending laws thanks to an ongoing joint campaign. Financial Rights and our campaign partners have worked with community legal centres, financial counselling services, church groups and family violence services from across Australia to try to stop this attack on consumer rights. More than 33,000 Australians and 125 community groups have united to oppose the legislation.
Commit to the recommendations of the Banking Royal Commission
Less than half of the Banking Royal Commission’s recommendations have been implemented. Instead of following through on its commitments to clean up financial services in Australia, the Australian Government is taking consumer protection backwards by ten years.
The removal of safe lending laws will put individuals and families at risk of all the aggressive lending practices that were rife before the responsible lending regime was introduced in 2009.
Let us not forget that it was a mortgage crisis in the United States that spurred the global financial crisis.
Axing responsible lending is bad economics
The plan to roll back responsible lending was concocted as a kneejerk response to the pandemic related recession. The Australian Government’s argument that our economy needs freer flowing credit to assist a post-COVID-19 recovery is misplaced.
Unprecedented numbers of Australians recently sought loan deferrals amidst COVID-19 and some are still not back on track. They do not need more debt. There are already record lending levels for residential housing under the existing law and the Reserve Bank of Australia has warned about runaway property prices.
How will ordinary Australians be affected?
If safe lending laws are scrapped, hundreds of thousands of Australians will lose access to justice. The many people who have benefited from responsible lending laws demonstrates the risk we face if these important protections are removed.
While borrowers will lose legal rights and protections, banks and other lenders will be given carte blanche to aggressively sell debt, causing the sorts of problems that were rife before the responsible lending regime was introduced in 2009.
The Banking Royal Commission reported millions of dollars in compensation being paid to hundreds of thousands of people between 2010 and 2018 as a result of breaches of legislation, including responsible lending.
Australians carry some of the highest debt levels in the world. While debt can assist people to acquire assets and achieve their goals, unsustainable debt leads to stress, poor health, family breakdown and mental illness.
Repeal of responsible lending protections will hurt women facing domestic violence
Domestic violence experts have warned that repealing responsible lending will cause particular harm to women experiencing economic abuse. The current regime prescribes important obligations on lenders which often identify red flags in domestic and family abuse.
These critical protections require a lender to make inquiries as to the loan’s purpose, suitability and affordability. Undertaking this assessment process often puts lenders on notice when loans should not be approved. This serves an important role in identifying and preventing the financial abuse of vulnerable women.
Coerced debt is a common problem for people leaving abusive relationships. Removing responsible lending will reduce the ability of community lawyers and financial counsellors to assist survivors of domestic violence re-establish their lives.
How soon could responsible lending be axed?
The Australian Government’s bill to repeal responsible lending laws passed the House of Representatives on March 15, 62 votes in favour and 60 votes against. While the bill was due to be debated by the Senate, it was withdrawn at the last minute. Both houses of parliament do not sit until May 11 and then only for three days. The next sitting period for parliament begins on June 15.
Want to help to stop critical protections being removed?
The campaign has been successful so far because of the incredible work of campaign supporters in sharing their experiences, and those of their clients, with MPs and Senators. As a result, many parliamentarians spoke against this change; about the terrible human cost of shonky lending practices and the importance of these laws for helping ordinary Australians hold lenders to account and get back on their feet. If you haven’t already joined the campaign you can do so at debtdisaster.consumeraction.org.au.
Note: Campaign partners include, Choice, Financial Counselling Australia, Consumer Action Law Centre, Financial Rights Legal Centre, Consumer Credit Legal Service WA, Redfern Legal Centre, Indigenous Consumers Advisory Network (ICAN), Consumer Law Centre (ACT) and Care Inc.
4. Debt collectors and their underhanded tactics: “Sham judgments”
Financial Rights financial counsellors and solicitors often receive calls from consumers being chased by debt collectors where it is initially unclear what the alleged debt relates to.
Debts can sometimes be on-sold from debt collector to debt collector, who can then be extremely aggressive in the way that they follow up and seek to recover and enforce an old debt.
Beware of sham judgments
Financial Rights recently became aware of a particular debt collector that seemed to be buying old judgment debts, and then issuing new statements of claim for the same debts many years later.
In one case, a new statement of claim was filed nine years after the first judgment was entered. The debt collector then obtained a second default judgment for the old judgment debt. We argue this amounts to a “sham judgment”.
How debt collectors are obtaining “sham judgments”
In filing a second statement of claim for the same debt, the debt collector doubled the debt it was purporting to recover. This was done by applying an incorrect interest rate -such as the credit contract rate rather than applying the court interest rate on the old judgment- and adding a second set of court and legal fees.
The debt collector’s action also restarted the time limit for enforcement of the judgment debt, meaning that it would have an additional 12 years to enforce the judgment on top of the nine years that had already passed.
How the operator put its sham judgments into action
For two of our clients, the debt collector moved very quickly after issuing the second statement of claim to obtain a default judgment and a garnishee on their salary. To make matters worse, the paymasters in both cases took out too much money by mistake and left the clients in severe financial hardship.
Since our clients were not aware of the first judgment made against them, it initially appeared that the debts were no longer recoverable as “statute barred”. Our clients had not made any payment towards the debt for at least six years, leading us to believe they may have a potential defence to the claim under the Limitation Act 1969 (NSW).
Helping clients targeted by sham judgments
Financial Rights assisted the clients by going on the Court record and obtaining the whole Court file and negotiating consent orders with the judgment creditor to stay (stop) the garnishee until further information could be obtained about a potential defence.
Once we ascertained that the debt collector was claiming a debt in these proceedings that was already subject to an earlier judgment, we were able to negotiate for the sham judgment to be set aside by consent orders. Our client entered a repayment plan for the balance of the debt owing on the correctly calculated court interest rate for the original judgment. This reduced the amount owing by half.
Financial Rights has also reported these matters to the relevant regulators.
The impact of sham judgments on clients
We believe that the conduct of this debt collector is unethical and against good faith, and would have a substantially unfair effect on consumers. The debt collector should not have commenced fresh proceedings but rather should have enforced the old judgment.
Had the second judgment not been set aside the debt collector would have had a further 12 years to enforce the later sham judgment debt, with the consumer being held liable for additional interest, solicitor’s fees and filing fees.
Steps you can take
If you, or a client you are helping, receives a statement of claim or is subject to enforcement orders where it is difficult to work out what the alleged debt is stemming from, please call us on Financial Rights Credit and Debt Legal Advice Line 1800 844 949 for urgent advice.
We are happy to advise you about the next steps to take.
It is also generally advisable to call the Courts Service Centre on 1300 679 272, to check for any judgments, including when they were obtained and whether they were obtained by default (that is uncontested rather than after a hearing).
5. The risks with funeral insurance: Aboriginal Community Benefit Fund (now Youpla)
Mob Strong is concerned about the high number of Aboriginal and Torres Strait Islanders who rely on funeral insurance (a junk insurance product) to help with sorry business.
Funeral insurance might cover funeral costs but is more likely to be cancelled before it can be used and the total premiums paid can be higher than the stated benefit.
Aboriginal Community Benefit Fund, now known as Youpla
In particular we have been concerned about the impact that funeral insurance policies with a group called the Aboriginal Community Benefit Fund (“ACBF”, now known as Youpla) have had on our mob.
ACBF was alleged to have marketed itself as an Aboriginal owned and managed company when at the time it was not. Recent determinations made by the Australian Financial Complaints Authority have found ACBF did indeed mislead consumers on that basis.
How this affects your clients
Some of your clients may have been misled by ACBF in the same way.
If this is the case, we have prepared a resource package to assist you to help clients.
Our resource includes a recorded presentation and fact sheet detailing ACBF/ Youpla’s history, policies, the determinations made together with a practical checklist to assist if any of your clients do have concerns about their policies.
View our presentation
Please let us know by replying to this email or calling 1800 808 488, if you would like us to send through this recording.
Of course, if you would like a follow up discussion or have questions for our staff about the information and how best to support your clients, please don’t hesitate to get in touch.
Recent AFCA determinations
We want to raise awareness about this issue with your service and staff and update them on the recent AFCA determinations which found ACBF/Youpla misled consumers.
Request our presentation
We would like to send you a small resource package with a link to a recorded presentation about ACBF/ Youpla, together with a practical checklist to help with client intake.
Please let us know by replying to this email or calling 1800 808 488, if you would like us to send through this recording.
6. Financial Rights Community Legal Education: What’s available
The Community Legal Education Program at Financial Rights has been bolstered with our new CLE Officer Annabel McConnachie creating fresh online initiatives to support solicitors, financial counsellors and caseworkers.
We understand the needs of financial counsellors, solicitors, and caseworkers whose clients experience problems in areas such as credit and debt, banking or insurance. We work to provide you with the latest updates relevant to your profession including changes in law or policy as well as represent your views in our advocacy work to governments and regulators.
In the past year we have adapted, along with many others, to using online means for our education program. This year we are keen to engage further by including podcasts and videos to distribute information.
No matter where you are located, we are endeavouring to make it easier for professionals to learn about what we do, and importantly, how we can help your clients.
For example, in the past few weeks our team have held online presentations speaking to organisations in Perth and Adelaide about Financial Rights national telephone support services such as the free and confidential Credit and Debt Legal Advice Line, Insurance Law Service and our Aboriginal & Torres Strait Islander service, Mob Strong Debt Help.
Our online Fact Sheets are updated regularly to keep you abreast of important new issues.
Most recently we have provided guidance and information about funeral insurance sold to Aboriginal communities. There is also an online presentation designed to assist practitioners managing cases concerning the Aboriginal Community Benefit Fund (ACBF). Please get in touch if you would like access to the presentation.
Financial Rights can attend events or conduct sessions online, such as networking meetings, panels and discussions to provide information about how we can assist you to help clients in need.
To discuss opportunities to collaborate or book a session with your organisation, please contact Financial Rights Legal Centre, Community Legal Education Officer: Annabel McConnachie firstname.lastname@example.org