Welcome to the Financial Rights Legal Centre E-flyer.
In this edition:
- Advice and assistance in the time of COVID-19
- A difficult journey: Travel Insurer’s response to the Covid-19 pandemic.
- Should clients access their super… again?
- Temporary changes to the Bankruptcy Act: a case study
- Three month COVID-19 hardship check-in with the banks
The Financial Rights Legal Centre has been able to quickly adapt to the rapid changes brought on by the COVID-19 pandemic and keep all of its phone lines open for consumers in financial stress. Although there were some teething issues, we have been able to get all of our more than 30 solicitors and financial counsellors set up on soft phones in the safety of their own homes.
We want to extend a big thank you to ECSTRA for supporting Financial Rights Legal Centre as part of its response and recovery funding. Their support has helped ensure that we can give all of our staff the support and equipment that they need to work from home or come in to the office as restrictions ease. It will also open up opportunities for Financial Rights to provide a more flexible workplace into the future. The Federal Government has also provided some additional funds to offset the cost of transition to working from home.
Australians love to travel and Covid-19 has had a huge impact on our ability to do so. While most people presumed that they would be covered for any losses by their travel insurance – the harsh reality has been that most people were not covered for pandemics.
Of the Covid-19 related calls to the Insurance Law Service since January 2020 a whopping 70% of those calls had to do with people’s travel insurance. It is no surprise that the market leader in travel insurance Cover-more was the insurer most mentioned along with Insurenandgo, Allianz, 1cover and Budget Direct. In total we have had callers seeking advice on 36 travel insurers.
The key issue has been whether somebody’s travel insurance covers them for the cancellation arising from the Covid-19 pandemic. In March we wrote about some of the factors that someone needs to consider when looking at whether someone has been covered or excluded from coverage. However other questions that have come up include:
- Am I entitled to a refund for travel insurance that I have not used because I have not travelled?
- Do I have to accept a credit or a voucher from my organised travel tour or transport?
- Can I receive a credit or voucher for my travel insurance?
As with all legal questions the answers depends.
There is generally only a 14 day cooling off period and so most travellers will not strictly be entitled to a refund of the premium based on the terms of the policy, unless different representations were made by the insurer. It is arguable though – depending on the circumstances – that the application of this period is harsh and against the duty of utmost good faith.
The question of whether vouchers are acceptable is interesting one. This is particularly the case given many vouchers or credit offers have been from organisations that may or may not be around after the crisis – think your Virgin Australia flights or a struggling tourism operator. It is also unclear under some ambiguous policies whether travel vouchers are a valid form of recompense. It is arguable in these cases that the policy wording should be explicit if it was intended to work in this way as vouchers are not the same as money.
Amongst the confusion for travellers a number of travel insurers have now come to the party.
As reported in March IAG (which includes NRMA, CGY, WFI, SGIO and SGIC) announced they would provide:
travel insurance refunds for any unused proportion of premiums, including full refunds where customers have not yet travelled and have not claimed under their policy, with no administration or cancellation fees.
Suncorp, Allianz, and QBE Insurance have agreed to provide a relief package to customers including:
All policyholders, including consumers, eligible small businesses and larger businesses, who cancel travel plans will be able to get a credit or refund for any unused travel insurance premiums, … without administration or cancellation fees.
InsureandGo – one of the insurers that we have received the most calls on – is enabling customer to submit requests for:
- credits for single policyholders who have not made a valid claim and can no longer travel as planned due to the impact of COVID-19 with no administration or cancellation fees applying
- deferrals for Annual Multi-Trip policy holders who have not made a valid claim and can no longer travel as planned due to the impact of COVID-19
Registration details are on the Insureandgo website.
Cover-More have been less than forthcoming with any publicly announced measures to assist customers. They have however reported to the House of Representatives Economic Standing Committee that around 88,000 policy payments have been refunded to date, and the number is likely to climb to 250,000 and possibly higher. For those Cover-more customers we recommend calling Cover-more and requesting refunds.
And finally for further information on consumer’s rights regarding the cancellation and changes to their travel plans with travel operators – see the ACCC’s COVID-19 (coronavirus) information for consumers.
People affected by the COVID-19 pandemic have been eligible to apply to access up to $10,000 of their super since April 2020. Within two months nearly 2 million applications for early release of super had been made and $13 billion had been released from Australian super funds. That is an extraordinary amount of money that is no longer being reserved for retirements.
From July-September 2020 people affected by the pandemic will be able to apply for another $10,000, but we hope they will take a minute to think about their options and get some advice first.
There are some important steps you or your client should take before deciding to withdraw any super.
- Know all the options – taking out super should be a last resort
- Consider impacts on life and income protection insurance
- Calculate the impact on retirement savings
- Find additional help if you or your client need it
Know all the options – accessing super should be a last resort
Before withdrawing super, clients access Government assistance and talk to their bank or lender about how they can help. ASIC’s MoneySmart website has a good summary of the support payments and hardship assistance that is available in response to the pandemic.
People can also contact their bank’s financial hardship team if they are struggling to make their usual payments. All banks and lenders have financial hardship teams ready to help customers in tough times. People may be able change the terms of their loan, or temporarily pause or reduce their repayments for 6 months. They can read our financial hardship fact sheet or write a letter to their bank using this letter generating tool.
Energy companies also have hardship teams in place to help people and many have committed to not disconnecting people who are in hardship during the pandemic.
People should also know the following before using super to pay down debt:
- If they have no assets and are likely to have a low income for an extended period, lenders may be willing to waive some or all of the debt and super should be left for retirement.
- If super is not enough to solve the debt problems and creditors take enforcement action, super is protected in bankruptcy as long as it is stays in the super fund.
- While paying debts down now will save interest and could mean putting extra aside for retirement in future, this will only happen if more debt isn’t accrued! Sometimes when people use a lump sum to pay down debt, they just run up more debt very quickly. Think about how to avoid this by closing credit accounts or reducing available limits.
To discuss your options for dealing with debt call the National Debt Helpline on 1800 007 007.
Consider impacts on your insurance
More than 70% of Australians that have life insurance (including income protection and total & permanent disability insurance) hold it through super.
If a person’s super balance falls to zero or below $6,000 depending on the fund they may lose their life and income protection cover. If they are withdrawing their super early and want to maintain their insurance, they will need to keep enough money in their super account to cover their ongoing premiums.
To find out what insurance your client has in their super they can:
- call their super fund
- access their super account online
- check their super fund’s annual statement and the PDS
Super funds will also be able to tell your client how much super they need to retain in their account to prevent their insurance from being cancelled.
Calculate the impact on your retirement savings
Super is a long-term investment that typically rides the ups and downs of the market over a person’s working life. Taking out money early means losing the benefit of compound interest over a number of years. Depending on how old the person is, withdrawing money now could mean they miss out on more than double that amount by the time they retire.
People can check to see how their retirement might be affected by using ASIC’s Super withdrawal estimator.
Remember that deciding whether or not to withdraw super early is an individual choice. If your client feels that they are being pressured or coerced into a decision in any way and are unsure what to do, they can get some support.
ASIC has a list of resources that might be able to help you.
Topping up your super
Some people have already taken out their super, or will do so in the next round because they have no other option. If this is the case, then they may be in a position to top up their super if things improve in the future. People can use the ASIC Money Smart Superannuation calculator to see what difference extra contributions might make to their retirement savings.
Find additional help if you need it
If your client needs more financial guidance, tell them to:
- Speak to a financial counsellor on the National Debt Helpline 1800 007 007
- Speak to a Financial Information Service Officer for free confidential, financial information.
- Speak to a financial adviser or their super fund.
Cameron lives in a strata title property. He has been on the Disability Support Pension for a number of years. Last year, due to medical expenses in particular, Cameron fell behind on his strata levies. In early 2020, his Strata got a judgment against him for around $6,000 and, by the time Cameron contacted Financial Rights in late May, he was served paperwork to attend a Creditor’s Petition hearing.
A Bankruptcy Notice had been issued and served on him in early March 2020.
Then, in response to the pandemic, the government made changes to the Bankruptcy Act and regulations which took effect from 25 March 2020. Those temporary changes for a 6 month period include:
- extending the time a debtor has to respond to certain legal action; and
- increasing the amount for which a creditor can take steps to make a debtor bankrupt.
The extension of time works in 2 ways:
- the timeframe in which a debtor must comply with a bankruptcy notice is extended from 21 days to 6 months; and
- the timeframe in which a debtor is protected from enforcement action by presenting a declaration of intention to present a debtor’s petition is extended from 21 days to 6 months. The name of the declaration of intention was also changed to Temporary Debt Protection.
In addition to the above, the amount of debt for which a creditor can make a debtor bankrupt increased from $5,000 to $20,000. This works by increasing:
- the minimum amount for which a bankruptcy notice can be served;
- the minimum amount to present a Creditor’s Petition against a debtor; and
- the minimum amount to present a Creditor’s Petition against a deceased debtor’s estate.
Financial Rights agreed to represent Cameron and we disputed the filing of the creditor’s petition for an amount less than $20,000 after 25 March 2020 – as our view was that the changes in the law meant the condition to file a Creditor’s Petition was temporarily increased to a minimum amount of $20,000 from 25 March 2020. The solicitors for the Strata maintained they were entitled to bankrupt Cameron as the bankruptcy notice was issued before 25 March 2020, and sought their cost in excess of a further $6,000. In our view the bankruptcy notice was valid, but the subsequent creditor’s petition was not.
Cameron was able to access his superannuation under the COVID-19 early release rules, and pay the outstanding levies and associated legal fees of around $10,000. Cameron’s Strata continued with the Creditors Petition hearing and continued to seek their costs of the petition of a further $6,000. We appeared at the hearing and sought orders that the Court exercise its discretion not to award costs to the creditor. We were successful in arguing the petition should never have been presented and costs were not awarded.
The reforms in increasing the bankruptcy threshold are an important protection to consumers, and we are strongly of the view the higher threshold should be retained at least at the same level to prevent people losing their homes over relatively small debts.
We thought this article might be useful for all of those consumers, financial counsellors and credit & debt lawyers that are wondering what is going to happen to the record number of borrowers that all asked for financial assistance on their loans during the pandemic. Although many things are still up in the air, Financial Rights has been doing a lot of engagement with industry and regulators about this situation, and we can share some useful intel.
Since March 2020 an extraordinary amount of Australians have entered into hardship arrangements with their lenders. Banks alone have collectively provided about 760,000 in loan deferrals across mortgages, unsecured personal credit and business loans. Roughly 70% of these hardship arrangements were provided in the first 3 weeks of the Government’s initial announcements about COVID-19 restrictions.
In the majority of cases hardship arrangements were provided automatically with no examination of the person’s actual financial circumstances, and no personalised explanation of the consequences to the borrower of accepting relief. As a result, some people have accepted the assistance offered without really needing any assistance, or understanding the consequences of accepting a deferral. In some cases people have taken a deferral offered by their lender out of an abundance of caution, but have not actually lost any income, or not as much as they feared.
APRA relief and the three month check-in
The Australian Prudential Regulator Authority (APRA), which is usually very demanding of lenders as to how they record and track missed-payments, granted relief from the usual arrears reporting and capital requirements (money they need to put aside to cover possible losses). This relief from APRA was instrumental in allowing banks to provide quick deferrals to their customers. One of the conditions of that relief was a 3 month check-in or review of those who accepted hardship packages to see if the relief was still appropriate for each customer.
For some customers the three month check-in may be the first time they actually discuss their situation with their bank. However, we know from the sheer volume of customers coming up for the 3 month review at the same time, not everyone will get to participate in a tailored conversation. Some may even just get an automated text or email.
What should people be told at the check-in?
In our view, it will be important for people to be told in very clear terms what ongoing acceptance of these hardship packages will mean. Below we have written out a list of questions we hope banks will answer for their customers, or that case workers can ask on behalf of financially stressed clients.
- Will they have to pay back all the interest from this period (in most cases, yes)?
- How long will they be given to pay back interest? Will their normal pre-COVID repayments increase or will their loans be extended and by how much?
- What will happen to their credit report, including their Repayment History Information (“RHI”) at the end of the hardship arrangement (deferral)? Will RHI go back to reflecting the arrears (i.e. negative RHI)? Or will RHI stay up to date while the customer has a chance to catch up on missed payments?
Many of these details can be found on the lender’s website, usually under the heading COVID-19 or coronavirus, for standard deferral arrangements. If the client has a more tailored hardship arrangement, you will need to see the specific correspondence or talk to the lender.
What about people who can afford to start paying again?
Some people may be contacted because it appears from their banking activity that they have not suffered any change in their financial circumstances (i.e. they have not lost much or any income). Banks will want to encourage those customers to start paying if they are not already. We also think that people who are able to pay should start making their normal repayments if they have not already. This is because interest will continue to be charged on people’s loans throughout the deferral period and in most cases they will have to make higher payments later to catch up. They will also be likely to pay more interest over the life of the loan because of the deferral. Even customers who have accepted a deferral can make payments at any time. People should pay what they can even if they can’t afford the full payment. This will mean less financial pain later when they have to catch up.
What about people who are still struggling?
If there is something the bank cannot see (e.g. Jobkeeper payments are not evident to banks because they come from the employer and look like usual employment income), people need to let their bank know, particularly if a return to normal employment is not looking likely. Other issues that may not be evident to banks are the extent to which people may be in debt to others creditors (e.g. credit cards with other lenders that are currently on hold). We would encourage people to pay their mortgages as a priority if they can, talk to other credit providers about hardship relief and get advice if from financial counsellors through the National Debt Helpline if they are not able to make workable arrangements.
Some customers may be contacted because their financial circumstances appear to be quite significantly impacted from the banks risk review and the bank wants to start a conversation about what will happen at the end of the six month deferral. Again we encourage people engaging in this conversation. It is better for people to be pro-active rather than passive and to talk to their lender about their options. This does not mean people can’t have their full six months of relief, but it is important to start thinking about what will happen when the six months is over.
In the medium term it is difficult to predict how bad the economic fall-out will be when Government support and deferrals end, or indeed whether any Government support will be extended, and the impact of those things on property values. We are encouraging banks to keep people in their homes as long as possible to give them a chance to ride out the crisis, but inevitably some people won’t make it in the long term and may want to think about selling sooner rather than later to cut their losses. It is always better for homeowners to be in control of the process if they need to sell their house, and the impact on housing values may get worse if too many people are forced to sell at the same time.
What about second and third tier lenders?
Unfortunately many second and third tier lenders not necessarily offering the same level of assistance as first tier lenders. If you or your clients are struggling with getting suitable hardship arrangements in place , free , independent financial counsellors can be located through the National Debt Helpline or go to CLC Australia for free legal advice . People still have all their usual rights to some hardship assistance under the national credit laws, including free access to dispute resolution at the Australian Financial Complaints Authority.