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An industry figure has labelled new hardship provisions "a real shocker" that could end up locking borrowers out of credit.
An NCCP amendment was issued last week which formalised provisions for borrower hardship. The new provisions stipulate that borrowers can give notice orally "by simply stating that they are unable to meet their obligations". Gadens Lawyers' Jon Denovan told Australian Broker the regulation reduces the process for hardship notifications to "an offhand comment" from a borrower.
"If you're a decent lender, once the customer gets into default you would ring them up. When you ring them up and the customer says, 'I haven't paid because I can't pay,' you instantly have a hardship notice. Then if things deteriorate and you're about to send them a default, you ring up and they say, 'I still can't pay,' there's another hardship notice."
Denovan said the regulations had the danger of making lenders reticent to contact customers in mortgage stress, for fear they would trigger a hardship notice. Moreover, he said the new regulations mean borrowers won't have to enter into any arrangement with a lender to find a solution to financial problems.
#pb#"You would have thought it was sensible for me to say, 'You've told me you can't pay now, Is there some arrangement we can come to?' If the punter says no, the lender shouldn't have to go through the process. But now it's going to get referred to an EDR, and they're going to lose a minimum of two to three months and potentially nine months where no payments are made on the mortgage and the customer's equity is eroding," he said.
While Denovan said the intention of the regulations was to make consumers more aware of hardship provisions, he warned that the regulations could have the unintended consequence of tightening credit and locking out some borrowers.
"We're potentially getting into a situation like Italy where it takes two to three years to sell someone up. That's going to limit the availability of finance," he said.
Denovan said the MFAA would lobby to find a "happy medium" in the regulations.
"The MFAA will fight the good fight - and maybe lose - but we'll do our best."
