Latest statistics from the Financial Ombudsman Service (FOS) indicates a rise in credit disputes and the primary driver for the upsurge according to FOS is financial difficulty. They say more people are making complaints to the Ombudsman about credit issues, and a significant portion of those credit complaints are made from people who say they are in financial difficulty. We look at what these statistics might mean, and the best course of action to take if you are having trouble making repayments on your loan.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

FOS released its 2011-2012 annual review of the disputes lodged against finance professionals, including mortgage brokers and loan providers recently, and the findings were published in the Australian Broker article ‘Home loan disputes contribute to FOS complaint surge’.

The report shows that, in total, FOS accepted 25,298 disputes, up 24% on last year’s figures. Credit issues proved to be by far the most common dispute area with exactly half of all complaints (50%) accepted by FOS concerning credit. Of these, 92% related to consumer credit, including home loans.

FOS says it believes the primary driver of this upsurge in credit disputes is a steep rise in the number of complaints lodged by people and small businesses in financial difficulty, which accounted for 54% of all credit disputes.

“We received 8,659 financial difficulty disputes in 2011/12, up 42% on 2010/11…The continued rise in disputes about financial difficulty suggests that a growing number of Australians are struggling financially.”

They also say that there appears to be an increasing awareness of FOS amongst the general public, which may also help to explain the rise.

Most of the financial difficulty disputes, according to the FOS, related to consumer credit products – particularly home loans, credit cards and personal loans.

So what could have happened in Australia to push this increase in complaints – and are more people in financial difficulty?

It is difficult to get any concrete proof that more Australians are on struggle-street with their home loan. There are no statistics kept on the national scale of property repossessions for any given financial year on which to compare FOS’ findings to.

But the Reserve Bank has seen it fit to make a number of rate cuts this year, which could indicate that property repossessions had been on the increase. This was certainly the case mid-year in the State of Western Australia, where the ABC reported in July, repossessions were at an all-time high. The WA Supreme Court handled 1,500 repossession applications last financial year.

Likewise, in May this year, it was reported in the Sydney Morning Herald ‘Forced home sales rise as slowdown bites’ that the number of repossessions lodged in Victoria’s Supreme Court rose to 1696 in the 10 months to April this year.

“If the pace is maintained, the tally will reach about 2035 for the 2011-12 year”, the article surmises.

Filings with the NSW Supreme Court showed repossessions had risen to 2955 cases in the nine months to March 2012.

What we know has also changed in the Australian credit landscape, is the emphasis now put on offering help rather than penalising those in financial hardship. The Government has recently legislated for what they see as a moral and legal obligation for the lender to review a request for financial hardship before they issue a default or other proceedings.

In August this year, The Consumer Credit Legislation Amendment (Enhancements) Bill 2012 was passed, to come into effect by 1 March 2013, which will provide a debtor with a statutory right to request a hardship variation where the debtor cannot meet their obligations under a credit contract regardless of the amount of credit that is provided under their contract.

There will be no obligation on the Credit Provider to comply with this request, but they must have issued written notification of their refusal to comply with a hardship request prior to enforcement proceedings.

This coming change would have meant in the 2011-12 financial year there may have been a strong push in many sectors for education around financial hardship variations, and in many cases lenders may have had an obligation to provide details of both financial hardship options, and options around dispute resolution to the appropriate Ombudsman for their case. This will certainly be the case from March next year.

So if you are having real trouble paying your mortgage, or other significant credit, rather than wait until you are defaulted, or at worst the lender forecloses – it is important to take early action to save yourself, your home and your credit file.

If you are sinking deeper in debt – put your hand up – you might find there is someone there to help you out of it.

6 Tips for Applying for financial hardship

1.  If you have a change in your circumstances – like unemployment, illness, injury or other reasonable issue you should ask for a financial hardship variation. This should be requested as soon as possible to avoid going into ‘default’ with your repayments.

2.  Put your request in writing and keep a copy as a record.

3. You may need to use the actual words “financial hardship variation” for your lender to officially recognise the request, and to avoid confusion as to what you’re asking for.

4. Check your loan agreement as to the terms you entered into around financial hardship. Those agreements post-1 July 2010 have a clause which requires the lender to respond to you within 21 days.

5. Do your homework first. Money Help, a website run by the Victorian State Government offers more help on how to apply for hardship with creditors in the correct way.

They advise people to work out what they can afford to pay prior to requesting a hardship variation. They explain the benefits in applying for hardship can range from more affordable payments, to putting a stop on action towards defaulting your credit file (as well as preventing you from losing your home).

6. Creditors are legally required to consider a person’s request for variation on payment arrangements, but are not obliged to agree to any hardship variation proposal put  forward.

If a lender either refuses your hardship request or fails to respond, you can lodge a complaint with their independent dispute resolution scheme, such as the Ombudsman they are a member of.

For more advice on debt management, visit ASIC’s Money Smart website www.moneysmart.gov.au.

NB: This content is for general information only and should not constitute legal advice, nor replace seeking help from a professional financial advisor.

Image 1: koratmember/ www.FreeDigitalPhotos.net.

Image 2: graur razvan ionut/ www.FreeDigitalPhotos.net