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Published on: 3/30/2007
Last Visited: 5/11/2007
"They don't tell people about this," says Katherine Lane, principal solicitor at the Consumer Credit Legal Centre in Sydney."They're really poor on compliance with it.
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"Basically it works like this," Lane says."If you have a loan with anybody that's under the Consumer Credit Code, if you're ill, temporarily unemployed or have another good reason for falling behind in your payments, you can apply to have your repayments varied.There's three options: to extend the time to make a repayment, to get a moratorium - which is never recommended for mortgages because the compounding kills you - or to reduce the repayments and extend the term, which is the most common one."
If your loan is with a major bank and they refuse your hardship application, you have the right to have it reviewed for free by the Banking Ombudsman."That's a big right," Lane says.
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"It's such a powerful tool," Lane says of ombudsman review."It can sort out a situation when you're in temporary difficulty and can save your house."
Your final option, short of a costly and stressful legal action, is to take your hardship application to the Consumer Trade and Tenancy Tribunal, which can enforce it.
However, it's important to note that "it is a race to get a variation in place and enforce it through EDR or the Consumer Trader & Tenancy Tribunal before the lender takes the consumer to court for the default," Lane says.
She is critical of the current two-tier system which sees banks, building societies and credit unions held to higher standards than the rest of the lending market.
"My lament is, why do we have a two-tier system?"she says."Why do we have half of the people exposed to lenders who aren't prepared to do the right thing on terms of repayment arrangements, don't tell them about the Consumer Credit Code and have no obligation to do so, and sell them up?Everyone should have to be in dispute resolution schemes and they should all be compelled to do the hardship provisions properly."
Many people consider refinancing when they may be better off approaching their lender to negotiate.
"Often refinancing borrowers go from a bank to someone who they've got less power to be able to negotiate with in relation to hardships later," Lane says."Most of the time you're much better off negotiating with your lender and coming to an agreement than refinancing when you're in difficulty."
The best case scenario is to ensure you understand all the implications of a potential future cash flow interruption when you sign the loan.
"Loans go for 20 years or more, and it's silly for people to think nothing will go wrong, even for a few months, in all that time," Lane says.
She recommends you get advice the minute you anticipate difficulty meeting repayments: it might save your house.
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