MyCRA Specialist Credit Repair Lawyers

Tag: Consumer Credit Legislation Amendment (Enhancements) Bill 2012 passed

  • More Australians in dispute with their Creditor over financial difficulty

    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.

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  • New Credit laws passed Parliament yesterday which may protect those who need it most

    It’s not the long awaited comprehensive credit reporting, but it is the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 passed by Parliament yesterday and waiting for Royal Assent. The reforms will among other things, alter laws around financial hardship, and put the first national cap on payday loans – which should assist those people who are struggling with credit and access to credit. We look at what this Bill will and won’t do for people on the fringe, or people who are under hardship, and what the implications will be in terms of their credit file and maintaining a good credit rating.

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

    For someone who is struggling with debt, keeping your head just above water and avoiding defaults is the best thing you can do for yourself. This is why the ‘streamlining’ of laws around financial hardship is so important. For someone who is suffering temporary hardship to be able to discuss alternative arrangements with their lender other than being hit with a default on their credit file is so vitally important because if they are unable to secure a hardship variation, the consequences can be dire – which starts with defaults, and can end with more debt and defaults.

    The consequences of having a negative credit listing, whether that be a default, a Judgment, a writ or a Clearout is generally a ‘lock-down’ of mainstream credit services for the term of the listing which is between 5 and 7 years. Once that lower-interest option is no longer available to you, it’s time to seek aid in other areas, especially in times of emergency. So that is where the payday lenders come in, or non-conforming lenders in the mortgage marketplace. These lenders have a bigger ‘risk’ because you may have a bad credit record, so they charge more in interest to offset that risk.

    The Government has decided to crack down on payday lenders and cap their interest rates. Minister for Financial Services Bill Shorten said in a statement to the media yesterday, that these reforms will stop loan sharks from exploiting vulnerable Australians:

    “These laws will place reasonable limits on what lenders can charge. The cap on costs appropriately balances consumer protection while still allowing lenders a return that is commercial.”

    “The Gillard Government has moved to reduce the financial harm caused by lenders who ruthlessly impose excessive fees and charges simply because vulnerable consumers cannot obtain alternative access to credit. These reforms continue the Gillard Government’s ongoing commitment to deliver a fair go for all Australians,” explained Mr Shorten.

    The Enhancements Bill introduces a cap for small amount credit contracts where the amount borrowed is $2000 or less, and the term is 1 year or less. For these loans the maximum any lender can charge is an establishment fee of 20 per cent of the amount of credit upfront and 4 per cent for each month of the loan. This provides for maximum charges of $72 on a loan of $300 over 1 month.

    The legislation will also introduce a number of other reforms according to Mr Shorten:

    • Applying a cap to other credit contracts based on the 48% cap currently in force in some Australian States. The Commonwealth cap addresses the range of avoidance techniques lenders currently have devised to avoid that cap.
    • Responsible lending obligations to address high risk conduct by small amount lenders.
    • For seniors who use reverse mortgages, greater certainty as to future outcomes when they enter into such contracts that the amount they are required to pay cannot exceed the value of the equity in their home (through a no negative equity guarantee).
    • Simplifying the procedures for borrowers to apply for a variation to their repayments on the grounds of financial hardship, as it is in the best interests of both parties to try and resolve these situations as quickly and simply as possible.

    Some objected to the Bill, saying the Government had effectively gone soft on the payday lenders.

    In The Australian, Greens Senator Sarah Hanson-Young said the final version was so weak it could have been written by the loan sharks.

    As a credit repairer, I am of the view that any restriction on interest rate for pay day loans is a welcome move. But I see the bigger picture. Some people who are forced into these situations are there because the system has failed them. Not all defaults deserve to be there, but they all have the same outcome for prospective borrowers. They are banned from obtaining mainstream credit.

    Where people are getting let down is in copping the mistake in the first place, and also in the correction of the credit reporting mistake. Whilst the powers that be say that there is a legitimate avenue for correcting credit reporting mistakes for the individual, any consumer who has had the pleasure of dealing with a big company for even small issues will attest to the difficulty in getting a straight answer, getting someone who knows what they’re talking about first time, and ultimately correcting the mistake. This is a common complaint of many of our credit repair clients. Most people are told if it’s paid up they can mark it as such but that’s about it. It’s a bit like David and Goliath, and in the end many just go away believing they are in the wrong.

    So in an emergency situation, people who are stuck with bad credit must turn to payday loans. Including those people that aren’t able to obtain a hardship variation for their circumstances, and have a default or other negative listing placed on their credit file.

    So I do applaud the new laws, but it’s not over yet.

    I am still waiting to see how the new credit laws within the Privacy Amendment Bill will impact on the ease of correction of mistakes in credit reporting as well as how overdue payments are going to impact their ability to get mainstream credit before I hang my hat up and say that the Government has done all it can to help vulnerable consumers and give a ‘fair go for all Australians’.

    If you are struggling with obtaining credit after being defaulted, and you believe the listing may be incorrect or unjust in any way, consider credit repair as an option to get an expert on your side who can help permanently remove unlawfully placed Defaults, Writs, Judgments and Clear-outs from your credit file. Call a Credit Repair Advisor today on 1300 667 218 to discuss whether you might be a suitable candidate for credit repair.

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