The Law Handbook 2024

440 Section 5: Managing your money Banking Code, a credit provider must try to help a consumer (with their cooperation) to find a sustainable solution to their financial difficulties. Under paragraphs 171–172 of the Banking Code, a credit provider may, at its discretion, reduce or waive an individual’s debt on an unsecured personal loan or credit card on a case-by-case basis and on compassionate grounds. In Permanent Custodians Ltd v Upston [2007] NSWSC 223, the New South Wales Supreme Court held that a hardship variation may be granted at any step along the enforcement process prior to judgment being entered against the debtor for the outstanding debt. The New South Wales Supreme Court set aside default judgments in two instances where a credit provider failed to deal appropriately with hardship requests and also failed to provide notice that it would seek default judgment ( Commonwealth Bank of Australia v Wales [2012] NSWSC 407; Commonwealth Bank of Australia v Larsen [2012] NSWSC 408; but see Westpac Banking Corporation v Tesoro [2012] VSC 182). c Contracts entered into from 1 March 2013 The Consumer Credit Legislation Amendment (Enhance­ ments) Act 2012 (Cth) commenced on 1 March 2013 and simplified the hardship arrangements for credit contracts entered into on or after 1 March 2013 (item 5, sch 5 Transitional Act). It also provides for similar hardship provisions in relation to consumer leases entered into from1March 2013 (see ‘Consumer leases’, below). Some of the provisions are: • a hardship application may be made if the debtor considers that they are or will be unable to meet their obligations under a credit contract (for what- ever reason) (s 72(1) NCC); • a debtor has a statutory right to request (in writing or verbally) a hardship variation regardless of the amount of credit that is provided under their contract (s 72(1) NCC); • a credit provider does not have to agree to change the contract if they reasonably believe that the debtor would not be able to meet their obligations under the contract even if it was changed or that there is no reasonable cause (such as family violence, illness or unemployment) for the debtor’s inability to meet their obligations under the contract (s 72(3) NCC); and • there are no limits to the form of hardship variation (the way in which the contract can be varied). Hardship application process – contracts entered into before 1 March 2013 A debtor’s hardship application for a contract entered into before 1 March 2013 is a two-step process: • Step 1: Write to the credit provider • Step 2: If the application is rejected by the credit provider, apply to a dispute resolution scheme. Step 1: Write to the credit provider A debtor must submit a written application seeking the credit provider’s consent to change the contract terms in one of the ways set out in the NCC (s 72(2)): a extending the contract period and reducing the amount of each payment. This is useful where the debtor’s financial situation has changed (e.g. where the debtor’s income is less than at the time the loan was entered into); b postponing payments for a specified period. This is useful where the hardship is temporary, for example the debtor has a temporary illness or short-term loss of employment; or c a combination of options (a) and (b) above. The letter should set out the cause (such as illness, unemployment or other reasonable cause) of the financial hardship and the grounds on which the debtor believes they will be able to comply with the terms of the contract if it is changed. A credit provider must within 21 days of receiving the application provide a written response stating whether or not it agrees to the change. Credit providers are currently exempted until 1 March 2018 from sending a notice to a debtor confirming the agreement to change on grounds of hardship as required by section 72(3)(a) of the NCC (as it then was) (ASIC Class order 14/41). If the credit provider does not agree, it must provide a written response that includes: • the name of the dispute resolution scheme of which the credit provider is a member; • the debtor’s rights under that scheme; and • the reasons for not agreeing to the change (s 72(4) NCC) (as it then was). If the matter is urgent because legal action has been threatened or a default notice has been served a complaint should be lodged with the relevant dispute resolution scheme at the same time as writing to the credit provider.