If you’re suffering financial difficulties and can’t meet your repayments obligations with your credit provider, you may ask them, or they may offer, to change your repayment obligations. Or you may prefer to ask a financial counsellor for advice.
If your credit provider agrees to changing your repayment obligations, they may enter a financial hardship arrangement with you. Under such an arrangement, your credit provider must let you know what your new repayment obligations are and if they’re permanent (which is called a variation financial hardship arrangement) or temporary.
What is a temporary financial hardship arrangement?
A temporary financial hardship arrangement is between you and your credit provider for a specific period and either lets you stop making your repayments (which is known as deferring your repayments) or requires you to continue making repayments for a specific period but at a reduced amount.
While the arrangement is in place your contract’s original repayments still accrue. So, at the end of the arrangement, you’ll be in arrears with your repayments – which you still must pay, as your repayment obligations under your contract remain the same.
What is a variation financial hardship arrangement?
A variation financial hardship arrangement is a permanent change to your repayment obligations, which your credit provider sets out in a new contract between them and you.
Unlike a temporary financial hardship arrangement, because your repayments are permanently changed, you won’t be in arrears with your repayments.
For example, if you have a $3,000 loan that must be paid off in 3 years, you and your credit provider may agree to a variation financial hardship arrangement that extends the life of the loan and lets you repay it over 4 years.
When does a financial hardship agreement start?
A financial hardship arrangement starts when both you and your credit provider agree to it, not when you first ask for help.
However, a financial hardship arrangement may be backdated to the date you asked your credit provider for help if your credit provider unreasonably or unnecessarily delayed agreeing to it. The arrangement may also be backdated to the date you asked for help if:
- your credit provider considers the backdated date more accurately reflects the date the arrangement should have started
- you were unable to ask for help earlier due circumstances beyond your control, such as illness or a natural disaster.
What isn’t a financial hardship arrangement?
Not all arrangements are a financial hardship arrangement.
For example, calling your credit provider and promising to pay in the future (which is called a promise to pay) is not considered a financial hardship arrangement. A promise to pay does not have the same protections under the Privacy Act 1988 as a financial hardship arrangement.
Where you make a promise to pay, any missed payments are recorded next to your repayment history on your credit report. This may also affect your credit score, even if the credit provider acknowledged your promise to pay.
Under the Privacy Act not all credit products can be included in a financial hardship arrangement. For example, your telecommunication provider is not able to provide a financial hardship arrangement for your phone contract.
What are a credit provider’s obligations under a financial hardship arrangement?
When a credit provider enters a financial hardship arrangement with you, they must tell you verbally or in writing, as soon as possible, that they’ll disclose financial hardship information about you to a credit reporting body during the life of the arrangement [correct?]. The credit reporting body is the same one your credit provider has been disclosing your credit information to since the start of your contract with them.
If you have a complaint
If you have a complaint about how your financial hardship arrangement is shown on your credit report, or about your credit provider or the credit reporting body, contact your credit provider or the credit reporting body to see if they can resolve the issue for you.
If you’re not happy with your credit provider or the credit reporting body’s response, contact their external dispute resolution scheme (for example, the Australian Financial Complaints Authority). Or make a complaint to us.
For more information on handling financial hardship, visit Moneysmart