A new report from the Australian Securities and Investments Commission (ASIC) has revealed that 35% of Australians have dropped out of the home loan financial assistance application process at least once due to its complexity.

The report, titled 'Hardship, hard to get help: Lenders fall short in financial hardship support (REP 783)', is based on a review of 10 large home lenders.

The report found that 40% of customers who received hardship assistance through reduction or deferral of payments fell into arrears right after the assistance period ended.

ASIC Chair Joe Longo criticised lenders for not meeting community expectations and ignoring hardship notices in some cases. "In the worst cases, lenders ignored hardship notices, effectively abandoning customers who needed their support" and were not meeting community expectations," he said. "For people who reach out to their lender to signal they need support, this can be devastating. Too many Australians in financial hardship are finding it hard to get help from their lenders and it's time for meaningful improvement."

The report highlights lenders' failures to identify customers in financial stress, their use of 'cookie-cutter' approaches to dealing with hardship requests, and onerous assessment and approval processes.

ASIC Commissioner Alan Kirkland criticised lenders for not taking their customers' unique situations into account, instead providing a standardised 'one-size-fits all approach', which is not meeting customers' needs.

"The lack of support and in some cases, failure to respond when customers flagged they were struggling, is unacceptable and greatly adds to the distress of customers already struggling with heightened levels of stress and anxiety," Kirkland said.

Of the 10 large home lenders reviewed in 2023, seven had improvement programs in place to manage financial hardship. ASIC expects all lenders to act on the findings outlined in this report and prioritise improving their approach to supporting customers experiencing financial hardship.

Under section 72 of the National Credit Code, if a consumer notifies their lender that they are or will be unable to meet their credit obligations, lenders must consider varying the customer's credit contract and advise them of the decision within specified timeframes.

In August 2023, ASIC issued an open letter to the CEOs of all lenders advising of focus on financial hardship and expectations of lenders. "ASIC spelt out in a letter to the CEOs of lenders last year that they need to meet their obligations to customers experiencing financial hardship," Longo said.

"This report highlights lenders must improve the way they deal with customers experiencing hardship. What we have seen is simply not good enough - struggling customers deserve the right support in their time of need," Longo said. "ASIC has made this a priority focus area, and where appropriate, we will not hesitate to take enforcement action to protect consumers."