Rising interest rates and high living costs in Australia are placing pressure on many households. We are acting to improve the way we identify and support ANZ customers who find themselves in financial difficulty.
Research shows the vast majority of households repay their debt comfortably and two thirds of all households have little or no debt at all.
But while the majority of households are comfortable, some are clearly struggling. Increased fuel and debt servicing costs fall more heavily on those with low incomes. There is also evidence that the number of households experiencing difficulty is growing. This year we again saw a rise in bankruptcy rates and further increases in demand for the services of financial counsellors.
For ANZ, an important part of being a responsible lender is looking beyond the aggregate data and understanding how consumer credit can impact people in their daily lives, in particular those on low incomes. We then take steps to support these customers.
OUR APPROACH
Last year we reported on our Responsible Lending commitments. We no longer make unsolicited credit card limit increase offers to customers we know are on a government benefit or who have shown recent signs of struggling to make repayments on their card.
This responded to our research into financial difficulty which found that some customers can accept these offers without fully considering affordability. For some, the offers can create a perception that 'if the bank sent it to me, it must be okay'.
This was an important step, but we know our responsibility does not end at how we market credit.
Regardless of the controls we put on ourselves, or the information we provide to our customers, there will always be customers whose circumstances change and who will get into financial difficulty. Providing the right support and guidance is not only important to the customers involved, but is crucial to control the level of credit losses to our business, especially if more households are struggling to make ends meet.
SUPPORTING CUSTOMERS IN HARDSHIP
This year we worked with Kildonan Uniting Care, a community-based organisation with expertise in consumer hardship, to review the way we interact with retail customers who are falling behind on repayments.
The review we conducted with Kildonan found ways we could be more proactive about offering assistance rather than waiting for the customer tell us they are in hardship. In the past, we have been too focused on the cause of a customer's difficulty, only offering assistance if their circumstances fit into a pre-determined category, such as unemployment or illness.
We are now introducing a more consistent and flexible approach across our entire retail business. If a personal loan customer has a genuine desire to pay off their loan but needs more time, it should not matter why they are struggling in the first place. It should be as easy as possible to enter a repayment arrangement they can afford to pay - this is in our interests as much as the customer's.
Our staff are being trained to more proactively identify customers who may benefit from an alternative payment plan or other relief to help them get back on track. Subjective judgements about whether the customer's circumstances are deserving of relief will be avoided.
Payment plans, where possible, will be based on what the customer indicates they can afford and not dictated by the bank. We are also working to cut paperwork, finalising payment plans over the phone where we can.
TAKING PREVENTATIVE MEASURES
While responding effectively to customers in difficulty is vital, prevention is better than cure.
Our credit cards business commenced a pilot in June 2007 to contact customers who may be showing early signs of financial difficulty.
For the pilot, we are choosing customers who are close to or have exceeded their credit limit, even though they may not yet be missing payments. We offer them options like temporary fee and interest waivers or reduced minimum monthly payments to help them stabilise their finances and hopefully pre-empt credit problems.
This is unchartered territory for us and we are testing the approach. Calling customers with this offer could easily be seen as intrusive, especially where the customer has not yet defaulted on their account.
We have been encouraged by the early results, and in particular the positive response from our customers.
Throughout the pilot we will continue to monitor the accounts of customers who have taken up offers to see whether this early intervention can make a difference to default rates.
'Kildonan is encouraged by ANZ's desire to develop such important and innovative approaches to consumers who may be in difficulty.'
Sue Fraser, Senior Manager, Social Advocacy Services, Kildonan Uniting Care
