The same repayment problem can carry different hardship rights

Imagine two people who are temporarily unable to make a repayment. The cash flow problem looks the same, and the sensible first move appears to be the same conversation with the financial firm.

Now change one fact. In one case, the debt belongs to an individual. In the other, it belongs to a small business. AFCA’s financial hardship guidance says small businesses do not have the same financial hardship rights as individuals. AFCA’s financial hardship guidance

That does not mean AFCA cannot consider a complaint involving small business debt. It means advisers need to separate two questions that are easily treated as one: whether the client is seeking help with repayments, and whether there is a complaint AFCA can consider.

What AFCA calls financial hardship

AFCA describes financial hardship as when someone is temporarily unable to make a repayment on a debt, such as a credit card, home loan or personal loan. It says the causes can include sickness, natural disaster, unemployment or over-commitment to credit arrangements.

For a person experiencing financial hardship, AFCA says they should contact their financial firm as soon as possible. The person and the firm can make a hardship arrangement, described by AFCA as a simple plan to help deal with repayments. If they cannot agree on an arrangement, the person can make a complaint to AFCA.

The same guidance then draws the line that matters for advice practices. Small businesses experiencing difficulties making repayments should contact their financial firm, but small businesses do not have the same financial hardship rights as individuals.

The complaint question is separate

AFCA’s credit, finance and loan guidance says it can consider complaints about credit, finance or loan products. Its overview includes investment and small business loans, and says AFCA also considers complaints about guarantees. AFCA’s credit and loan guidance

That coverage does not turn every repayment problem into the same hardship matter. The nature of the issue still matters. AFCA says there are some things it cannot consider, including a complaint that concerns only the level of an overdrawn fee or an interest rate increase. It may be able to consider a complaint about a fee or charge if it was incorrectly calculated or applied.

For an adviser, the practical test is therefore more precise than asking whether the client is in hardship. Ask what debt is involved, who is seeking help and what the complaint concerns.

What the practice should capture

A practice note can help preserve the distinction between an individual hardship request and a business complaint. Record:

• whether the debt is being discussed as an individual debt or a small business debt;
• the type and purpose of the credit facility;
• the person seeking assistance and the capacity in which they are speaking;
• whether the issue is an inability to make a repayment or a complaint about the credit, finance or loan product; and
• what contact has already occurred with the financial firm.

The note should also record the explanation given to the client. The practice can explain what AFCA’s published guidance says about contacting the financial firm, hardship arrangements and complaints about credit products. It should avoid presenting that guidance as a determination that AFCA will accept the complaint or that the financial firm will agree to an arrangement.

Where a client discusses both personal and business debt, record the obligations separately. That keeps the hardship question from being used as a substitute for identifying the particular debt and issue in dispute.

The accurate starting point is narrow: identify the debt, distinguish a repayment difficulty from a complaint, then explain the relevant process. AFCA says small businesses do not have the same financial hardship rights as individuals, while its credit guidance says it can consider complaints about small business loans and other credit products.