Hardship applications

A borrower has the right to ask you for a change to their personal loan, mortgage, credit card or other consumer credit contract, if they meet the following criteria:

• the borrower has suffered a hardship they couldn’t reasonably have seen coming, such as illness or injury, loss of employment, the end of a relationship, or death of a partner or spouse
• as a result of that hardship, the borrower cannot reasonably meet their debt repayments, and
• the borrower believes they would be able to meet their debt repayments if the contract was changed in the ways specified by the Credit Contracts and Consumer Finance Act (CCCF Act).

When can a borrower make a hardship application?

A borrower can make a hardship application at any time, unless the borrower:

• has been in default for two months or more
• has been in default for two weeks or more after receiving a repossession warning notice or Property Law Act notice, or
• has failed to make four or more consecutive debt repayments by or on their due dates.

Borrower also cannot make an application if it was reasonably foreseeable by them at the time the contract was made that they would be unlikely to be able to meet their obligations under the contract.

Borrowers may only make one hardship application on the same grounds within any four-month period, unless you agree to consider another application. If the borrower catches up on the debt repayments and defaults, they are again entitled to make a hardship application.

What changes can be made?

A borrower can ask for a contract to be changed by either:

• extending the term of the contract and reducing the amount of each payment, or
• postponing debt repayments for a specified period of time (a payment holiday), or
• extending the term of the contract and postponing debt repayments for a specified period of time (a payment holiday).

While these options will provide temporary relief, they are likely to increase the total amount owing on a loan.

The borrower cannot seek changes that are more extensive than is necessary to enable them to reasonably meet their obligations under the credit contract. The changes asked for must also be fair and reasonable to both the borrower and the lender when all the circumstances are taken into account.

Note: when a contract is being changed due to a hardship application, you are not permitted to increase the interest rate.

What do I have to do when I receive a hardship application?

When considering a hardship application, you must comply with the lender responsibility principles. These require you to consider the hardship application in a careful, diligent and skilful way. They also require you to treat the borrower reasonably and in an ethical manner.

You must meet specific timeframes within which you must acknowledge the hardship application, request further information from the borrower (if you need it), and make a decision.

Your obligations when considering hardship applications

You must do the following things if you receive a hardship application:

• Send a written receipt or acknowledgement to the borrower within five working days of receiving the application.
• Send a written request to the borrower for any further information necessary to decide the application within 10 working days of receiving the application.
• If you do not request further information, you must decide whether or not to agree to the changes and notify the borrower (in writing) of the decision, within 20 working days of receiving the application.
• If you have not agreed to the changes, you must advise the borrower of the reasons for the decision, together with a clear summary of the borrower’s rights to apply to the courts to change the terms of the credit contract.
• If you agree to change the contract, you must provide the borrower with specific information about the change before the change takes effect.

If you have requested further information from the borrower, you must decide whether to agree to the contract changes within a specified period. You must make your decision within the later of:

• 20 working days after making the request for further information, or
• 10 working days after receiving the information requested.

Can I charge a fee for a hardship application?

You must not charge a fee in relation to a hardship application, whatever the outcome. However, if the application is successful, you may charge a fee for documenting any change to the contract providing the fee:

• is reasonable and reflects your costs of documenting the changes to the contract (excluding the cost of dealing with the hardship application)
• is set out in the contract, and
• has been disclosed to the borrower.

Can I repossess goods while the hardship application is open?

If a consumer credit contract is secured over consumer goods, you must not take enforcement action in relation to those goods while you are considering a hardship application including:

• giving a repossession warning notice
• repossessing consumer goods or entering premises for the purpose of repossession, or
• advertising, selling or disposing of consumer goods that have been repossessed.

There is one exception to this. You may repossess consumer goods while you are considering a hardship application if the goods are “at risk”. However, you must not take any further enforcement action until the hardship application has been decided.

Do I have to agree to change a contract as a result of a hardship application?

No. You must comply with the lender responsibility principles when considering a hardship application, but you do not have to agree to change the contract. There are a number of reasons you may decline an application. For example, you may have reason to believe that:

• the hardship is not unforeseen, and the borrower reasonably could have anticipated the situation leading to the hardship, or
• the changes being proposed aren’t reasonable – that is, you believe the borrower can afford to continue to meet their existing obligations under the contract.

If you do not agree to change the contract, you must:

• set out the reason for your decision in writing, and
• give the borrower a clear summary of their rights to apply to the Court to change the terms of the contract.