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Financial Difficulty

Financial difficulty - Hot topics

Information you need to give FOS
Variation of a credit contract
Application of the responsible lending provisions of the NCC
Preservation of assets
Repayment agreement and subsequent financial difficulty

The “hot topics” discussed below are issues that often arise when we consider financial difficulty disputes.  The purpose of discussing these topics is to help stakeholders to understand our dispute resolution process and our approach to financial difficulty disputes.  We hope increasing applicants’ and financial services providers’ (FSP) understanding of the process and approach will result in:


  • more timely resolution of disputes lodged with us, and
  • resolution of more disputes by parties without the need to lodge a dispute with FOS. 

Information you need to give FOS

To help us to resolve disputes fairly and efficiently, applicants and FSPs need to answer questions about the dispute and provide supporting information and documents wherever possible.


Generally, we expect applicants to provide the information we describe below as early as possible during our consideration of the dispute.


Information about your current financial position

Applicants should provide a current statement of financial position which includes information about their current:

  • income
  • expenses
  • assets and
  • liabilities.


Relevant supporting documents may include:

  • Centrelink records
  • financial records
  • contracts of employment and
  • other documents which show how payments can be met in the future.


FOS has developed a statement of financial position that applicants can complete. It is available on our website at


Information about how to repay the debt
Applicants should review their financial circumstances so they can:

  • make a realistic proposal for repayment of the debt, and
  • show how they will be able to repay the debt in the long term if their proposal is accepted.


Where a debt is unsecured, this information is generally required to enable us to progress the dispute. 


Where a debt is secured, the dispute may progress to conciliation. Where a repayment arrangement cannot be reached, the appropriate resolution may be a timeframe for sale of the asset. Such a resolution may be facilitated at a telephone conciliation conference.


Small businesses

Where an applicant is a small business, we expect the business to provide sufficient information to demonstrate the business is viable as a going concern. This might include:

  • recent financial statements
  • a business plan
  • cash flow statements and projections
  • aged debtor and creditor listings and
  • tax records.


You will need to supply the documents which support the assumptions made in the business plan and cash flow projections.


Further details about our approach to where the applicant is a small business were outlined in Circular Issue 2 (April 2010) available at:

Financial services providers

The initial response provided to FOS should include the following information and supporting documents:

  • how the FSP has responded to the customer’s request for assistance
  • any previous requests for assistance and how the FSP responded to these
  • the steps the FSP has taken to try and assist their customer to overcome their financial difficulty
  • details of the credit facility, the arrears and the outstanding debt, and possible repayment arrangements the FSP would be prepared to consider.


Many initial responses received from FSPs do not include all of the information needed to allow us to consider the dispute. Whilst an FSP may not have current details of their customer’s financial position, we expect the information outlined above to be provided with their initial response.


Where an FSP is trying to negotiate directly with their customer to resolve the dispute, they will often delay providing the requested information to FOS.  This can cause delays in the progression and timely resolution of the dispute.


Requesting customers to provide excessive documentation, such as:

  • rental agreements
  • specialist certificates where a doctor’s certificate has already been provided
  • utility bills, or
  • rates notices

can be a barrier to dealing with hardship assistance.


Our view is that an FSP should make an assessment based on the information it has available. Where assumptions have been made (for example, that the monthly wages relied upon have not been verified) the FSP should identify any assumptions made and what, if any, additional documentation will be required from the customer before a repayment arrangement can be entered into. 

Consequences of any failure to provide information

The consequences of non compliance with a FOS request for information are set out in paragraph 7.5 of the FOS Terms of Reference (TOR) and explained in the guideline to paragraph 7.5. Non compliance without reasonable excuse may have the consequences described below:

  • where an applicant does not provide information we request, we may refuse to continue to consider the dispute. In such cases, we will warn the applicant that failure to provide the information will result in file closure and upon closure of our file the FSP will be entitled to commence or continue recovery action
  • where an FSP does not provide information we request, we may progress the dispute and can ultimately proceed to issue a decision, and
  • where a party fails to provide information we request, we may draw an adverse inference that the information does not favour that party.

Variation of a credit contract

Paragraph 9.1 of the FOS TOR gives FOS the power to require the FSP to undertake a course of action to resolve a dispute. This includes requiring an FSP to vary the terms of certain credit contracts in cases of financial hardship (para 9.1(f)).


FOS may only vary credit contracts that are regulated by either the Uniform Consumer Credit Code (UCCC) or the National Credit Code (NCC), such as credit cards, home loans or personal loans. Loans used primarily for business purposes are not regulated, and therefore we do not have the ability to vary the terms of these loans. However we still expect FSPs to give genuine consideration to an applicant’s request for assistance where the loan is not regulated.


For contracts that are regulated, the types of variations that FOS can require include:

  • extending the term of a loan
  • postponing repayments for a specific period, or
  • establishing a short or long term repayment arrangement.


Potential variations are not limited to those stipulated in section 72 of the NCC. They include any reasonable contractual arrangement that may help an applicant to overcome their financial difficulty.


FOS will only require an FSP to provide assistance to an applicant if we are satisfied that:

  • the applicant will be in a position to meet their long term contractual
  • obligations at the end of the period of assistance if the contract is varied; and
  • assistance would be appropriate taking into account the applicant’s current financial position.


When FOS considers whether a variation will be made, we take into account:

  • the FSP’s desire to see the loan repaid, and
  • the applicant’s interest in ultimately discharging their contractual obligations.


We expect that any assistance should result in the debt being repaid in full, even if this is over a longer period. This will generally mean that the applicant will need to demonstrate an ability to service the loan going forward. However what is appropriate for each applicant will depend on their individual circumstances, and this can only be considered if the applicant provides the relevant information and supporting documents requested by FOS.


Where a loan is secured over an asset, for example a home loan or vehicle loan, and the applicant has not demonstrated that they will be able to meet their contractual repayments in the long term, sale of the asset may be the appropriate resolution. If this is the case, we may arrange a telephone conciliation conference to discuss a timeframe for the applicant to sell the asset voluntarily.

Application of the responsible lending provisions of the NCC

The responsible lending provisions of the NCC will not apply to hardship variations if a new credit contract is entered into.  ASIC Information Sheet 105 states that:


The responsible lending provisions will not apply to hardship variations unless additional credit is provided (which would be unlikely in the vast majority of cases) or existing obligations are refinanced (creating a new contract instead of varying the existing contract). This does not mean that a consumer’s capacity to meet revised payment obligations is not important—it is in fact an important part of the hardship process, and failure to pay sufficient regard to affordability could leave a variation open to challenge as unjust. See s76 of the National Credit Code.


ASIC Information Sheet 105 is available from

Consolidation of loans

A renegotiation of the credit contract after it has been entered into may be:

  • a variation of the existing contract, or
  • a new credit contract. 


Whether it is a variation or a new contract will depend on the nature of the proposed changes.  For example:

  • consolidation of a credit card debt into a home loan may invoke the responsible lending provisions if a new credit contract is formed,
  • if instead funds are redrawn from the home loan in order to pay out the credit card debt, the responsible lending provisions do not apply because no new credit contract is formed.


 We will assess each situation on a case-by-case basis.

Capitalisation of arrears

Capitalising interest that is in arrears does not of itself result in a new contract and can be achieved within the provisions of the existing contract. 


For this reason, we do not believe that the FSP needs to satisfy the responsible lending provisions of the NCC as there is no increase in the credit limit if an FSP offers to capitalise the arrears in resolution of the dispute.  However, the repayments should still be affordable.


Preservation of assets

Paragraph 13.1(b)(ii) of the FOS TOR recognises that it may be necessary for the FSP to take action to preserve assets the subject of the dispute.  This may be because the assets are at risk of loss, damage or disposal. 


The FSP should first contact FOS to discuss its request to preserve its assets. The request must be in writing and the FSP must explain:

  • what action the FSP wants to take
  • why it is necessary to take such action,

and provide relevant supporting information and documents.


Generally, FOS will agree to such a request if information is provided to show that the asset is at some additional risk of being lost, damaged or disposed of whilst it remains in the possession of the applicant. The information provided to support the application must show that it is more likely than not that there is an additional risk.  Increasing arrears and an uncertain security position is generally not sufficient for FOS to provide its consent.


Circumstances where we have provided consent include disputes where:

  • an applicant would not disclose the whereabouts of a security vehicle; and
  • a business had closed its doors and information provided showed the stock was being removed.


FOS understands such requests are often urgent and, where possible, will treat such requests with priority.


FOS Circular 3 update provides further guidance on the operation of paragraph 13.1 of the TOR.  Specifically, paragraph 13.1(a)(iii) requires an FSP to cease recovery action over an asset securing a debt which is the subject of the dispute while our file remains open.  This information is available at


Repayment agreement and subsequent financial difficulty

Where a repayment agreement has been entered into in resolution of a dispute and:

  • it cannot be met, or
  • relevant time frames have expired and normal repayments cannot resume,

recovery action may recommence, where our file has been closed.  It is preferable that the terms of settlement include a provision that the FSP will give at least seven days’ notice of its intention to recommence recovery action when the terms of the agreement have not been met.


In many cases an applicant will lodge a further dispute.  This often occurs where the financial difficulty is ongoing and long term and, despite the applicant’s best intentions, they are unable to meet a repayment arrangement.

Paragraph 5.1 of the TOR sets out the circumstances in which FOS will not consider a dispute. These circumstances include:

  • where a dispute has already been dealt with by FOS or in another forum, or
  • where a dispute has already been resolved by agreement. These points are explained in the Operational Guidelines to paragraph 5.1.


We will not re-open a dispute if it has already been dealt with by us or another forum.  However, if there are sufficient additional events and facts raised in the new dispute to warrant our further consideration, we may consider the new matters raised. 


Additional events and facts which are sufficient to warrant FOS’s consideration of the dispute arise where:

  • the additional events and facts were central to the outcome of the dispute dealt with earlier (rather than surrounding or peripheral circumstances), and
  • it would not be fair in all the circumstances to allow the outcome of the earlier dispute to stand.


Where the previous dispute was “dealt with” by way of a settlement agreement signed by both parties, FOS will not generally consider the dispute unless:

  • the FSP has failed to comply with the terms of any settlement agreement reached, or
  • new issues have arisen post the date of the settlement agreement which were not covered by the terms of settlement and which can be considered by FOS.


We may request further information from the parties to form a view about this.


As a part of any negotiated outcome, it is important that the parties to a dispute discuss and agree what will occur in relation to any outstanding debt where a default occurs under the repayment/settlement agreement.  This provides clarity for the parties in the event of default, particularly where legal proceedings are on foot at the time of lodgment of the FOS dispute. 


In some cases, the terms of a repayment arrangement may include a partial waiver of the debt. If so, where a subsequent event of default occurs, the amount recoverable by the FSP may depend upon the wording of any settlement agreement. This was discussed in a recent decision issued in the Supreme Court of New South Wales (Bendigo and Adelaide Bank Limited v Tombs and Anor [2010] NSWSC 1427, 3 December 2010).


Where a dispute has not been “dealt with” by FOS but our file was closed because the applicant failed to provide requested information or to comply with some other request by FOS, we will only reopen our file where:

  • there was good reason for the applicant’s failure to comply
  • there are outstanding issues
  • reopening will not unfairly prejudice the FSP, and
  • the applicant has now complied with FOS’s request.


Where legal proceedings were on foot at the time the dispute was lodged, then a file will only be reopened if the applicant can also establish that there are exceptional circumstances why the file should be reopened.


If you are aware of any other hot topics involving financial difficulty that you would like FOS to address, please email us at [email protected] and let us know.  Our commentary will, of course, be provided on a de-identified basis.