Bank breached code by failing to mention hardship flag

Hardship and financial difficulty,
Corinne owned a property with her friend Amy. They had a loan with the bank, secured by a mortgage over their property. They fell out and were unable to agree on what should happen to the property. Corinne kept up loan repayments while she and Amy negotiated through their lawyers about what to do with the property.
October 2020

The loan was about to come off its fixed interest rate term. Corinne was concerned she would not be able to afford repayments on a higher floating rate. Neither Corinne nor Amy wanted to refix the rate while negotiations continued because it was likely they would have to sell the property. Corinne explained the situation to the bank and asked for a mortgage repayment holiday. The bank assessed the request in accordance with its financial hardship policy and approved a three-month loan repayment deferral. The bank put a hardship flag on Corinne’s credit report. 

Corinne and a family member then tried to buy Amy’s share of the property. They went to a mortgage broker, who submitted loan applications to the bank and to another bank. At this point, the mortgage broker discovered the hardship flag on Corinne’s credit report. The hardship flag delayed the loan assessment applications while the bank considered the circumstances of the hardship flag. The bank approved the application in the end, but the purchase did not go through because Amy rejected the amount offered for her share. Corinne, however, remained concerned that the hardship flag would make it difficult for her to get finance from other banks in future.

Corinne said that had the bank told her that one of the consequences of taking up the loan repayment deferral was a hardship flag, she would not have taken the loan repayment deferral. Corinne also believed no bank would lend her money while the hardship flag was on her credit report.  She said she would have explored other options to maintain loan payments while she and Amy continued their negotiations. For its part, the bank said the hardship flag meant that any bank considering a finance application would undertake a full manual assessment of the application. It did not mean an automatic rejection of any application.

Our investigation

The bank accepted it failed to tell Corinne it would load a hardship flag on to her credit report if she took out the loan repayment deferral. The Code of Banking Practice says banks must communicate clearly and effectively with customers. We concluded the bank breached that obligation by failing to tell Corinne about one of the consequences of accepting a loan repayment deferral. The bank offered Corinne $2,000 compensation for stress and inconvenience. We said we considered the offer reasonable, adding that she had suffered no direct financial loss as a result of the hardship flag.


Corinne accepted the offer. Further, the bank undertook to advise customers that one consequence of taking up a loan repayment deferral or paying interest only for a period under a hardship assessment would be a hardship flag on their credit report while they were in hardship. 

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