Banks have to respond to customers in hardship within 21 days. Picture: Lisa Maree Williams/Getty Images.)

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One of Australia’s biggest banks is being sued by the national regulator over allegations it failed to respond in time to hundreds of customers who asked for help during financial hardship.

The Australian Securities and Investments Commission has filed documents against National Australia Bank (NAB) in federal court Monday over claims it failed 345 of its customers “at their most vulnerable”.

ASIC chair Joseph Longo. Picture: NewsWire / Martin Ollman

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ASIC chair Joe Longo said “we allege NAB unlawfully failed to respond to their customers’ appeal for help when they needed them most”.

‘These customers included people who were domestic violence victims, battling serious medical conditions, dealing with business closures or job loss. NAB’s failures likely compounded the already challenging situation for these people.”

The customers had applied for hardship support from the bank between 2018 and 2023, the documents said, with the action being taken against the big four bank and its subsidiary AFSH Nominees Pty Ltd (AFSH).

NAB is being sued by ASIC over allegations it failed to respond in time to customers in hardship. Picture: Britta Campion / The Australian

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The documents said the bank did not respond within the 21-day timeframe required by law.

Mr Longo said with growing cost of living pressures “we have seen an increased number of customers reach out to their lenders for relief, and we have seen first-hand the impact on lives and livelihoods when lenders fail to appropriately support customers experiencing financial hardship”

Mr Longo warned “we will not hesitate to take decisive action when banks and lenders fail to comply with their obligations”.

“Compliance with financial hardship obligations is an enforcement priority for ASIC in 2024.”

ASIC is seeking declarations, pecuniary penalties and adverse publicity orders against NAB and AFSH.

ASIC took similar action against Westpac last year. Pciture: Britta Campion / The Australian

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ASIC had taken similar action again Westpac in September last year involving 229 customers between 2015 and 2022, which was amended to “at least 435 hardship notices” a month later. The instances also involved St George, BankSA and Bank of Melbourne which operated as divisions ofWestpac under its Australian credit licence.

At the time an ASIC statement said “all of these customers told Westpac they were experiencing financial hardship. Many of these customers also told Westpac about their difficult circumstances and vulnerabilities, including their inability to work, the impacts of serious medical conditions or their carer responsibilities.”

The regulator said “in some cases, customers endured debt collection activities by Westpac while waiting for the bank to respond to their hardship notices”.

The number of hardship notices by quarter over a year and a half, off data collected by ASIC during a review of 10 lenders. Source: ASIC

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An ASIC review of 10 large home loan lenders warned lenders need to do more to ensure customers are consistently and appropriately supported.

“An inadequate focus on customers underlies many of the poor practices we observed,” the report warned. “Lenders didn’t make it easy for customers to give a hardship notice. Assessment processes were often difficult for customers. Lenders didn’t communicate effectively with customers. Vulnerable customers often weren’t well supported.”

Financial Counselling Australia co-CEO Peter Gartlan said “it’s a customer’s right to get a proper hardship arrangement”.

“When Australians are in financial difficulty, their bank should treat a request for support fairly and promptly,” he said.

“The case studies in ASICs legal action against NAB are very concerning. Unemployment, domestic and family violence and the pandemic were some of the reasons why NAB customers sought assistance.”

“The fact NAB failed to respond in a timely fashion only exacerbated people’s anguish.”

“We know how tough it is to survive in the current climate. Banks have a legal and moral responsibility to respond.”

ASIC Deputy Chair Sarah Court said when the action against Westpac was filed that “submitting a hardship notice, which results in a change to the credit contract, can be a lifeline for people experiencing challenging financial circumstances”.

“ASIC has taken this action to highlight the importance of lenders responding to hardship notices within the required timeframe to reduce harm to their customers.”

If you are struggling with debt, a free and independent financial counsellor is available to chat on the National Debt Helpline on 1800 007 007 or visit ndh.org.au.

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