Top 7 Hardship Compliance Traps and How to Avoid Them

When customers tell you they can’t meet repayments, you’re in hardship territory, where the National Credit Code, ASIC’s RG 271, and the Banking Code of Practice intersect with your day-to-day operations. The upside? When you get hardship right, you reduce AFCA exposure, protect brand trust, and even improve cure rates. The downside of getting it wrong has been made stark by recent enforcement and reviews.

Key takeaways

  • Hardship notices can be verbal. Train teams to recognise and time-stamp them across every channel.
  • The 21/28/21-day NCC response clocks are non-negotiable—design your queues and SLAs around them.
  • IDR timing still applies: most complaints must be resolved within 30 days under RG 271.
  • If the arrangement defers/reduces obligations ≤90 days, written variation notice relief can apply; >90 days needs written notice within 30 days.
  • Report Financial Hardship Information (FHI) correctly; A/V flags drop off after 12 months and can’t be used in credit score calculations.
  • The 2025 Banking Code of Practice lifts expectations, especially for vulnerable customers and small business coverage.
  • APRA APS 220 drives prudential treatment of non-performing and restructured exposures, important for MI, provisioning and Board reporting.

 

Trap 1: Treating hardship as “forms only” (and missing verbal notices)

Customers don’t need magic words or a web form to trigger a hardship notice. If they tell you, in writing or verbally, that they can’t meet obligations, that’s a hardship notice and your NCC obligations start immediately. Many lenders still miss notices hidden inside ordinary collections calls or chatbot transcripts.

How to avoid it

  • Train for cues: Teach front-line staff to recognise any statement of inability to pay as a hardship notice. Script the transfer/escalation flow so the customer isn’t bounced. ASIC’s recent review found many notices were missed or not actioned.
  • Multi-channel capture: Ingest webforms, email, phone logs and chat into one queue; auto-create a hardship case when keywords or intent are detected.
  • Stamp the time: The compliance clock starts on receipt, so audit-grade time-stamping (with channel) is essential.

 

Trap 2: Blowing the 21/28/21-day NCC clocks

Under section 72, if you don’t need more information, you must decide within 21 days of the hardship notice. If you ask for information (you must ask within 21 days) and the customer doesn’t provide it, you’ve got 28 days from the request to respond. If they do provide it, you have 21 days from receipt of the information to decide. Getting this wrong is a fast track to AFCA and regulatory action.

How to avoid it

 Automate SLA timers: Start the 21-day countdown on intake; if you request info, auto-start the 28-day (no info) or 21-day (info received) paths.

  • Escalate early: Build “breach risk” prompts at T-5 days and T-2 days for team leaders.
  • Standardise decline letters: When declining, you must give reasons and AFCA details—template these to avoid omissions.

 

Trap 3: Mixing up IDR complaints with hardship—and missing RG 271 deadlines

Hardship cases frequently morph into complaints (“you didn’t respond”, “you refused unfairly”). Once it’s a complaint, RG 271 clocks apply: most must be closed within 30 days, with specific content standards for final responses. Many teams treat hardship and IDR as separate worlds and drop the ball.

How to avoid it

  • Dual-track logic: If a hardship customer expresses dissatisfaction seeking remedial action, create an IDR complaint in parallel.
  • Unified MI: Report hardship-related complaints together with your hardship MI to spot friction points (e.g., delays after info requests).
  • One voice to the customer: Align outcomes so the hardship decision and the IDR response are consistent.

 

Trap 4: Getting variation notices wrong—especially the ≤90 days relief vs >90 days rule

If your arrangement defers or reduces obligations for 90 days or less, ASIC’s class relief (often called “simple arrangements”) means you don’t have to send a written variation notice. But once you go beyond 90 days, section 73 kicks in: send a written notice of the change within 30 days (and tell any guarantor). Teams routinely muddle the threshold or miss the 30-day letter.

How to avoid it

  • Decide the pathway at approval: Label each outcome as ≤90-day simple arrangement or >90-day variation and auto-trigger the right communication.
  • Track cumulative relief: A series of short pauses can tip you into >90 days—your system should add them up and switch the rule.
  • Mind guarantors: Where present, your >90-day letter must go to the debtor and guarantor.

 

Trap 5: Poor credit-reporting during hardship (FHI)

Since 1 July 2022, credit files show Financial Hardship Information (FHI) beside monthly repayment history—‘A’ for temporary arrangements and ‘V’ for variation arrangements. The flags drop off after 12 months, and credit reporting bodies must not use FHI in score calculations. Errors here drive complaints and lasting customer harm.

How to avoid it

  • Map outcomes to FHI correctly: Temporary pauses/deferrals map to ‘A’; contractual changes map to ‘V’.
  • Keep RHI accurate: If the varied terms are met, the account should still show on-time under the new schedule.
  • Dispute handling: Build a fast path to correct mis-flagged months and notify the CRB promptly.

 

Trap 6: Thin vulnerability practice—especially under the 2025 Banking Code

The 2025 Banking Code of Practice (effective 28 February 2025) raises the bar on inclusive, accessible banking and expands protections, particularly for small businesses, with stronger expectations around financial difficulty and vulnerability. Lenders will be measured on how they identify and support vulnerable customers, not merely on legal minimums.

How to avoid it

  • Define vulnerability indicators: Family violence, cognitive impairment, language barriers, bereavement, gambling harm, severe illness. Document triggers and routes.
  • Accessible channels: Offer plain-English letters, translation, third-party authority processes, and flexible verification.
  • Evidence support: Record reasonable adjustments, referrals (e.g., financial counselling), and follow-ups.

 

Trap 7: Ignoring the prudential lens. Restructures and provisioning

Hardship isn’t only a conduct issue. Under APRA’s APS 220, banks must identify and manage non-performing and restructured exposures, with some distressed restructures treated as defaults for risk purposes (think: material forgiveness or postponement of principal/interest/fees). Your Board will expect coherent MI that aligns the customer, conduct, and prudential views.

How to avoid it

  • Define “distressed restructure” locally: Translate APS 220 signals (e.g., material postponement, capitalising arrears) into policy rules.
  • Connect dots: Align hardship outcomes with stage allocation, ECL assumptions, and Board MI.
  • Feedback loop: Use prudential metrics to refine hardship strategies (e.g., when a short-term deferral is likely to relapse).

 

Real-world stakes: why this all matters

Recent ASIC action has targeted late hardship responses, including cases alleging failures to meet the 21-day decision deadline. Nobody wants to be the next headline or case study. Build your controls now, not after enforcement knocks.

 

How 365 Collect Helps

365 Collect supports your hardship process by giving teams a consistent, auditable way to manage cases from first contact through to closure. It sits alongside your existing policies and systems, helping you work more clearly and confidently.

  • Structure: Promotes a clear, repeatable process so teams follow the same steps every time.
  • Visibility: Centralises notes, documents and decisions for a single source of truth.
  • Consistency: Encourages uniform communications and record-keeping to reduce variation.
  • Oversight: Provides practical views and exports to support operational and governance reporting.
  • Flexibility: Configurable to your products, channels and risk appetite.
  • Enterprise fit: Designed to work within your existing technology environment and controls.

365 Collect helps you deliver a repeatable, transparent hardship experience, while policy settings and final decisions remain entirely with you.

 

FAQs

What exactly counts as a hardship notice?

Any customer communication—verbal or written—that indicates they cannot meet credit obligations. There’s no set form; do not limit recognition to a webform or letter.

What are the 21/28/21-day timeframes again?

  • 21 days to decide if you don’t request more information.
  • If you request information (you must ask within 21 days of the notice):
    • 28 days from the request if the customer doesn’t provide it; or
    • 21 days from receipt if the customer does provide it.

Do IDR (RG 271) timelines apply if a hardship case becomes a complaint?

Yes. Once it’s a complaint, RG 271 complaint timeframes apply (most must be resolved within 30 days), in addition to hardship obligations. Build dual-track handling.

When do I need a written variation notice?

If the arrangement defers or reduces obligations for >90 days, send a written notice of change within 30 days (and notify any guarantor). For ≤90-day “simple arrangements”, ASIC’s relief means no written variation notice is required.

How should I credit-report hardship?

Report FHI correctly—‘A’ for temporary, ‘V’ for variation. These flags drop after 12 months and cannot be used in credit score calculations. If the customer meets the varied terms, show on-time under the new schedule.

What changed with the 2025 Banking Code of Practice?

The new Code (from 28 Feb 2025) expands small business protections and strengthens commitments to inclusive and accessible support, with more emphasis on financial difficulty and vulnerability. While not legislation, it sets higher industry standards that ASIC has welcomed.

Where does APRA APS 220 fit in?

It governs the prudential side—non-performing and restructured exposures, early identification, and provisioning. Some distressed restructures are indicators of default, affecting capital and Board oversight. Align your hardship MI with prudential reporting.

 

If you’d like to find our more how we could support you and your business, get in touch today.