Hardship variation and credit relief

Information about short-term help with your debt situation

An unexpected event that affects your ability to make repayments on a loan or credit card bill could occur at any time in the form of illness, loss of a job or relationship break-down. If this happens, you should inform your credit provider immediately, preferably in writing. Similarly, if you find yourself over-committed and unable to repay your debts, you should never ignore the problem. Don't just hope that things will change or that your credit provider won't take any action. Write to your credit provider straight away and request a variation to the terms of your contract.

Hardship variation

If because of illness, unemployment or other reasonable cause you find yourself temporarily unable to repay your debts you can request your credit provider to change the terms of the contract to better suit your needs, or to hold off on any impending enforcement proceedings. This is called a 'hardship variation'. (Note that you can only apply for a hardship variation if you borrowed less than the current hardship threshold figure.)

Apply for a hardship variation by requesting one from your credit provider in writing. This will require that you:

Provide loan contract numbers.
Outline the change in your circumstances and how it is causing you hardship, as well as when you expect your financial situation to get back to normal.
Specify how you would like the contract to be changed: would you rather make smaller repayments over a longer term, or postpone repayments for a certain time and make up the difference later on?
Make a realistic offer.
If necessary, request that impending legal action be put off.
State the urgency of the matter and, if necessary, request an urgent decision by the credit provider.
Use the correct terminology and where possible refer to the Consumer Credit Code and other related laws.
Include documentation to verify your situation.
Set a reasonable deadline for a response from the credit provider. This is usually 14 days from the date of the letter if you mail it and a shorter time if the lender has threatened action against you. If it is urgent, you can fax the application; however, make sure you also send a copy by registered post. (Sending your letter by registered post proves you have requested a hardship variation and the date you did so.)

Sample letters illustrating how to ask for a hardship variation are contained in Consumer rights when it all goes wrong: how to ease the credit squeeze!

Credit relief

If your credit provider refuses to vary your repayments, you can apply to Consumer Protection for 'credit relief'. Credit relief involves Consumer Protection intervening on behalf of borrowers to negotiate a change of contract with the credit provider. You can get a credit relief application form by calling the Credit Relief Hotline on 1300 30 40 54, or by sending an email.

We will assess your application according to:

whether your financial problems are temporary;
whether your earnings and expenses will allow you to repay your debts; and
the history of your debt and whether you've received any credit relief before.

Where appropriate, Consumer Protection will discuss your situation with your credit provider and seek to negotiate a hardship variation or beneficial change to your loan contract on your behalf. The new arrangements could mean making smaller repayments over a longer term or delaying repayments for a certain time. While negotiations are going on, it is important that you continue making whatever payments you can afford and that you meet all the other requirements of your credit contract. For example, if you are paying off a car loan, you must keep the car insured and registered.

Remember that credit relief is just one way of dealing with your short-term problem. Credit relief does not reduce your debt. In fact, it may cost more money in the long run because the interest rate remains the same and the term of the loan is usually longer. Credit relief is only for temporary and unexpected problems, such as temporary illness, loss of a job or a drop in routine overtime. If your financial problems are likely to be long-term, credit relief may not be the solution because, if payments are postponed for too long, the interest on your debt continues to grow and you will fall even further behind.

When your finance company still refuses to vary your contract

If Consumer Protection is unable to negotiate a hardship variation, you have a right to apply for a change to your contract at the State Administrative Tribunal (SAT). The tribunal is an independent body that has the power to order your credit provider to alter the terms of the loan.

Once you have referred your case to the Tribunal, Consumer Protection is no longer involved. You can choose to represent yourself before the Tribunal, or you can arrange for your own solicitor to represent you.

If you decide to represent yourself, it is recommended that you firstly get advice from the Consumer Credit Legal Service WA (CCLS). CCLS is the principal agency within Western Australia that provides free advice, information and counselling on credit-related issues, including finance, credit contracts, credit cards and mortgages.