Hardship is not default: what the law asks of a lender

A default is a failure to pay that a lender may enforce, after notice. A hardship notice is a borrower saying they cannot meet their obligations and asking for a change. The National Credit Code gives each its own procedure, and credit reporting law records them differently. A system that lets one stand for the other gets both wrong.

A hardship notice starts a clock

• A borrower who considers they are, or will be, unable to meet their obligations may give a hardship notice, orally or in writing (National Credit Code s 72(1)). There is no form and no required words.
• Within 21 days the lender may ask for specified information, to be given within 21 days of the date stated in its request (s 72(2)).
• The lender must then give a notice: either of the change agreed, or that no change was agreed, with the reasons, AFCA’s contact details and the borrower’s rights there (s 72(4)).
• The deadline is 21 days after receiving the hardship notice. If information was asked for, it is 21 days after receiving it, or 28 days after the date stated in the request if none arrives (s 72(5)).
• An agreed change that defers or reduces repayments for no more than 90 days needs no s 72(4) notice (s 72(4A)). A refusal always does.

These are the clocks regulators check. ASIC reports that in August 2025 the Federal Court ordered a major bank to pay a $15.5 million penalty for failing to respond to customers facing hardship (REP 815, September 2025).

A default needs notice, then time

Before enforcing a credit contract, a lender must give a default notice allowing at least 30 days from the date of the notice to remedy the default (s 88(1)(b)). The notice must tell the borrower about their right to give a hardship notice and about AFCA (s 88(3)(f) and (g)).

A hardship notice holds enforcement too. Where a default notice is needed and the lender refuses the request, it may not begin enforcement until 14 days after its refusal notice (s 89A(2)). That hold does not apply to a repeat notice within four months that the lender reasonably believes rests on the same basis (s 89A(1)(c)).

On a credit report, hardship is its own record

• A lender that reports repayment history for a month affected by a hardship arrangement must report the financial hardship information with it (Privacy Act s 21EA).
• Under a temporary arrangement, a borrower with no overdue payment at month end, measured against the arrangement, has met their obligations, and the month is reported as “Current” (Privacy (Credit Reporting) Code 2025, Sch 2 s 8(2)(b) and 8(5)). Under a variation, repayment history is measured against the varied terms (Privacy Act s 6V(1A)).
• A lender must not report default information while it is deciding a hardship request, or until at least 14 days after telling the borrower it refused (Code s 9(1)), unless the request is materially the same as one made in the previous four months (s 9(2)).
• A credit reporting body may not disclose a credit score derived from hardship information (Privacy Act s 20E(7)), and must tell a person who asks that hardship information was not included in a score it gives them (Code s 19(17)).
• Hardship information is kept for one year from the due date of each payment it relates to; repayment history for two (Privacy Act s 20W).

Why one question for both is wrong

Application forms often ask whether the applicant has ever “defaulted, been in collections or had a hardship arrangement”. One “yes” then covers someone who stopped paying and someone who asked for help, got it and kept to it. They are different risks.

ASIC’s responsible lending guidance points the same way. Where a consumer has had repayment difficulty, it expects more inquiries: the cause, whether it was short-term, whether they negotiated a change, and whether they kept to it. Past difficulty does not necessarily make new credit unsuitable, and responsible lending should not, on its own, stop someone who has had it from getting an appropriate loan (RG 209.104 to 209.107). Those inquiries are only possible if default and hardship are asked about separately.

Credit reporting law makes the same split: a kept arrangement is reported as current, and bureaus may not disclose a score built on hardship information. A form or a model that counts hardship as a black mark undoes that.

One limit, to be exact. We found no provision that stops a lender declining an application because of hardship information. What the law requires is that hardship is recorded and reported apart from default, and that a lender finds out what happened before it decides.

What a lender’s systems should do

The first four follow from the provisions above. The rest are the practice we recommend, and what our software does.

• Recognise a hardship notice in any channel — a call, an email, a chat — and start its clock on the day it is received.
• Answer within the s 72(5) period, with reasons and AFCA’s details if the answer is no. Treat a complaint about a hardship notice as urgent (RG 271.92).
• List no default while a request is being decided, or for 14 days after a refusal.
• Report a kept arrangement as current, with its hardship code beside it.
• While a request is pending, hold the account where it was: no new negative repayment history, no new fees, no step towards collections.
• Give every arrangement a start, an end and a payment plan. Freeze days past due while it runs, and resume from the frozen count if the account is still behind when it ends.
• Keep hardship and default as separate fields in the ledger, the loan book and every report, and ask about them in separate questions.

ASIC’s RG 209 still describes the small amount credit presumptions of unsuitability (RG 209.152 and 209.228 to 209.234). Those provisions, former ss 118(3A), 123(3A), 131(3A) and 133(3A) of the National Consumer Credit Protection Act, were repealed from 12 June 2023 (Financial Sector Reform Act 2022, Sch 4).

Sources

1. National Credit Code, Schedule 1 to the National Consumer Credit Protection Act 2009, compilation No. 52 (1 July 2026): ss 72, 88 and 89A.
2. Privacy Act 1988, compilation No. 104 (4 June 2026): ss 6QA, 6V, 20E, 20W and 21EA.
3. Privacy (Credit Reporting) Code 2025 (F2025L00385, registered 25 March 2025): Sch 2 ss 8, 8A, 9 and 19.
4. OAIC, What is financial hardship information?
5. ASIC, RG 209 Credit licensing: Responsible lending conduct, as updated March 2025.
6. ASIC, RG 271 Internal dispute resolution (2 September 2021).
7. ASIC, REP 815 Hardship, not as hard to get help (25 September 2025).
8. Financial Sector Reform Act 2022, Schedule 4, Part 1, and s 2 (commencement).