Kevin Rudd's Debt Relief Package

Kevin Rudd's Debt Relief Package

By Dominique Grubisa

There were front page headlines this week about Kevin Rudd’s unprecedented move in cutting a deal with the four big banks to assist working Australians who cannot afford to meet their loan repayments.

Kevin Rudd is being praised for his crafty negotiation skills, using the leverage he gained last year when the government helped the banks by guaranteeing deposits. He apparently called in the favour and hammered out the following ‘agreement’ with the big 4 to help those experiencing financial hardship:

1. Up to 12 month reprieve on mortgages;

2. Interest only repayments on car loans;

3. Extending the term of loans and reducing monthly repayments.

Beyond all the smoke and mirrors though, nothing has really changed and Kevin Rudd didn’t do anything but stage a big publicity stunt.

These hardship arrangements were already available and have always been open to banks to offer those experiencing financial hardship at their discretion. They having nothing to do with Kevin Rudd and he has nothing to do with them. In fact, the CBA already had in place a hardship hotline and a 12 month reprieve option before Kevin Rudd even thought of announcing his ‘deal’.

When it all boils down though, what the bank does in any given hardship case is, was and always has been at their discretion. What if you lose your job and get a three month reprieve, instead of a 12 month one? Too bad. Kevin Rudd did not pass any law and was very careful to stress that the banks will deal with each case on its merits and at their discretion.

It’s not a bad thing that Rudd and the banks have announced this ‘deal’ – it’s just made an existing policy the banks always had, more ‘high profile’ – which means that people will know to ask for a reprieve, where before they did not.

Be warned though that the 12 month‘reprieve’ from mortgage repayments does not mean that you live rent free and mortgage free for 12 months but rather that the interest for those 12 months is ‘capitalised’ or added to the balance on your loan. In effect the bank are lending you the money to cover your mortgage repayments for one year. You will then recommence mortgage repayments at a higher level (due to the loan amount having increased) when the 12 month moratorium expires.

There is no guarantee, however, that the bank will allow you to enter such an arrangement as it will depend upon the facts and circumstances of your individual situation. If they decline to enter into a hardship arrangement with you, your rights remain the same as always – formally apply under the Credit Code to have your loan varied if you qualify, approach the banking ombudsman upon the basis that the bank has breached the Banking Code of Conduct or simply take the matter further and try and speak to someone higher up within the bank until you come to an arrangement you can both live with.

Don’t forget, it’s in the bank’s interests to work with you where they can. That’s why they were so willing to cut a ‘deal’ with Kevin Rudd to ‘give’ you rights you already had!

What can you do?

Come to our free seminar and we’ll walk you step by step through your rescue plan to not just survive but thrive not in spite of, but because of the strong headwinds coming up: