AFCA Complaints About Hardship and Collections Increase for Personal Loans

With complaint numbers hitting all-time highs, Australians are increasingly experiencing financial difficulty related to personal loans. Growing concerns about lenders' responsiveness to client distress are highlighted by new data from the Australian Financial Complaints Authority (AFCA), which indicates a 19% increase in personal loan complaints during the 2023–24 fiscal year.

The results of the AFCA show that during the same time period, complaints about hardship assistance failures increased by 18%, indicating structural issues with the way lenders handle vulnerable borrowers. Stronger, borrower-focused involvement across the lending industry is urgently needed, as evidenced by the estimated 5.8 million Australians who are having difficulty repaying their debts. These numbers also show growing gaps in financial support mechanisms.

Understanding the Scale of the Crisis

AFCA received 7,737 personal loan complaints in the last financial year. This makes personal loans the fourth most complained about financial product in Australia. Financial difficulty complaints reached 5,715 cases. These numbers reflect the harsh reality of rising interest rates and escalating cost of living pressures.

Research from ASIC found that 47 per cent of Australian adults with debt have struggled to make repayments in the past 12 months. More concerning is that 55 per cent of Australians don't know they're entitled to request hardship assistance from their lender. Only one in five people have ever sought help despite lenders being legally required to consider these requests.

Personal loan borrowing has hit record highs. Australians borrowed $9.04 billion in the June 2025 quarter alone. Average interest rates on unsecured personal loans have climbed to 13.87 per cent per annum. This combination of high borrowing volumes and expensive rates is pushing many households into financial distress.

Major Problems in Hardship Support Systems

AFCA has identified several systemic issues across the banking and finance sector. More than 50 per cent of financial difficulty complaints relate to lenders failing to respond properly to hardship requests. The issues extend well beyond simple delays.

Common problems include missing response timeframes required by regulation. Some lenders use automated responses that ignore individual circumstances. Debt collection actions continue even when borrowers have active AFCA complaints. Default notices are issued to people who've already arranged new repayment plans. The hardship application process itself is often unnecessarily complex.

Smaller lenders and Buy Now Pay Later providers appear particularly problematic. However, larger institutions also face criticism for inadequate hardship support systems. Lending platforms like CashLend note that current economic pressures require more responsive approaches to borrower hardship.

AFCA case studies reveal the human cost extends beyond financial stress. Documentation shows borrowers facing family violence and serious illness receiving inadequate support. Some people dealing with mental health challenges have been let down by their lenders. Banks' special assistance teams have sometimes provided only superficial help to vulnerable customers. Certain institutions have issued default and legal notices that worsened already traumatic situations.

Debt Collection Practices Under Scrutiny

Aggressive or inappropriate debt collection practices form another major complaint category. Some lenders continue pursuing collections after borrowers have formally requested hardship assistance or lodged complaints with AFCA.

The National Credit Code requires lenders to suspend collection and recovery actions once a complaint reaches AFCA. Borrowers who receive debt collection letters or calls after lodging a complaint should report this immediately. They can contact their lender's internal dispute resolution team and AFCA directly.

Recent enforcement actions show regulators are taking these issues seriously. National Australia Bank was ordered to pay $13 million in penalties in August 2025. The penalties related to failures in responding to hardship applications within required timeframes. ASIC also launched proceedings against Resimac for alleged systemic failures in handling home loan hardship requests. These actions signal increased regulatory scrutiny of lender compliance.

Essential Rights and Options for Borrowers

Financial counsellors emphasise the importance of early action when repayment difficulties emerge. Waiting until arrears accumulate significantly reduces available options. It also increases long-term financial damage.

Borrowers experiencing difficulty should contact their lender's financial hardship team immediately. These dedicated teams exist specifically to handle such requests. Transparency about circumstances helps establish productive hardship negotiations. Borrowers should provide realistic assessments of affordable repayments after covering essential living expenses.

Essential documentation includes current income from all sources and a breakdown of regular expenses. Borrowers should detail the changed circumstances causing hardship. They should also propose a repayment amount based on realistic budget assessment.

Lenders operating under the National Credit Code must consider hardship requests. They must respond in writing within 21 days. The Banking Code of Practice sets additional standards for how banks should support customers in financial difficulty.

Available hardship arrangements typically include several options. Lenders may offer temporarily reduced payments or interest-only periods. Extended loan terms can lower regular repayments. Payment holidays provide breathing room. Fee and charge waivers can also help.

Credit reports show when hardship arrangements are in place since July 2022. This information doesn't negatively impact credit scores when borrowers adhere to agreed terms.

Pathways for Escalation

When lenders reject hardship requests or fail to respond within required timeframes, borrowers can lodge internal complaints. Lenders generally have 30 days to respond through their internal dispute resolution processes.

AFCA provides free external dispute resolution services when internal complaints don't achieve satisfactory outcomes. The authority secured $313.9 million in compensation and refunds for complainants in the last financial year. Notably, 72 per cent of cases resolved before reaching final determination were decided in the complainant's favour.

Economic Pressures Driving Complaint Growth

The surge in hardship complaints reflects broader economic challenges facing Australian households. Interest rates remain elevated compared to the pandemic era. Essential costs for housing and food continue rising faster than wages for many families. Energy expenses have also increased substantially.

Personal loans reached record borrowing levels as Australians sought funds for essential purchases. Vehicles account for 59 per cent of applications. However, higher interest rates mean servicing these loans has become increasingly difficult for borrowers already stretched thin.

Renters face particular vulnerability. They experience financial stress at higher rates than homeowners due to larger portions of income directed to essential expenses. They also have lower savings buffers. The Reserve Bank of Australia's Financial Stability Review notes these demographic differences in financial resilience.

CashLend reports increased enquiries about loan affordability and repayment options. This reflects broader market concerns about debt serviceability in the current economic environment.

Required Industry Improvements

AFCA continues monitoring the situation closely throughout 2024-25. The authority is working with industry to improve processes and reduce avoidable complaints. However, systemic issues persist across the sector.

Required improvements include properly trained hardship teams with adequate resources. Lenders need early identification systems for struggling borrowers. Individual circumstances require genuine consideration rather than automated responses. Faster response times within regulatory requirements are essential. Clear communication throughout assessment processes is also necessary.

The Australian Banking Association released updated financial difficulty guidelines in 2025. These establish clearer expectations for member institutions. Implementation and compliance with these enhanced standards will determine whether complaint volumes decrease in coming years.

Looking Ahead

Financial hardship can affect anyone regardless of careful planning. Economic conditions and health issues can quickly derail household finances. Relationship changes or employment disruption create similar challenges. What distinguishes successful navigation of these difficulties is early action and effective use of available support systems.

The data shows Australians struggling with personal loans face systemic barriers to accessing help they're legally entitled to receive. Addressing these barriers requires continued regulatory oversight and industry commitment to improved processes. Borrower awareness of rights and available assistance remains crucial.

As economic pressures persist, responsive hardship support from lenders becomes increasingly critical. The complaints data serves as a clear indicator that current practices fall short of community expectations in too many cases. Regulatory requirements are not being met consistently across the sector.

Understanding available protections and support systems becomes essential when facing financial difficulty. Early intervention consistently produces better outcomes than waiting until situations become critical. For the lending industry, regulatory scrutiny and enforcement actions signal expectations for improved hardship support systems.