ASIC launched a Federal Court action alleging NAB didn't respond to 345 hardship applications within the three-week timeframe required by law on Monday.
The breaches to the credit code were said to have taken place between October 2018 and September 2023.
NAB is the second big bank to be hit with legal action after ASIC launched a similar case against Westpac in September 2023.
The customers allegedly affected by NAB's delays included domestic violence victims, people battling serious medical conditions, and those dealing with business closures or job loss, ASIC said.
The regulator said NAB's failures likely compounded their already challenging situations.
NAB acknowledges proceedings
In a statement to the ASX today, NAB said it had disclosed the issue to ASIC in October last year – the month after the Westpac court action was launched.
NAB group executive of customer and corporate services Sharon Cook apologised for the failures.
"We're sorry that this happened when a number of our customers were in difficult situations and needed us to be there for them," Ms Cook said.
"We are focused on ensuring these customers receive the support they need."
Hardship requests hard work
Under consumer credit law, customers in financial difficulty can approach their financial institutions to apply for relief or alternative arrangements.
Financial institutions must respond to their customers within 21 days.
ASIC released a report into the hardship services of 10 major home lenders in May, noting consistent failings with their processes.
These included not making it easy for customers to report hardship, overcomplicated assessment processes, poor communication, and inadequate support for vulnerable customers.
Ms Cook said NAB had been working on a new approach to support customers in financial difficulty in the wake of the report.
Financial hardship requests on the rise
ASIC chair Joe Longo said enforcing compliance with financial hardship obligations has been a priority of the regulator in 2024.
"Amidst rising cost of living pressures, we have seen an increased number of customers reach out to their lenders for relief, and we have seen first-hand the impact on lives and livelihoods when lenders fail to appropriately support customers experiencing financial hardship," he said.
Credit ratings agency Moody's recently noted Australia's mortgage arrears rates had climbed in every Australian city over the year to May.
It tips the trend will continue over the next year even if interest rates fall in 2025, as is widely anticipated.
"It will take time for stretched household finances to recover from the strain of high interest rates over the past few years," Moody's analyst Letitia Wong said in October.
What are hardship variations?
Under the law, banks and other financial institutions must consider varying a customer's credit contract if they report they're unable to meet their obligations.
Variations can come in the form of payment deferrals, reduced payments, interest-only periods, loan term extensions, interest-rate reductions, or other arrangements.
The measures are designed to be short-term, taking pressure off people facing difficulties until they get back on their feet or other arrangements can be made.
Lenders are legally required to respond to a hardship request within 21 days, even if just to ask for more information.
ASIC's report found 35% of customers dropped out of the process at least once after applying for hardship, often because of unnecessary barriers to obtaining assistance.
NAB said it is considering the detail of the proceedings brought against it and will continue to cooperate fully with the regulator.
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