Context: Misconceptions meeting macro stress

The economic landscape in Australia has shifted significantly with the cash rate climbing from emergency lows in 2022 to mid-cycle settings by late 2023–2024. This change has increased repayments for millions of variable-rate borrowers. In this context, new research from Arca’s CreditSmart initiative reveals that many consumers avoid contacting their lenders when they encounter financial difficulties, fearing it will permanently damage their credit standing. This belief is not only misplaced but also costly. 

Since 2022, under Australia’s credit reporting regime, a financial hardship information (FHI) indicator can be recorded for the month a customer is under a temporary arrangement. This indicator is coded and visible to licensed credit providers but is not equivalent to a default. It is retained for a limited period and does not affect credit scores. The intention behind FHI is to encourage early conversations, not to penalise borrowers. However, this nuance is often misunderstood by borrowers and inadequately communicated by institutions, leading to a "trust and information" gap. As a head of collections at a major bank noted, "We lose customers to silence long before we lose them to default."

Decision: Treat hardship as a product—then design it

In early 2024, Aurora Bank decided to reframe hardship from a compliance obligation into a designed customer product. The bank's board approved a cross-functional program involving Risk, Digital, Legal, Brand, and Broker Distribution teams. The program had three primary objectives: reduce days-past-due roll rates by encouraging early customer contact, clarify the implications of FHI for credit reporting in plain English, and use data to tailor support, thereby preserving customers' capacity to pay and long-term value.

The hypothesis was straightforward: if customers understand that seeking help won’t harm their credit score and if the process is seamless, more will engage early. Early engagement, in turn, is more cost-effective and efficient than late-stage collections.

Implementation: Four pillars—communication, access, triage, assurance

Aurora’s "Hardship Clarity" program was built on four pillars:

1. Communication: The bank replaced complex legal language with clear, plain-English messaging across various platforms. It explicitly stated that temporary hardship support is not a default and that credit scores are unaffected by FHI. Short explainer videos and in-app tooltips addressed common myths.
2. Access by design: A one-click “I need help” option was integrated into the mobile app and internet banking, allowing customers to request assistance in under five minutes. Consumer Data Right (open banking) was utilised to pre-fill data, reducing form time and abandonment.
3. Smart triage: An eligibility engine categorised cases into rapid relief, structured variation, and specialist support. Natural-language processing identified hardship intent in communications, prompting proactive outreach.
4. Assurance and governance: The bank aligned its processes with the National Credit Code and Privacy Act changes, implemented monthly quality assurance on credit reporting, and published an internal “myth-buster” for brokers and frontline staff. “We stopped treating hardship like a back-office exception and started treating it like a core feature of responsible lending,” the program lead stated.

Results: What changed—and what moved the numbers

Within six months, Aurora Bank reported significant improvements across a 150,000-customer cohort. The early contact rate increased from 29% to 47%, and there was a 34% rise in approved short-term arrangements. The roll to 90+ days past due decreased from 1.9% to 1.5%, and net credit losses reduced by 11%. Customer retention among those experiencing hardship improved by 7 percentage points, and complaints related to credit reporting decreased by 24%.

These outcomes are consistent with international benchmarks for early-engagement collections. During the US COVID-19 accommodation period, for example, mortgage forbearance peaked near 8–9% of loans, with most exiting successfully without foreclosure. Similarly, the UK’s focus on “forbearance first” has led to significant improvements in cure rates.

Business impact and competitive advantage

The business case for Aurora Bank’s approach is compelling. Early engagement reduces expected loss by decreasing the probability of default and preserving collateral. It also enhances franchise value, as customers remember the support they received during difficult times. Furthermore, brokers favour lenders that support their clients without stigma, and institutional investors are increasingly considering social risk in loan pools.

Aurora Bank’s experience highlights the importance of clear communication, seamless processes, and strategic partnerships in managing financial hardship. By demystifying credit reporting and prioritising early customer engagement, lenders can protect their financial health and strengthen their competitive edge.