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MFAA Prosper : Mortgage and Finance Brief 07
Adefault on a consumer's credit file has dire consequences. It will stay on their credit file for five years, regardless of whether the overdue amount has been paid. As such, consumers who have a default listed on their credit file may encounter serious difficulty in securing finance for the duration the default is listed. Therefore, it is not surprising that consumers often ask the Credit Ombudsman Service Ltd to consider whether a default has been listed appropriately. So when is a lender legally entitled to record a default on a borrower's credit file? And how can lenders confidently establish that a payment default was listed appropriately? These issues were considered in the following case: The facts The Complainant took out a short-term personal loan for "bills" with one of our Members. Things were running smoothly until the Complainant defaulted on the fourth repayment. As no further repayments were made, the Member listed a default on the Complainant's credit file. According to the Complainant, the Member did not inform him that he was in default. However, when the Complainant did eventually become aware of the default listing, he contacted the Member and asked them to remove the listing. The Complainant lodged a complaint with us when the Member refused to remove the listing and asked us to investigate whether the Member had followed the correct procedure when listing the default. COSL considerations A credit provider must comply with the Privacy Act 1988 (Cth) and the Credit Reporting Code of Conduct when listing a default. According to Section 18E(vi) of the Privacy Act, a credit provider can list a default on a person's credit file if: (a) the person is at least 60 days overdue in making a payment, including a payment that is wholly or partly a payment of interest; and (b) the credit provider has taken steps to recover the whole or any part of the amount of credit (including any amounts of interest) outstanding. Under the Credit Reporting Code of Conduct, a credit provider is also required to send a written notice to the person's last known address, informing them of the overdue payment and the consequences of failing to pay the outstanding amount, and asking them to pay that amount. The outcome In the present case, the Member provided us with a wealth of documentation, which showed the process they followed before listing the default on the Complainant's credit file. It was clear from the loan statements provided to us by the Member that the Complainant had been in default for 60 days before the Member listed the default. The Member was also able to provide us with evidence of the different forms of communication they employed to contact the Complainant before listing the default. The Member even used mobile text messages to communicate with the Complainant, along with the more conventional methods of communication such as telephone, post and email. The borrower was under an obligation to inform the Member that he had changed his residential address. As the borrower had not informed the Member of his change of address, the Member sent, and was entitled to send, the default notice to the borrower's last known address. Accordingly, we were able to make a ruling in favour of the Member primarily because the Member kept the necessary records and was able to demonstrate that they had complied with the requirements of the relevant legislation. The COSL (Credit Ombudsman Service Limited) is an impartial dispute resolution scheme that gives consumers a chance to complain, and members a fair hearing. For more information about the COSL, or to become a member, log-on to www.cosl.com.au Some consumers encounter such difficulty in paying utility bills that they seek short-term loans in an attempt to meet their obligations. Unfortunately, often they will then default on these loans and the cycle of debt begins -- and the possibility of a default listing looms. But when should a lender actually list a default? Default setting 1Always keep detailed and contemporaneous file notes. 2Ensure a default listing is not placed too early -- wait at least 60 days. 3Always provide written notice to the borrower 's last known address, informing them of the overdue payment and requesting payment of the amount outstanding. 4Inform the borrower of the consequences of failing to pay the amount outstanding. 5Consider the use of text messages in communicating with consumers. 6Consider including a condition in loan contracts that a borrower must inform the lender when they change their residential or postal address (this places the onus on the borrower to keep their personal details up-to-date with the lender). Best-practice tips: 6 60 | Mortgage & Finance brief Legal - COSL
Mortgage and Finance Brief 06
Mortgage and Finance Brief 08