An application by the Australian Retail Credit Association (ARCA) to extend the 5 day ‘grace period’ to 14 days for late payment information  on credit reports was approved by the Information Commissioner late last week. The amendment to the Credit Reporting Privacy (CR) Code will mean consumers will have more time to pay their credit card or loan account before they cop the new type of bad credit a ‘late payment’ notation. We look at the details of this important change and what this means for you and your credit rating.

By Graham Doessel Non-Legal Director of MyCRA Lawyers

Since 12 March 2014, Australian credit reports can include a range of new information available to lenders, including repayment history information. Up until last week, repayment history information could be recorded on licenced credit account which was more than 5 days late.

But following widespread concern across the community that a 5 day grace period was not long enough to ensure simple forgetfulness or mistakes didn’t see consumers hit with a black mark on their credit report, Attorney-General, George Brandis requested a change. ARCA submitted an amendment to Office of the Information Commissioner (OAIC) to extend the grace period to 14 days, which was approved last week. Consumer advocates (including myself) had argued that the original 5 days late was not long enough to indicate significant credit risk.

“Given the concerns raised by the community and reflected by the Attorney General on this matter, we agree that a 14 day grace period is an appropriate compromise before a late payment is recorded as Repayment History Information,” ARCA CEO Damian Paull stated in a media release after making the submission to the OAIC.

He says Repayment History Information helps improve the accuracy of predicting the credit risk of consumers, and consumers need to understand the difference between late payments and defaults.

“One late payment on your credit report is less serious than a default. Any of us can be on holidays or forgetful, and a late payment can be offset by an overall positive history of paying most accounts on time. Defaults on the other hand are always more serious,” he said.

I am encouraged that the grace period has been extended to 14 days, and I understand that one late payment on a consumer’s credit report should be much less serious than a default. But at the same time, I fail to see how exactly consumers are meant to understand the differences between a late payment and a default.

We know the process of assessing credit worthiness is a matter for each lender to determine and given this, consumers have been given no information or examples from lenders in which to garner any understanding on the differences between how a default and a late payment will be treated.

As someone experienced with seeing the effects of bad credit, I can only make assumptions based on how most mainstream lenders have treated other ‘black marks’ on credit reports. In the past, a client with a default has most often been refused credit with mainstream lenders, too many credit enquiries on the client’s credit report within a certain time frame has also in the past meant credit refusal. Consumers with these black marks who have not been out and out refused credit have alternatively been offered a higher interest rate than someone with a clean credit file.

I predict that late payment notations will probably be treated the same way. A certain number within a certain time frame could mean credit refusal, a certain number could also mean a higher interest rate for the prospective borrower. So what’s the magic number? I guess we’ll have to wait and see.

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