MyCRA Specialist Credit Repair Lawyers

Tag: late payment

  • Late payment grace period extended to 14 days

    grace period 14 daysAn 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.

    Image: David Castillo Dominici/ www.FreeDigitalPhotos.net

  • Credit survey shows mobile bill a priority at expense of mortgage

    late paymentA NewsPoll survey sponsored by credit reporting agency, Dun & Bradstreet has found that financially strapped consumers would forego paying their mortgage before they skipped paying their mobile phone bill. We look at the details of this survey and the ramifications for their credit file if people choose this path in reality when they are under financial stress.

    By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

    The Age published a story The Hard Truth on Credit Reports on Sunday, detailing the results of this survey sponsored by Dun & Bradstreet. We look at an excerpt from it:

    Newspoll asked 1200 consumers which bills they would not pay if they did not have enough money to meet their financial obligations. The mortgage is the most-nominated expense for non-payment, followed by pay TV subscriptions. More consumers would forgo payments on the mortgage, pay TV and electricity before they stopped paying their mobile phone bills.

    The survey, sponsored by credit reporting agency Dun & Bradstreet, goes against the accepted wisdom that most people would think it essential to keep paying the mortgage on time. Steve Brown, head of the consumer credit bureau at Dun & Bradstreet, says the results are probably explained by the fact consumers think about the consequences of not making their financial obligations.

    ”They are looking at how their lifestyle would be affected,” he says. ”With the mortgage, the reality is nothing is likely to happen for months,” Brown says. That is because there are processes that have to be followed by a lender before the house can be repossessed and the lender is going to negotiate first with the borrower.

    Brown says another factor could be that delaying a mortgage payment ”frees up” more cash than not paying some of the other household bills. Many people probably feel they cannot do without the mobile phone, he says. The pay-TV subscription, he says, is probably regarded as a bit of a luxury.

    Whilst these suggestions from Mr Brown are fair assumptions, one of the other reasons consumers could be nominating their mobile phone bills would be paid on time over their mortgage could also be to do with the long history of difficulties associated with dealing with telcos in situations of financial difficulty. Perhaps there is the perception that banks would be fairer in their approach to difficulties, and easier to deal with than telcos in these situations. Consumers have in the past experienced problems with customer service with telcos. The multitude of complaints in this area resulted in a major inquiry by the Australian Communications and Media Authority (ACMA) and the report – Reconnecting the Customer. (The telco industry has since developed a Telecommunications Consumer Protections (TCP) Code which came into effect on 1 September 2012).

    The other thing this report reveals is a lack of awareness across the board of current laws around reporting of late payments on Australian credit reports.

    If you are in real financial difficulty – try to sort it out with all of your Credit Providers prior to being late with any bill payment. But if you were to choose which credit account to miss paying – don’t make it the mortgage or credit card!

    Here are the current rules governing Australian credit reports:

    Repayments to licenced Credit Providers – including payments due for mortgages, credit cards and other licenced credit must be made on time. If you are more than 5 days in arrears with these payments, a late payment notation will be recorded against your name. This has been happening in Australia as of December 2012 and will show on your credit report as of March 2014. Late payments will be erased after two years. If you are more than 60 days in arrears on any account – including licenced credit, mobile phones and utilities, you will have a default recorded against your name. Defaults will be erased after five years.

     Brown says about 85 per cent of people have no reportable problems under the present system. Another 5 per cent have multiple incidents of payment defaults.

    The remaining 10 per cent have had a ”bump in the road”, Brown says. They will have missed payments due to a life event, such as losing their job or because of an ill partner, but will have since returned their finances to good order.

    Brown says the extra information will help the 10 per cent who have had occasional problems to restore their credit worthiness more quickly. However, there are some individuals who are ”teetering” on defaulting but are receiving more credit because lenders are not seeing the fuller picture.

    ”Some of the 85 per cent who do not have any reportable problems under the current reporting system are, in fact, overcommitted,” Brown says. They may find it harder to get credit under the new regime, he says.

    While the intention of the legislation may be to weed out “overcommitted” borrowers, we have long argued since the repayment history legislation was first in the pipeline that the reporting of late payments will mean those who have even one late payment will be subject to higher interest rate charges while the repayment history information sits on their credit file. We will be watching this phenomenon closely as it unfolds as of March 2014. We hope this new information won’t be a tool to charge higher interest rates to borrowers who have had a “bump in the road” or who have even just missed a repayment due to life circumstances such as holidays, or missed bills and is just used as it is intended – to seek out the overcommitted who are constantly teetering on default.

    How to Handle a “Bump In The Road” under the New Laws.

    For those people suffering temporary debt stress, there is now a large incentive to talk to your bank.

    If you are suddenly unemployed, fall ill, separate from your spouse or have a period of intense debt stress – you should know there are laws that may be able to help you through this difficult time. By putting your hand up early– before your accounts go into arrears – you could save your credit file.

    If you are experiencing temporary financial hardship you should contact your bank or building society or other Credit Provider and ask to speak with the Financial Hardship Variation Team.

    Using the specific words ‘financial hardship’ will help make it clear to the bank what you need. Ideally, act before you fall into arrears on your account – to save your credit file when you recover from this difficult time.

    They may make arrangements with you to get you over this temporary bump in the road, which could include reducing repayments, or freezing repayments for a period of time. To find out more, read the Australian Bankers’ Association’s Factsheet on financial hardship.

    To access more information about your credit file, contact MyCRA on 1300 667 218 or visit our website www.mycra.com.au.

    Image: Naypong/www.FreeDigitalPhotos.net