If a consumer does not pay a phone or internet bill within 60 days of the due date, their provider can report their name and the details of their debt to a credit reporting agency.
This practice, commonly known as “default listing”, can be an effective way to prevent consumers from incurring new debt they cannot afford.
However, a consequence of default listing is that it can impact on a consumer’s ability to successfully apply for any type of credit, including personal loans, mortgages, credit cards or telecommunications services. The reason for this is that a provider or lender can access the consumer’s file when considering these applications, and may reject their application based on their credit rating.
Currently, a debt as low as $100 can presently be default listed and will remain on the consumer’s credit file for up to five years.
In response to a discussion paper released in May 2012 by the Federal Attorney-General on credit regulations for privacy legislation, the TIO recently recommended that the minimum eligible amount for a debt to be default listed be raised to $300. The reason for our recommendation to the Attorney-General’s department was that the consequences of a default listing for amounts smaller than this may be disproportionate to the size of the debt.
We took this view based on the number of consumer complaints we receive with debts for relatively small debts. Around 24 per cent of credit default issues we recorded in 2011-12 involved amounts between $100 and $300. This proportion increased to 40.3 per cent for debts between $100 and $500.
Many of these new complaints involved circumstances where the debt was in dispute, where the consumer stated they had not been notified of the potential to be credit defaulted or where a default listing was not updated to reflect that a debt had been paid.
In the last financial year, we recorded an increase in issues about credit defaults. Complaints about consumers being credit default listed while their debt was in dispute increased 18.4 per cent from 3,688 in 2010-11 to 4,369 in 2011-12. There was also a 16 per cent increase in complaints about consumers being credit default listed without proper notification, up from 3,217 to 3,731.
Our view that the minimum amount for debts to be default listed should be increased is shared by the Energy and Water Ombudsman NSW (EWON), as reflected in its June 2012 submission on the Review of the Credit Reporting Code of Conduct. The TIO recommendation also reflects the view of the Senate’s Legal and Constitutional Affairs Legislation Committee, which recently tabled a report in Parliament recommending an increase of the minimum amount of a credit default from $100 to $300.
Sam, a self-employed truck driver, contacted the TIO after having a loan application rejected due to a credit default listing.
Sam told us he had applied for a loan after his truck had broken down and he needed the money for repairs. Due to the credit default, his application was rejected and he was forced to close his business. He claimed this left him with a $23,000 debt as well as lost income.
Upon checking what the default was for, Sam discovered that the default had been placed for a $102 debt. He told us he disputed the default because he was unaware of the debt and said he had a large credit on his telephone account.
We contacted the provider, which indicated that Sam did not owe that amount and the default had been incorrectly placed. The provider removed the default and sent Sam some documents so he could put in a claim for business compensation.
We contacted Sam to confirm the removal of the credit default and advised him that if his claim for compensation was rejected, we could consider the grounds for the rejection and may investigate the matter further. Sam accepted the resolution and has not contacted the TIO since.