How can defaults be listed sometimes years after an account has fallen behind?
When talking with people about their credit issues we often come across cases where the credit provider has listed a default sometimes years after there was trouble with the account. As you can imagine, this can be a real shock for people as they often thought the problem was well and truly behind them, if in fact they can barely recall the event at all.
We have seen examples of defaults being recorded up to four years after the account fell into arrears, but how does this happen?
I think in many cases the credit provider may not have been aware there was money owing on an account themselves and it was not until their accounts department pointed it out that action was taken. Another reason could be the credit provider thought they had enforced recovery action at the time but later learned this had not happened.
It’s common for people to move address and change contact details so any demand notices that a credit provider may send sometimes years after an account was payable may not be received and from a consumers point of view any subsequent default listing can feel like they came from nowhere.
This situation happens commonly with utility companies as often people close an account due to a move and think they have paid all that is owing only to find out later that a final meter reading left an amount outstanding. As the person is no longer at the address they often don’t know this and a default is recorded on their credit file. It’s often not until the person later applies for finance do they find out about this. Imagine if a default listing related to something that happened years prior, how would you feel?
I can understand how a credit provider may not be aware there are monies owed for some time and list defaults within say twelve months of the event, but to wait up to three or four years to do this seems inappropriate and could be considered misleading.
It is clear that the Telecommunication Ombudsman shares my view as they state and enforce that a Telecommunication company must not list a default more than twelve months after an account becomes payable. Unfortunately this outlook is not shared by other industry Ombudsman and there are currently no laws that prohibit the late listing of a default.
The Statute of Limitations states that other than a Court Action a credit provider has six years to recover a debt, after this period the credit provider no longer has a legal right to pursue monies owed. The time a default listing is recorded on a credit file is five years so if a credit provider lists a default more than twelve months after the account became payable the default listing would outlast the credit providers ability to claim the debt.
I’m not suggesting that a credit provider shouldn’t list a default if there are monies owed, given they follow the required process of course. However in the interests of being fair and reasonable and making sure credit listings are accurate and not potentially misleading, credit providers should ensure they are not listing a negative credit listing more than twelve months after an account becomes payable.
I feel it would be appropriate for other industry Ombudsman to adopted the views of the Telecommunication industry in this area and enforce that a default should not be listed more than twelve months after a debt becomes payable, it would seem appropriate that this policy became consistent across all industry Ombudsman.
The credit reporting industry is currently undergoing significant change and there are a number of new laws coming into effect in March 2014.
I am not aware of any proposed legislation that covers the late listing of defaults however I am hoping that credit reporting reform will continue to develop and improve what I believe is currently a highly floored system.