Credit Default Process in Australia – All You Need to Know

It is alright to find yourself in a financial pickle – it happens, and it’s part of life. Sometimes we struggle to meet loan deadlines, and at times we miss the deadlines altogether.

Perhaps, a credit can be what you need to steer forward your project, but it can cause sleepless nights if you can’t repay it on time. Every time you ask yourself, what if creditors list me? If you default on your loan, the road ahead can be exhausting and somewhat stressful.

What Happens When You Default?

If you don’t meet the agreed deadlines plus the additional period provided by your financial institution to repay the credit, the creditor has the legal approval to list you as a defaulter to a credit reporting body (CRB). Once this happens, debt collection agencies acting on behalf of the creditor come for your neck.

This impacts significantly on your credit score, limiting the chances of you getting approved for future loans. But there are things you can do to stop this. You can make use of the delinquency period (the time between missing a loan repayment and having the loan default) to talk with your creditor and try to harmonise the terms of repayment.

According to the Privacy Act defined in section 6Q, payment default results from failure to make payments under the terms of the credit contract, and the default period has continued for more than 60 days. When this happens, your credit provider reports to a CRB providing information regarding your default.

So how can you avoid this from happening? The Privacy Code 2014 details the process credit providers and credit reporting agencies must undergo to list you as a defaulter.

The Privacy Act allows you to:

  • Request your credit report once every year or when you are denied credit
  • Request amendment of erroneous information
  • File litigation against a CRB or credit provider if they share your credit information with third parties
  • Ask credit providers if the reason for credit refusal is due to a listing on CRB

Also, when credit providers want to view your credit information, they must seek your consent. This also applies when they want to give information to a credit reporting agency.

What to do to Avoid Defaulting on a Credit?

Before being listed to a CRB, your provider will notify you, after which your credit provider lists you if you fail to repay the owed amount in 60 days. For late repayments, the credit provider can provide Repayment History Information (RHI) to CRB. This is only applicable to credit under the regulation of the National Credit Act (excludes utilities and other debt). Note that part payments are recorded as late repayments, and credit providers are not required to send you notices before listing your RHI.

Once you realize that you cannot be able to repay your credit as stipulated by your agreement with the credit provider, it’s not the end of the road. To avoid being listed for late repayments and default here is what to do:

  1. Request a Hardship Variation

This is a formal request to your credit company for variation of terms of your credit. You can ask for deferment of payments until a particular date or request to make smaller repayments for a longer period. Your request must be in writing, and the credit provider is required to respond within 14 days.

Credit providers are not allowed to list you while they are in the process of deciding about your hardship request. But here is the caveat, they can record a default if they believe your claim is based on previous reasons you requested hardship assistance in the last 4 months.

  1. 2. Make Affordable Rearrangements

As quickly as possible, make it known to your credit provider that you cannot afford the current repayment terms. Request for lower rates and longer period and stick to this rearrangement to avoid defaulting.

  1. Lodge a Dispute

Within 14 days of being denied hardship request, begin a dispute scheme to prevent the company from submitting your information to CRB. Schedule 1 of the National Consumer Protection Act 2009 allows you to make a hardship request and dispute your lender’s refusal.

In your dispute to the External Dispute Resolution (EDR) with the Australian Financial Complaints Authority (AFCA):

  • Detail a reasonable cause for hardship (for instance illness or business collapse due to external factors)
  • Explain your current income and describe what you can afford
  • Give a copy of the document showcasing reasons that necessitated the lender’s refusal

If your lender is a bank, credit union, building society, or a mortgage institution, they have a legal obligation to work with you during financial hardship. You can complain to AFCA if you believe a lender has breached these obligations.

While you can successfully file a dispute, get approved for a hardship request, or make affordable rearrangements, the ultimate solution is repaying your credit. Make sure you complete your payments on time and even beat the time if you can to increase your chances of avoiding being listed on a credit report agency.

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