Thursday, January 15, 2015 - Posted by Philip Harvey
In this article we review whether or not to list with a credit reporting agency the arrears amount payable before listing the full balance payable. We note that this excludes any positive credit reporting as this type of reporting notes everything.
In anecdotal discussions with our various consumer credit clients, there is a general preference to only list full account balances once the relevant time periods have elapsed. They do not list the arrears component, nor do they send 21D Notices to customers warning them of this possible listing. Is there a missed opportunity to resolve the account more quickly? This is asked rhetorically. Any collection cycle you select should be adopted on the basis of the portfolio you are collecting on. This includes demographics and past loan performance.
The benefits to not listing the arrears are;
- Reduced administrative burdens. If listing arrears amounts, you must then note them when they are paid. The act of performing this is often a manual task (though positive credit reporting systems should resolve this in the future).
- Reduce the risk of incorrect listings. The number of "credit repair style companies" promising to fix credit ratings for an upfront fee is ballooning and imposing additional costs to lenders.
- Reduced mailing costs by not sending out the additional notices that would be required.
The possible missed opportunities to this approach are;
- a debtor may make a payment upon receipt of a 21D notice for the accounts arrears, resolving the account sooner, decreasing any provisions more quickly.
- the credit history of the account will signal to other prospective lenders that this debtor is in financial difficulty. They may not extend further credit which would otherwise put the debtor into a more difficult financial position and reduce the likelihood of your account being paid.
A point of confusion we sometimes experience is that you cannot take enforcement action through a court until the debt has been listed with a Credit Reporting Agency. This is not correct. Upon the expiry of a s88 notice, you can elect to pursue multiple enforcement options. A credit listing and legal action are two such enforcement actions.
By way of background, using an example from a previous article, on the basis of following these milestones a lender can list the arrears at day 107 and the full balance at day 123. It is possible to reduce this timeline by sending out a S88 notice sooner.
- 1 March 2014 - Day 1: A $1,000 payment is due on a loan of $20,000. Total arrears: $2,000
- 1 April 2014 - Day 31: Another $1,000 payment is due on a loan
of $20,000. Nil payments have been received. A Section 88 Default Notice
is issued which stating the arrears of $2,000, and an Acceleration
Clause specifies the $20,000 as due and payable if the $2,000 arrears is
- 1 May 2014 - Day 61: Nil payments have been received. The Section 88 Default Notice has expired.
- 1 May 2014 - Day 61: A 6Q Notice is issued detailing the full $20,000 as outstanding.
- 1 June 2014 - Day 92: A 21D Notice can be issues for the arrears of $2,000 to be reported to the CRB
- 15 June 2014 - Day 107: The $2,000 arrears can be reported to the CRB until 1 September 2014.
- 16 June 2014 - Day 108 A 21D Notice can be issued for the full $20,000.
- 1 July 2014 - Day 123: The $20,000 will be 60 days in arrears and can be reported to the CRB
The framework that must be noted in these discussions is;
A 6Q Notice must be issued to inform individuals that amounts are in
arrears and request payment. These notices must be issued before listing
an overdue amount.
- A separate 6Q Notice must be issued for full balances that fall due.
- A 6Q can be combined with a S88.
- A 21D Notice must be given 14 days before an amount is listed. A number of 6Q notices can be grouped in one 21D notice.
- A 21D cannot be combined a 6Q notice, and does not work with s88 notices accelerating the debt.
- Amounts must be over 60 days outstanding before they are listed.