Statute of limitations and credit reporting

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    Imagine how frustrated you would be to find that an account issue you thought had been resolved years ago suddenly turned up on your credit file as a default. You might be surprised just how often this happens.

    Before I talk about credit reporting let me summarise what the Statute of Limitations is. The Limitations Act places time limits on a creditors rights to commence legal action for the recovery of a debt, which in most cases is six years. After this time if no legal action has been initiated the debt is technically not claimable. One exception is a Court Judgment where the period is extended to 12 years.

    The six-year Statute period typically commences from the time an account becomes overdue, however the period can restart if the borrower makes a payment towards the account or acknowledges the debt in writing. Creditors and debt collection companies know this and will sometimes coerce a debtor into making a small payment towards an old delinquent account knowing that this will restart the Statute period.

    Let’s have a look at how this can playout with a credit file.

    The listing period for a payment default is five years, one year less than the Statute period, so for this reason it’s not uncommon for creditors and debt collection companies to commence legal proceedings and obtain a Judgment for a debt just before the five year listing period. The reason for this is they want to keep the debt alive and continue to pursue it.

    As an example of how the Statute of Limitations can impact a credit file, imagine an account that became delinquent in 2016 and at that time the creditor issued a demand notice but they didn’t follow up or list a payment default.

    It’s common for a borrower to question a debt with a creditor after receiving a demand notice however if they hear nothing more, they can understandably assume everything is fine.

    Using this example, imagine two years later in 2018 the creditor or their accountant finds the old account and they list a default on the debtor’s credit file. In this situation unless the creditor obtained a Court Judgment the debt would only be recoverable until 2022.

    However, the default listing would be recorded until 2023, a year longer than the creditor could recover the debt as per the Statute of Limitations.

    You are probably thinking this sort of thing never happens but let me assure you it does and more often than you might think.

    Don’t forget our credit reporting system is based on “guilty until proven innocent” so it can be very difficult to resolve such issues once a default has been listed.

    Credit reporting legislation requires credit providers to ensure that credit listings are accurate and up to date.

    I feel it is very questionable that a default recorded perhaps years after the event complies with this requirement, however defaults are recorded under these circumstances regularly.

    I understand that listing periods for a default are not made by the creditor but surely it is their responsibility to act in a timely manner to ensure defaults are not recorded longer than their ability to recover the balance, as to do so could be considered misleading.

    There has been many positive changes to credit reporting over recent years and this continues to evolve and be improved, however no system is perfect and unfortunately there is likely to be people suffering due to inappropriate or incorrect credit listings for some time to come.

    John Dickinson

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    Original Article