Deferrals of failed payments will not incur a bad credit rating: ABA

Banks will not report failed payments; creditors under pressure to freeze interest.

older man relieved

Loan repayment deferrals and deferred payments on any other credit product during the COVID-19 crisis will not incur a bad credit rating, says the Australian Banking Association (ABA).

The ABA confirmed that any Australian who is granted a six-month deferral on loan repayments on their mortgage or other credit products, such as a credit card, will not have their credit rating affected, provided they were up-to-date with repayments prior to the pandemic.

It is hoped this will relieve the stress of credit customers and follows the stance taken weeks ago by credit reporting business, illion.

According to the regulator, where a borrower takes up the offer to defer repayments as part of a COVID-19 support package, a bank should not treat the period of the repayment ‘holiday’ as a period of arrears.

The director of bureau engagement at illion, Steven Brown, told Mortgage Business that deferments or variations would not be counted as “credit events”.

“Where a borrower seeks and is granted varied terms for loan repayments under a hardship agreement, the information provided to a credit bureau is typically different from what is reported under a normal loan repayment schedule,” he said, adding that delayed payments “are not visible to new lenders and are not included in the borrower’s credit score”.

ABA chief Anna Bligh said banks are working to ensure credit reporting “is conducted in a consistent and fair manner”.

“Australia’s banks are here to support customers who have lost their jobs or significantly lost income because of COVID-19, through initiatives such as offering a six-month deferral on mortgage repayments,” she said.

“Customers in these circumstances should not have to worry about their credit rating as well.

“Banks will report customers as not having missed a repayment, provided they were all up to date when granted relief.”

For anyone already behind in their repayments prior to a COVID-19-related deferral being granted, banks will leave the repayment history information field blank for the duration of the deferral period.

When the COVID-19 repayment deferral period ends, banks will the decide how to report the repayment history information, said the ABA.

Ms Bligh said that other factors may still affect a customer’s credit rating, but anyone “accepting a COVID-19 loan repayment deferral can rest easy that the deferral will not be one of them”.

Ms Bligh advised that “it’s important you contact your bank as soon as possible, with your first port of call being the website or the smart phone app due to the very high volume of calls coming into call centres”.

There is also mounting pressure for creditors to freeze credit card interest and repayments.

CommBank has already said it will forgive customers who are late on March repayments, and will even refund late fees and interest payments.

Australians holding credit card debt “are the most vulnerable at the moment”, said founder Roland Bleyer.

“Credit card debt can spiral out of control pretty quickly and damage people’s credit score without them even realising it,” he said.

“Some credit cards are charging over 20 percent interest – especially rewards cards.

“The only way to help people get through the next six months is for banks to freeze credit card interest and payments for six months”.

Mr Bleyer added that it may be in the banks’ best interests to freeze interest now, as it could mean very few people will be eligible to apply for credit cards once the pandemic is over.

“We see credit card debt as a huge problem for Australians in the COVID-19 pandemic. The banks need to recognise this and come to the party,” he said.

“I am calling on them to provide customers affected by COVID-19 with a hiatus period of six months – where credit card interest and repayments are put on hold.

“This way, struggling families don’t need to get bogged down. They can focus on budgeting to make sure they can get through this crisis without too many financial scars.”

How is your bank treating you throughout this crisis?

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