As of 14 February 2020, civil court filings will no longer appear on, and impact, an individual’s credit file, giving thousands of Australians an instant boost in their credit score, according to consumer and financial law firm MyCRA Lawyers.
Previously, any filing of civil court actions against an individual or business would negatively affect the accused’s credit score in a “guilty until proven innocent” manner, regardless of the type of matter in the case, the law firm stated.
This meant the cases that remained unresolved were also negatively affecting the accused’s ability to access credit.
However, from Valentine's Day, changes made to the Credit Reporting Code will mean that only judgments that relate directly to a person’s credit can impact someone’s credit rating, MyCRA Lawyers noted.
Additionally, the law firm stated that the new reporting requirements will be applied retrospectively, so that anyone with a civil court default on their file, which isn’t the result of a judgment and isn’t credit related, will have them removed.
The credit repair law firm called on brokers to reach out to clients who may be affected by these changes.
MyCRA Lawyers CEO Graham Doessel stated that the firm has been campaigning to the PwC three-year review of the Credit Reporting Code to have these amendments to credit reporting made.
“We made a submission to Price Waterhouse Coopers’ three-year review of the credit reporting code on this issue two years ago.
“The 32-page submission detailed how civil court claims were being used to impact people’s credit files even when the case had no chance of ever making it to court,” Mr Doessel said.
Following the announcement of the changes to the code, Mr Doessel called the results a “victory for common sense”.
“Now only judgments can be recorded on someone’s credit file and those judgments must relate to “credit” to impact someone’s credit rating” Mr Doessel said.
He stated that often, civil proceedings can be brought against individuals and businesses out of spite and personal animosity, which is one of the reasons why these reforms were necessary.
“Tens of thousands of Australians have had their credit rating destroyed, businesses and financial security put in jeopardy all because civil court actions treated defendants as guilty till proven innocent when it came to their credit rating as ex-business partners, disgruntled employees and jilted lovers used civil courts as a weapon to cripple someone’s credit,” Mr Doessel said.
“We’ve had a client with a business employing 120 staff almost sent to the wall because of a trivial dispute with their pool repair man over $3,000 that never even went to court.
“Other common weaponized civil disputes are ex-business partners suing simply to dry up funding, even spurned partners who are out to get their ex-lover’s business,” he said.
However, Mr Doessel also stated that credit reporting bodies may attempt to interpret the legislation in a way that will only benefit individuals, and not businesses, which would greatly reduce the effectiveness of these reforms.
“If this is the case and we won’t know till after February 14 when the changes come into effect, then it renders the new laws almost useless because those most affected by these will be small-business people,” Mr Doessel said.
“Anything on someone’s commercial credit file will show up on their individual report, and while it is illegal to judge a consumer’s credit worthiness based on their commercial credit information, it happens every day,” he said.
“The whole point of this legislative change was to remove guilty till proven innocent when it came to your credit worthiness, but if credit reporting bodies only apply this selectively, then what is the point?
“We believe the law changes need to apply to consumer and commercial credit files,” Mr Doessel said.
Hannah Dowling is a journalist for mortgage business, the leading source of news, opinion and strategy for professionals working in the mortgage industry.
Prior to joining the team at Mortgage Business, Hannah worked as a content producer for a podcast catering to property investors. She also spent 6 years working in the real estate sector at a local agency.
Hannah graduated from Macquarie University with a Bachelor of Media and Journalism.