Recording defaults
Guidelines from the Information Commissioner state that a client’s account should not be recorded as in default unless the relationship between the creditor and the client has broken down.1FCA Handbook, CONC 4.7 and 6.3.4R This means the client has been in arrears for at least three consecutive months on the contractual instalments or under an agreement to reschedule repayments. It should be recorded as ’in default’ if such payments have not been made in full for six months. Accounts which are subject to repayment arrangements or debt management plans should only be recorded as in default if the client: •is only making token payments. However, in this situation, they can ask the agency to record this (known as filing a ’notice of correction’) if the creditor has not done so; or
•defaults on the arrangement and the arrears are equivalent to three months’ payments under the original contract; or
•is making reduced payments, but no agreed arrangement is in place.
If the lender does not agree to accept reduced payments (including token payments), although any payments the client makes are reflected in the outstanding balance recorded, arrears continue to accrue, and a default may be recorded once the equivalent of three months’ arrears is reached.
If a creditor fails to record a default within the three- to six-month period but, for example, delays registering the default until the client misses an agreed repayment, the Financial Ombudsman Service may order the creditor to backdate the registration. A default cannot be registered in respect of an irredeemably unenforceable agreement.
A zero balance on a credit reference report marked ’balance satisfied’ (with or without the flag ’partially satisfied’) indicates that there has been a default, but that:
•the account has been paid in full; or
•the account was included in a trust deed that has been satisfactorily completed, or in a bankruptcy from which the client has been discharged; or
•the creditor has agreed to accept less than the full amount due in full and final settlement of the account.