Small business in 'wild west' of credit

by BN09 Nov 2012

The government has been called on to end a 'wild west' approach to credit defaults, by giving small business borrowers a similar 'right to remedy' as that afforded to consumers if they are late paying accounts.

Arguing against the extention of NCCP to small business borrowers, MyCRA Credit Rating Repairs' Graham Doessel said small business should be afforded a 'right to remedy' as consumers to protect their credit file.

"What appears to be a serious issue, is the lack of rights afforded to commercial credit file holders before recovery is commenced,” Doessel said.

Doessel said if a consumer account is overdue, then the account holder is given a a 30 day right to remedy under the Credit Reporting Code of Conduct, to ensure that fair and reasonable means have been taken to attempt to recover the outstanding amount before further action is taken, and before the consumer’s credit file is defaulted.

As commercial credit is not covered under the code, this right is not provided to commercial credit file holders and Doessel says small business owners have been caught out.

“The common courtesies which consumers are afforded and which many assume stay with them in the commercial sphere just don’t apply – many don’t realise just how big a risk commercial credit is,” Doessel said.

“It’s like the ‘wild, wild west’ out there with some lenders defaulting small businesses with little to no warning."

Once a default is placed on a commercial credit file, then the length of time it remains on the credit file is legislated by the Privacy Act 1988, according to Doessel.

“A commercial credit file holder is still subject to 5 years of bad credit if they end up with a default listing, the ramifications are still the same – they are generally refused mainstream credit, refused mobile phone plans, car finance and credit cards – but the rules for how the default gets there in the first place are just not there."

Doessel said these borrowers could be one or two days late in paying a commercial account and have their ability to obtain credit ruined.

"There is no right of redress, as there is no legislation governing notification requirements in the commercial credit sphere.”