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Sam was told he could be denied a home loan because he owed $2 on a credit card

Calls for reforms to credit reporting system after 'unacceptable' case.

person shredding credit report and nab logo
Last updated: 15 May 2024


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Need to know

  • A prominent financial legal centre says the recent case of a man being warned he could be denied a home loan over a tiny debt highlights problems with the system 
  • The bank, NAB, has apologised for their 'oversight'
  • The government is reviewing the credit reporting framework which advocates say is falling short 

A prominent community legal centre is calling for urgent reforms to the credit reporting system after handling a case involving a customer who was told that his home loan could be denied because of a debt on his credit report of under $2. 

The system doesn't require banks to inform customers of such a minor debt.

The call for reforms to credit reporting is timely. The federal government is currently undertaking a review of the credit reporting framework, which falls under the Privacy Act and the National Consumer Credit Protection Act.

Advocates say both are out of date. 

Recent case highlights issues with the system

Karen Cox, chief executive officer of Financial Rights Legal Centre (FRLC) in Sydney, says the inadequacies of the credit reporting system were dramatically highlighted in the recent case mentioned above, which involved a client, Sam*, and his interactions with National Australia Bank (NAB). 

Lack of notification to consumers in the credit reporting regime is one of FRLC's key concerns.

"We think that there would be a whole lot of benefits to people being notified as soon as something, such as a late payment, is reported because it's better for the lender if people can course-correct and it's better for the person to know and to sort out any dispute in a timely fashion," she says. 

"What happened is an unacceptable case."

A $1.50 debt

The $1.50 of debt was lodged on Sam's report behind the scenes. He had stopped using a Citibank-branded credit card in 2023 and thought he had paid it off. Citibanks' Australian consumer business was bought out by the National Australia Bank in 2022. 

Unbeknownst to Sam, nominal fees and interest charges continued to accrue on his Citibank card and every month a black mark was recorded on his 'repayment history information', which formed part of his credit history sent off to external credit reporting bureaus. 

I lost the property I wanted over it

Sam, who had an outstanding debt of under $2

His 'debt' to the bank grew by two cents a month, eventually reaching $1.66. The first he heard about it was when he tried to get a home loan earlier this year with NAB, only to be told the debt could lead to his loan pre-approval being rejected due to what they said was his bad credit history. 

"I was bidding on the property and I had to cancel my bid because I just wasn't sure what was going on (with my pre-approval). So I lost the property I wanted over it," he says.

house auction sign

The issues caused by Sam's tiny debt meant he had to withdraw his bid on the property he wanted.

Simple fixes

In the end NAB approved his home loan application, but Sam says he is still going through the process of trying to get his credit record cleared up and the black mark removed. 

He says a simple notification from the bank about the debt would have resolved the issue within minutes. 

"It could have been a personal phone call and someone at the bank saying, look, there's a bit of an issue," he says. 

"It's a negligible amount of money. They should have a threshold above which it should be allowed to be submitted to affect someone's credit record," Sam adds. 

There is currently a $150 threshold for official default notices on credit records, but no threshold for a negative 'repayment history information' notice. Sam's black mark didn't specify the size of the debt, only that he had missed payments. 

credit report

NAB says that Sam's issue should never have happened.

NAB apologises 

NAB executive Alan Machet says that when Sam initially paid off the balance of the credit card the account should have been closed. 

"The fact that didn't happen was an oversight and has caused unnecessary distress. We are sorry this happened," Machet says. 

"We've now asked these bureaus to restore his credit file and are reaching out to him to offer any further support we can provide. It's clear we weren't at our best here and we apologise." 

The federal government's review of the credit reporting framework is open for consultations until the end of May with a final report to be handed down on 1 October.

*Name has been changed. 

FRLC is asking for anyone who has ever had incorrect information on your credit report to please take this one minute survey. Consumer advocates are asking the government to make changes to the credit reporting laws and your stories and experiences are really important.

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