Advisers are being urged to keep an eye on how a client's mortgage arrears are reported by credit agencies as there could be a potential TCF breach.
This week, an anonymous broker contacted IFAonline claiming two of his clients had seen their full outstanding mortgage loan listed with a credit-referencing agency as a default after they fell into arrears; effectively blacklisting them from all forms of credit for the next six years.
One of the clients, on a residential mortgage with Bank of Scotland, found his entire £300,000 outstanding mortgage loan had been listed as a default on his credit report after he went three months into arrears, despite having already cleared the shortfall.
Another client, using a buy-to-let mortgage, has experienced similar problems though not to such a great extent.
Both providers and credit reference agencies agree it is standard practice for the outstanding mortgage balance to be listed on a client’s credit report if they go into arrears.
A spokesperson for Bank of Scotland says: “When reporting arrears to the credit bureau we advise the number of months in arrears, the monthly payment and the balance outstanding. We do not specify the arrears amount.
"This is standard practice across the industry, each credit reference agency stipulates the information that lenders must provide.”
Experian, one of the world’s largest credit reference agencies, says lenders keep them informed of developments throughout a mortgage term and lenders issuing a possession order will reference the date and outstanding amount.
It adds that when an agreement is reached by the lender and borrower, this is also listed on the borrower’s credit report.
The FSA was also unsure of how this would fit into TCF principles as the regulator has no direct contact with credit agencies.
Recent reports have suggested lenders are taking a heavy-handed approach to borrowers in arrears, as the market has become less favourable, and the FSA is due to investigate the issue over the coming months to ensure customers are being treated fairly.
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