A default has been unfairly or negligently reported on my credit file – what can I do?

In the current economic climate, having a good credit rating is an important thing to maintain. There is no getting away from the fact that we now live in a world where the sharing of information around a person’s credit is often carried out in an automated manner and, unfortunately, with little scrutiny of the reasons why a person might be in default under a loan agreement or overdraft, for example.

This has inevitably led to situations where lenders have unfairly reported a default in relation to a customer’s account to the credit reference agencies, which then adversely affects that person’s credit rating. There are numerous situations in which could arise, for example an account might have been closed in error by the lender, an overdraft might have been placed in default despite the bank authorising a higher overdraft limit, or a default might have been reported in wake of fraudulent activity on an account. A negligent reference given by a lender to a credit reference agency may cause a person to suffer financial loss, which in the right circumstances could give rise to a claim.

Referrals to credit reference agencies

Lenders are under a duty to exercise reasonable care not to make untrue statements about borrowers and any statements made in breach of this duty by a lender are potentially actionable as a negligence and/or contract claim.

In Durkin v GSD Retail Limited [2014] UKSC 21, it was also confirmed that:

1. The duty upon lenders extends further to investigate an assertion of default, in order to reasonably satisfy itself that a credit agreement remains enforceable before reporting any default to credit reference agencies;
2. A lender will be in breach of its duties if it does not conduct enquiries before referring a default; and
3. If, having made those enquiries, the lender would have been on notice that the person’s debt was disputed, it should not make a referral to the credit reference agency until the dispute had been resolved.

The court in Carol Ann Gatt v Barclays Bank Plc and Mark Williams [2013] EWHC stated that the key question to consider was whether the references were false and damaging. It must be clear that it was false of the lender to report the default to the credit reference agencies and ideally the default complained of should be the sole cause of damage, for example an inability to raise finance.

The duties do not stop there. The Principles for the Reporting of Arrears Arrangements and Defaults at the Credit Reference Agencies dictate that lenders are also obliged to provide 28 days’ notice to borrowers following the serving of a default notice before referring any default to credit reference agencies. It is important that lenders comply with this regulatory obligation but unfortunately, given the automated nature of information sharing these days, this step is often missed and results in situations whereby a person is not aware that a default has been reported until they try to borrow.

What can I do as a borrower to prevent an unfairly reported default?

A lender can only report a default to a credit reference agency if it has reasonable grounds for believing that a default has occurred. If you are aware of an alleged default and do not dispute it, it may be more difficult to criticise the lender for making the reference. It is therefore in your interest as a borrower to immediately take the following action if you discover an alleged default and feel it has been reported unfairly:

1. Make it known to your lender that you dispute the default, ideally in writing;
2. Be clear on what basis you think there is a dispute and provide documentation to support your position as far as possible;
3. Seek your lender’s confirmation that it will not make any reference to credit reference agencies until the dispute is resolved;
4. If your credit rating has been negatively affected and this has caused you financial loss, seek independent legal advice as to the merits of a potential claim.

What might I be entitled to?

If this situation arises, your lender is under a duty to investigate the matter and may either qualify or withdraw its reference if the default has been reported unfairly. As well as this, it may be open to you to claim damages for injury to your credit rating and potentially be compensated for any other losses incurred during the relevant period which directly flow from the specific default that has been placed on your account.

The issue of what losses may or may not be attributable to a default being reported is a complex one that needs to be carefully considered and advised on. You would need to show that your losses would not have been incurred if the default had not been wrongly reported.

How can Ellis Jones help?

Our specialist Banking and Finance Litigation team has substantial experience in dealing with claims in this area. Our lawyers have the knowledge and expertise to review your matter and advise on the most appropriate steps to take. We will always consider your individual circumstances to provide tailored advice at an affordable cost.

If you wish to discuss a potential claim or complaint, please contact our Banking and Finance Litigation Department on 01202 525333, via email at banking@ellisjones.co.uk, or by clicking on the “Make an Enquiry” button below.