Reform calls after $44 shortfall locks customer out of mortgage market
- Credit industry and consumer groups are calling for reforms to Australia's credit reporting requirements
- It comes in the wake of a court ruling over a mistaken $44 home loan repayment shortfall that damaged the borrower's credit rating, despite correction
- The court judgment was scathing of Westpac's handling of the matter
Industry and consumer groups are redoubling calls to correct "long-standing issues" in Australia's credit reporting rules.
It follows a New South Wales Supreme Court judgment on Monday, finding in favour of a home loan customer whose credit rating was damaged because of a one-off $44 shortfall amid a mortgage interest rate change in July last year.
Westpac-owned St George Bank customer Fiona Vinall was forced to take legal action after the bank refused to remove an adverse credit report when she mistakenly reduced her mortgage repayment a month earlier than St George effected the cut.
'Ambiguous' email causes confusion
The court was told St George had sent an email to Ms Vinall, saying her new rate took effect "after 10 July 2025" with the bank meaning the lower rate applied to the next month's repayment.
NSW Supreme Court judge Justice David Hammerschlag described St George's emails about the rate change as:
"at best ambiguous, and at worst likely to mislead".
After Ms Vinall misinterpreted the email and reduced her repayment in July, St George reported her repayment shortfall to credit reporting agency Equifax Australia, as required under federal laws.
Ms Vinall corrected the underpayment the next month and requested St George remove the adverse report.
She resorted to legal action after St George first failed to respond to and then refused her request - an action the judge described as "obdurate".
The court heard the report later prevented Ms Vinall from settling on another home purchase because mortgage brokers said her new lower credit rating ruled her out of new lending.
Court scathing of Westpac response
In handing down his order, Justice Hammerschlag said the bank's refusal to fix the issue, even despite an earlier court ruling, was "legally unjustifiable and short on commercial morality".
A representative of Westpac banking group had failed to appear at an earlier preliminary hearing of the matter in January, despite Ms Vinall's lawyers informing Westpac via email.
The court was told the email had failed to meet the appropriate destination within the bank.
Another judge had earlier ordered the adverse credit report be removed but in a subsequent court hearing on the matter in early February, when Westpac sent its lawyers, it refused to withdraw the report.
Justice Hammerschlag then made the "unusual but not unknown" demand for Westpac's CEO Anthony Miller to appear at Monday's hearing in person.
Westpac backdown
But before Monday's hearing, Westpac informed the judge it had successfully taken steps to remove Ms Vinall's adverse credit report, effectively excusing Mr Miller from appearing.
In handing down his judgment, Justice Hammerschlag was highly critical of the bank's conduct:
“Having regard to the de minimis [trivial] dimensions of the shortfall, the substantially unequal bargaining position of the parties, the profound adverse consequences for the plaintiff [Ms Vinall] of the adverse credit reporting being maintained … not taking steps to erase the recorded event was unconscionable.”
Westpac was also ordered to pay Ms Vinall's court costs.
The matter will now move to the NSW District Court which will hear Ms Vinall's claim for damages.
Leeway for 'minor, inadvertent' errors
Consumer and industry groups are united in calling for reforms to exempt "small, unintentional missed payments" from impacting customers' credit histories.
Financial Rights Legal Centre senior policy officer Julia Davis said the case highlights issues identified by an independent review more than a year ago.
"One of the clearest examples of low-hanging fruit for reform is ensuring that minor, inadvertent errors are easily correctable and do not have lasting consequences," she said.
"Credit reporting is meant to communicate a person's creditworthiness to future lenders. A $40 mistake that was quickly rectified does not reflect someone's ability to manage credit."
Industry agrees
Arca [Australian Retail Credit Association] CEO Elsa Markula said the case highlights the need for credit reporting to be "fit for purpose" in today's lending environment.
“There is a clear case for targeted reforms which will bring Australia in line with international counterparts," she said.
"Banks are currently required to report missed payments to credit reporting bodies, regardless of the amount.
"Key targeted reforms could include reforms to ensure there are thresholds for reporting payment history, which means small unintentional missed payments do not negatively impact consumer's credit histories."
Arca members, including 14 of Australia's largest banks, are urging government reforms in line with fixing issues identified by an independent review into Australia's credit reporting framework in 2024.
It called for the system to be modernised to keep pace with international credit reporting standards.
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