The Banking and Financial Services Ombudsman has warned its members that it is seeing an increasing number of cases where lenders are failing to follow correct procedures when dealing with borrowers who have fallen into arrears.The BFSO said it had dealt with cases where lenders had reported overdue payments to credit reporting agencies despite having given no prior warning to the borrower. Lenders were issuing credit listings before the appropriate overdue period had passed. And lenders were issuing default notices that failed to explain the recovery process.The latest BFSO Bulletin reminds lenders that Section 18 of the Privacy Act requires that for a listing to be made with a credit reference company the payment must be overdue by 60 days or more.It points to a ruling of the Privacy Commissioner that: "A credit provider may not report an overdue payment to a credit reporting agency unless the credit provider has first notified the individual that a report may be lodged."The BFSO said best practice would include a lender warning a borrower that a listing was likely to be made. It said: "Notice at the time the credit was issued is not sufficient."If a lender moves to recover the full amount of a consumer loan it must follow rules set out in the Consumer Credit Code. A default notice must be issued and the borrower given a minimum of 30 days to remedy the arrears.The lender must explain how an acceleration clause would operate and care must be taken not to mislead the customer into believing that payment of a lesser amount would be sufficient to avoid recovery action.The ombudsman said: "In some cases we have seen the debt has been properly accelerated having regard to sections 80 and 85 of the UCCC, but the debtor continues to receive statements or letters requiring the payment of a lesser amount, often any past due and over limit amounts."If the customer pays the lesser amount stated in the subsequent notice and continues to pay in accordance with those statements, it is our view that no recovery action or credit listing should be made even where the full amount is due but remains unpaid."