Lenders gain access to more private information

The Privacy Amendment Bill 2012 is close to becoming law and it will bring significant changes to the Australian credit reporting regime.  The bill changes the information credit agencies are able to collect and is likely to significantly affect who gets a loan and how much they pay for it.

In the past, credit providers had access only to loan default, debt collection and bankruptcy information to help them determine whether or not to offer credit.  This system is overhauled in the new Privacy Amendment Bill.  A recent Sharkwatch article, p.15, outlines the new information credit reporting agencies will be allowed to collect:

  • The date each credit account was opened (and closed)
  • The type of credit account
  • The current limit of each open credit account (but not the actual balance)
  • The repayment performance history of the individual over the previous 2 years

Information in the first 3 categories will be available to all creditors who have registered with an agency.  Retailers, healthcare providers, and anyone else who provides more than 7 days of credit are likely to register.  The 4th type of information is only available to licensed credit providers such as banks, credit unions and payday lender. Among other things this may adversely affect those who are able to pay but forget to do so on time.

The new law will provide creditors will a more complete picture of a borrower’s credit history and ability to pay.  Credit reporting agencies expect this to increase lending activity and potentially lower interest rates.  Agency Dun & Bradstreet said its research showed the new information could lead to a 27 per cent increase in credit approvals and a fall in defaults by as much as 45 per cent.

Benefits may also extend to some borrowers.  Credit ratings spokespeople such as Veda chief executive Nerida Caesar suggest that financial literacy will increase as every new borrower recieves a credit score.  Borrowers will be able to monitor their credit score and request a full credit report free of charge once every 12 months.  This will also make it easier “to make complaints about incorrect credit reporting information” according to Attorney General Nicola Roxon. She also noted that the bill imposes on credit providers “positive obligations to help consumers correct their credit information.”

However, there are concerns the new bill will empower lenders to extend more credit where this may not be in the borrower’s interests.  Carolyn Bond, the co-chief executive of the Consumer Action Law Centre said while putting more information in the hands of lenders might allow them to make more informed decisions about a borrower’s ability to pay, overall it was likely to result in an increase in the amount of credit provided.

“The question is that if the industry has powerful new tools will they use them to ensure people have appropriate credit products or will they use them just to increase the amount of credit they provide,” Ms Bond said.