Credit reporting and the year ahead

1. Repayment History Information (and specifically ‘late payment’ notations).

The introduction of repayment history information (RHI) to Australian credit reports means there is going to much more data available to lenders in which to make their serviceability calculations from.

One of the pieces of credit reporting data which could be a deal breaker for many prospective borrowers – is any late payment notations. Separate from defaults, a consumer’s RHI will show any late payments made on licenced credit – e.g. loans and credit cards and the date the payments were made.

That information has been collected from December 2012 – but largely consumers are unaware of this important change. From March this year, it will show up on consumer credit reports across the country – and it will be interesting to see how many people have these new notations against their names.

It remains to be seen how lenders will treat this information (as all serviceability calculations are so subjective), and precisely how the information will impact credit worthiness.

We don’t know yet how many days late will be too late, and we won’t know this information until a new Credit Reporting Code of Conduct is registered. It has been proposed a repayment more than 5 days late will see you with one of these notations against your name.

Another uncertainty is how many will be too many and mean the lender’s computer says ‘no’ or the lender’s computer says ‘yes’ but at a higher interest rate.

2. New obligations on credit reporting bureaus

With the registration of a new Credit Reporting Code of Conduct (CR Code), will be a new requirement on credit reporting bureaus such as Veda, Dun & Bradstreet, Tasmanian Collection Services and new entrant Experian, to audit the compliance of credit providers.

The new CR Code requires CRB’s to monitor credit providers, and to determine those that pose the greatest risk of non-compliance with their core obligations under the Privacy Act. The Code determines these “at risk” credit providers would be subject to audits.

We will be interested to see precisely how this obligation is metered out to credit reporting bureaus, and whether an independent overseer will be appointed to ensure objectivity. We hope this change will improve the accountability of credit providers. We also hope it will solidify the two entities as being ‘separate.’ We have found in the past during credit disputes, a client-type relationship tends to exist between agency and credit provider, at the exclusion of consumers.

Further to this, it was proposed in the draft Code of Conduct, that CRB’s should also publish on their website an annual report by 30 June each year outlining information relating to credit report correction. The information would relate to the number of correction requests received, the number of successful correction requests, and the number of complaints received.

This information has previously never been supplied to the Australian public from our credit reporting agencies (because there has never been a requirement to). If implemented as part of the new CR Code, this information will give Australia a much more accurate picture of the depth of credit reporting issues as they exist.

3. The ‘open’ credit score

Currently, Australia’s largest credit reporting agency, Veda is offering consumers the opportunity to purchase their ‘Veda score’ so they can see the number that lenders have been able to see when requesting credit information from Veda.

With the Privacy changes will bring an obligation on those agencies providing a credit score, to provide information on how it is calculated. Veda has made moves to do this already.

In addition to Veda, U.S. giant ‘FICO’ has said it would also like to offer open credit scoring to the Australian public.

FICO currently offers its data analytics services and credit scoring to lenders for internal use in Australia, and has been doing so for many years. It is reportedly used in 90% of consumer lending decisions in the U.S.

So if it does provide an alternative to Veda’s “VedaScore” it will be interesting to see the differences in the scores, and which one is more accurate reflection of lender serviceability calculations.

4. “Improved” ability to correct consumer credit reports

Creditors can and do make mistakes when placing listings on credit files, and the onus is on the consumer (or someone acting on their behalf) to identify and address those inconsistencies.

But up till now, it has very much been a case of David and Goliath – with some consumers finding they are lumbered with listings that just shouldn’t be there due to not having the extensive skills and knowledge required to address their complaints in the appropriate way.

The new laws around complaints correction have promised to streamline the correction and complaints process for credit reporting as well as force the credit provider to justify credit listings and actually substantiate the information it reports on credit files.

These are significant changes which we look forward to putting into practice on behalf of the many clients we act on behalf of in credit dispute cases.

5. New powers for the Privacy Commissioner

New Privacy Laws provide that civil penalties can be issued by the Privacy Commissioner for a breach of certain provisions of the Privacy Act, and including the Credit Reporting Code of Conduct. They can also be imposed for serious or repeated breaches. These can be up to $220,000 for an individual or $1.1 million for an organisation.

Finally there is some real incentive for credit providers to take due care with adding listings to credit files. The Privacy Commissioner has said he will not be taking a soft approach when it comes to breaches of the Privacy Act, and we will be watching with interest to see if this also applies with the same gusto to credit reporting breaches covered under this legislation.

All in all, this year could bring some really positive changes to Australia’s credit system, but with it will be some teething problems resulting in confusion for some consumers. If nothing else, there’s going to be some really interesting times in credit reporting, and in finance in the months ahead.