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Aggregation heads believe comprehensive credit reporting will benefit the lending industry as a whole, but not all brokers are on board
COMPREHENSIVE CREDIT reporting provisions, in the form of federal government amendments to the Privacy Act, have brokers increasingly worried about their impact on businesses.
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According to a recent online straw poll conducted by The Adviser, a vast majority of brokers believes the provisions will “negatively” impact their businesses.
Of the 234 poll respondents, 56 per cent said comprehensive credit reporting would have a negative effect on their bottom line, while 44 per cent believe the scheme will have no “obvious impact”.
The federal government originally launched the comprehensive credit reporting initiative to help would-be home buyers get onto the property ladder sooner rather than later.
Current credit reports include basic personal information, applications for credit over the last five years and details of defaults, court judgements and bankruptcy.
Under the proposed changes, lenders and brokers would also be able to collect and distribute details of when a credit account was opened and closed, what its current limit is, the type of credit offered and the account repayment history over the previous two years where a consumer is late making the minimum payment on credit cards or loans.
Loan applicants with a favourable or ‘positive’ credit history should therefore find it easier to obtain finance.
Australia, Denmark, Finland, France and Malta are the only modern economies that solely use negative credit reporting. New Zealand introduced comprehensive credit reporting in April 2012.
An exposure draft was released in January 2011 and the amendments to the Privacy Act are expected to pass by the end of the year, with implementation in spring 2013.
So, why are brokers worried about the impact of the proposed legislation?
According to Home Loan Connexion’s Terry Shoesmith, the legislation will give lenders the authority to implement a ‘scorecard’ that could ultimately stop many borrowers from obtaining finance.
“This piece of legislation will ultimately allow lenders to credit score clients more easily which could, in turn, severely restrict their ability to gain finance,” Mr Shoesmith said.
“I see this as potentially a greater restriction on a client’s ability to refinance than the so-called deferred establishment fees ever were.”
Connective principal Mark Haron agrees and says lender “credit scoring” often acts as an impediment to clients’ obtaining finance because brokers don’t know exactly how lenders score the clients.
“I definitely agree that comprehensive credit reporting will allow lenders to use credit scoring a lot more regularly than they do now, and that could be a bit of a challenge for brokers,” Mr Haron says.
But even if credit scoring proves to be part and parcel of a future comprehensive credit reporting structure – and a hurdle for brokers – Mr Haron says there are still many advantages associated with the initiative.
“I think that as long as the lenders are transparent and clear about what they are scoring clients on, brokers will find the initiative actually benefits them and their business because it means they can put the right client with the right loan, improving conversion ratios and productivity.”
Choice’s chief executive officer Stephen Moore agrees, and says comprehensive credit reporting “makes sense”.
“Comprehensive credit reporting will give lenders and brokers a better understanding of each client which will ultimately help them put a client in the right loan first time, every time.”
