37 recommendations put forward to improve credit reporting

The Review of Australia’s Credit Reporting Framework – which commenced in February 2024 and engaged with stakeholders to consider the overall efficiency and effectiveness of the credit reporting provisions – found that while credit reporting is a critical and effective pillar of Australia’s financial infrastructure, there are several areas where the regulatory framework could be improved.

Richards said that there was also a clear need for stronger and more proactive regulatory oversight of the credit reporting framework and a shift in focus from historical privacy-focused concerns toward a focus on financial services conduct and consumer credit.

As such, she set out 37 reforms aimed at improving the overall operation of Australia’s credit reporting framework with a focus on enhancing consumer experiences; strengthening the efficiency, coverage, and quality of credit reporting data; maintaining a competitive credit industry; and reforming the regulatory structure to improve accountability and flexibility.

The recommendations include moves to:

• Improve consumer access to credit reports across different credit bureaus (without being marketed credit products that they may not want or need).

• Refine how financial hardship arrangements are reported in credit files (including by clearly indicating when a consumer is under a hardship arrangement).

• Ensure greater control and protection for vulnerable individuals (including those at risk of financial abuse or financial hardship).

• Enhance consumer rights (including the ability to freeze credit reports to prevent fraud without adversely affecting the legitimate flow of information to credit bureaus and streamline dispute resolution mechanisms).

• Optimise the efficiency, coverage, and quality of credit reporting data.

• Change data retention lengths (including limiting the retention of credit report inquiry information to two years [currently five years] and basing retention of defaults [five years] so they are based consistently on the original due date, rather than an arbitrary reporting date).

• Raise thresholds to reduce reporting of minor defaults and overdue repayments.

• Elevate the concept of a ‘soft’ credit check to primary legislation to provide a clear legal foundation and a consistent approach across the industry.

• Expand mandatory credit reporting where necessary (for example, by including the outstanding balance for each credit account).

• Maintain competition in the credit industry by encouraging broader data sharing, supporting smaller lenders.

• Introduce clearer regulations for credit bureaus and establish a more flexible and principles-based regulatory structure, with stronger accountability and resources for regulators to ensure effective enforcement and continuous evolution of the system.

• Establish a code compliance committee.

Richards said: “Policy and regulatory attention have been quite limited, and data that could provide insights into how the system is functioning is largely unavailable. This has left the industry to seek to resolve a variety of technical issues without clear policy direction.

“The clear message from stakeholders is that the legislative framework needs to be more responsive to the evolving data needs in the credit reporting system. This means the regulatory structure should have more options for adding and modifying data requirements and removing unnecessary provisions.”

However, the reviewer said that changes in the primary law should be the subject of ongoing review by the regulator and that the legislative and regulatory structure would require sustained effort, a staged implementation plan, and significant resources, with an advisory committee involving industry, consumer advocacy groups, and regulators to guide the process.

Attorney-General Mark Dreyfus KC MP said the government would “carefully consider the report and continue consultation with stakeholders before determining its next steps”.

Reforms will make broking easier: Victoria Coster

Welcoming the report, Victoria Coster, the CEO & director of Credit Fix Solutions & Credit Fix Lawyers, said: “If implemented, these measures will assist consumers in safeguarding their credit information and maintaining healthier credit profiles.

“This in turn will make the role of finance brokers easier, as consumers will be more able to protect their credit reports and scores, and credit reporting will be more reliable and much easier to navigate.”

Coster said that the recommendations could reduce the likelihood of errors that could negatively impact a consumer’s credit score and improve privacy and security protocols, thereby minimising the risk of unauthorised access and ensuring that sensitive information remains confidential and secure.

She said: “Collectively, these recommendations aim to create a more secure, accurate, and consumer-friendly credit reporting environment.

“By implementing these measures, consumers will be better equipped to protect their credit reports and maintain healthy credit scores, ultimately leading to improved financial well-being and will be a breath of fresh air for finance brokers in navigating credit reports for their clients for better lending opportunities.”

ARCA suggests urgent changes needed

However, other members of the finance industry have hit back at some of the recommendations, saying that the report contained “fundamental misunderstandings about how the credit reporting system works”.

The Australian Retail Credit Association (ARCA) said while it recognised the need to modernise the framework, more work needs to be done as a priority and some reforms need to be rethought.

The association particularly called out that removing the Privacy (Credit Reporting) Code would make it significantly more difficult for the framework to be updated over time.

Elsa Markula, CEO of ARCA, said that she believed the code had been “one of the most effective parts of the legal framework”.

“It has been updated several times to resolve legal uncertainties and reflect market developments. The collaborative approach between industry and the regulator ensures flexibility and responsiveness, without the need for updates to Regulations which have simply not been forthcoming in the past,” she said.

“We strongly believe the CR Code should remain a cornerstone of the system.”

ARCA also said that proposal to implement a ‘soft inquiries’ framework could be more efficiently met by implementing a version through the CR code.

“A clear, consistent soft inquiries framework would benefit consumers – allowing more shopping around without affecting credit reports – while also giving industry more certainty about their obligations, and, potentially better-quality data,” said Richard McMahon, general manager, government and regulatory, at ARCA.

“The current issues around soft inquiries need a quick resolution; the path proposed by the Review is not the best way forward.”

[Related: MFAA submits recommendations for credit reporting framework]