Last week saw the re-introduction of mandatory comprehensive credit reporting into Parliament.
A statement from the Government said that the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and other Measures) Bill 2019 introduces:
A new category of credit reporting; and
Hardship history to be reported alongside repayment history.
“Consumers experiencing financial difficulty will be able to demonstrate their credit worthiness with more accurate reporting of their circumstances,” the Government said.
Hardship history to make it harder?
However, concerns from the Consumer Action Law Centre (CALC), highlighted in their submission to the legislative consultation in September, indicated that consumers experiencing financial difficulty in repaying their loans would be ‘unfairly’’ penalised.
In a joint submission with the Australian Privacy Foundation, CHOICE and Financial Counselling Australia, they suggested that the potentially unfair penalties might actually discourage lenders from assisting customers facing financial difficulties.
Some of their key recommendations were:
Limiting access to financial hardship information to loan decisions;
The need for public disclosure of information security risks;
Problems with the definition of ‘financial hardship indicator’;
The need for a robust independent statutory review; and
Amendments to external dispute resolution requirements.
The submission also states that:
Financial hardship information will not foster responsible lending because if a person is back on track at the time of a new credit application, the financial hardship information is no longer relevant to the prospective lender. Additionally, the summary of the law released by the Attorney-General’s Department says the Government wanted to ensure consumers are not subsequently disadvantaged once they are no longer experiencing hardship. Removing all hardship arrangement indicators one month after the arrangement has been concluded would ensure that consumers who are back on track and paying their liabilities are not disadvantaged by the continuation of reporting of financial hardship information. Any additional retention after a consumer is no longer in hardship is unfair and bad practice.
Better decisions for lenders
In the ASIC regulatory enforcement update presented by Commissioner John Price at the Australian Institute the of Credit Management the 2019 National Conference, held on the Gold Coast in October of this year, Price said that:
Responsible lending obligations are a key consumer protection designed to reduce the potential for individual consumers to suffer hardship as a result of inappropriate lending. There is significant public interest in how these obligations are met.
Price emphasised that with the advent of open banking, comprehensive credit reporting and better ways of capturing data, lenders should be able to ‘make more accurate lending decisions’.
According to the Government, last week:
The CCR regime will deliver benefits to both borrowers and lenders by providing access to a deeper, richer set of data, enabling them to better assess a borrower’s true credit position. This will drive more competition in the market by encouraging new entrants and smaller lenders, including innovative FinTech firms, to compete for customers with positive credit histories.