There has understandably been considerable concern amongst brokers over how Australia’s new credit laws “comprehensive credit reporting” will impact them and their clients.
Australians in the finance industry are waiting with bated breath to see how, or if, the introduction of new data sets to Australian credit reports, will change (and reduce) the numbers of Australians offered credit. The most worrying of these data sets has been repayment history information, and the upcoming reporting of this information to lenders.
Repayment history on licenced credit accounts (eg credit cards and loans) has been recorded since December 2012, when amendments to the Privacy Act 1988 (Cth) were given Royal Assent. A new Credit Reporting Code of Conduct will be revealed from March 2014, along with the repayment history of Australians who are repaying licenced credit.
But recent revelations seem to prove what many consumer advocates have already been saying – that the majority of Australians are not ready for comprehensive credit reporting, because they are not adequately educated.
Recently credit reporting agency Veda Advantage released some data on Australian credit file holders which should make us all take a big gulp.
Their Veda ScoreCard revealed that 80% of credit file holders have never checked their credit history; 81% are not concerned about their credit history; 93% know they have a credit file but 53% don't know they can obtain it; and 20% of males and 12% of females don't really care what's on their credit history.
Added to this, is research from the initiators of comprehensive credit reporting, the Australian Retail Credit Association (ARCA) – which found that 59 per cent of Australians have not heard of the term “credit reporting.” ARCA is concerned about Australia’s lack of awareness of credit reporting, and it will be launching an educational website in the New Year.
But I believe the onus is on government and financial sectors to direct Australians to websites such as ARCA's or the Office of the Information Commissioner. I would like to see plans to incorporate a brief warning statement, plus direction for where consumers can go for further information on many standard Government letters such as Centrelink, Department of Transport and Australian Tax Office correspondence, in addition to warnings on all licenced credit statements.
With the date for implementation looming and repayment history already being collected now from Australians who largely don’t know about it – what is the prognosis for Australian credit files in 2014?
With more than 16.5 million Australian credit files held by Veda Advantage alone, potentially millions of Australians could be impacted by this change.
It is a valid concern for brokers that it is simply unknown just how many who hold licenced credit accounts are making repayments past the due date, and how late payment history will be considered by lenders.
Many are very eager to know how many late payment notations will be too many and mean:
(a) A prospective borrower is refused credit or;
(b) A prospective borrower is offered a higher interest rate because they are deemed a higher risk.
Each lender will have its own calculations around repayment history information – but if the way lenders currently treat items such as excess credit enquiries, or repayment defaults is any indication – late payment notations will be shaving points off a consumer’s credit score.
The only solution to weather this storm is to encourage our clients to diligently make repayments on licenced credit accounts before the due date. This is on top of other preventative measures for the credit file such as frequent credit checks (www.freecreditrating.com.au); effective dispute of credit rating inconsistencies; active dialogue with the Credit Provider in times of financial hardship and careful credit applications – to name but a few.
Brokers can also ensure they are not caught out by repayment history, defaults or excess credit enquiries at the time of finance application by encouraging borrowers to undertake pre-application credit checks.
In the past, too many clients have been unaware they have defaults until they apply for major credit such as a home loan. The clients can lose the house and have their dreams shattered, all because of a credit file which contains defaults that may not even be lawful.
Organising for their credit file to be assessed by an expert and cleaning up any inconsistencies is a great recommendation to ensure victims of credit reporting errors and ‘surprise bad credit’ are given a fair go.
Graham Doessel is the chief executive and non-legal director of MyCRA Lawyers.
MyCRA Lawyers advocates for individuals in matters of credit file dispute.
An early pioneer in credit repair, over recent years Graham has become a frequent consumer spokesperson for issues impacting credit reporting, and is the Secretary and Spokesperson of the Credit Repair Industry Association of Australasia.
Graham also founded and is the non-legal director of Armstrong Doessel Stevenson Lawyers.
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