Brokers are being urged to review important business processes ahead of a new credit reporting framework coming into effect later this week.
Comprehensive Credit Reporting (CCR) begins on Friday, 28 September, when the country’s largest banks will begin sharing customer repayment histories with other lenders.
As part of a deal brokered by the Australian Retail Credit Association, leading banks will begin providing credit card repayment history data to credit reporting bureaus, with mortgage and personal loan repayment histories to be added in the coming year.
The move will give brokers and lenders a more complete picture of a potential borrower’s financial history, in turn allowing lenders to better assess credit risk and potentially offer more competitive loans and credit products.
New data will also mean that brokers can expect a more responsive approach from lenders and less back-and-forth with clients. New CCR data enables lenders to more efficiently validate things such as credit limits and repayment histories, reducing the need for additional documentation from the borrower.
For some brokers this will be a godsend. A recent report on the mortgage industry by Deloitte found that almost 30 per cent of borrowers discussed a loan application with their broker at least five times prior to settlement. Anecdotally, a lot of this back-and-forth is tied up chasing past financial statements or other verification-related documents.
In an era when there is increasing public pressure on lenders and brokers to provide greater rigour over lending practices, this change will usher in greater transparency as well as offer clients financial products which better suit their needs. In a government review of the introduction of CCR in New Zealand, some lenders told the NZ privacy commissioner that CCR data had allowed them to make better risk assessments, which led to an increased capacity to offer more credit.
However, before any of these changes can be realised, there are three steps that brokers need to take ahead of the transition to CCR.
Understand lender implementation road map
While the big four will begin providing positive credit reporting data from the end of September, its use by lenders in their credit decision processes will be less uniform.
Each lender will have a different time frame to update their credit decision processes in how this new positive data will be consumed and assessed for each of their credit products.
It’s critical that brokers speak with their lending partners to understand this roll-out during the comings months. Not only will this ensure that clients don’t experience any hidden “surprises”, but also, in the short term, brokers will need to optimise their credit assessments accordingly to get the best outcome for their clients.
Make the most of new insight
The arrival of CCR data also opens up new insight opportunities for brokers and their clients.
Brokers should be asking lenders, aggregator platforms, credit bureaus and other third parties for access to positive credit scoring information services. Many lenders, such as Wisr, are increasingly bringing on smarter tools for brokers to use.
Initially, such tools will provide a much stronger vetting approach, letting brokers better gauge the likely success of credit applications. It will also help brokers steer clients towards lenders that best align with the clients’ personal financial history profile.
Keep clients informed of changes
The final short-term action brokers need to take is communicating with current, prospective and future clients about the impending arrival of CCR.
This can include getting to prospective clients currently in the pipeline to ready themselves for future credit applications by improving financial behaviours, getting a current baseline of creditworthiness as well as discussing the potential merits of tailored, risk-based lending.
Brokers should also be using this time to update their communication tools — such as flyers, websites, social media and electronic newsletters — to reflect rising community interest in positive credit reporting.
The introduction of CCR has been much debated by the broker community in the past few years, with many mulling over the benefits and challenges of a new credit reporting framework.
The true value of CCR will only really become apparent in the coming months and years; however, there are some immediate steps that brokers should take today to ensure they and their clients can make the most of CCR.
Peter Beaumont is head of growth at Wisr.
Peter is a senior business executive with over twenty five years global banking, finance and project delivery experience gained with leading international investment banks Citibank, UBS AG, Bank of America Merrill Lynch and ABN AMRO.
He brings to Wisr a broad set of customer acquisition and client sales leadership skills along with deep experience transitioning high volume financial products businesses from traditional channels to online, straight through processing models. Peter has fulfilled board roles with a variety of Australian infrastructure companies and international companies.
Peter holds a B. Sc (Hons. 1st) from Sydney University and a MBA from MIT-Sloan School, Cambridge, MA. USA. Peter is a Graduate of the Australian Institute of Company Directors.
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