Concerns have been raised that the new mandatory comprehensive credit reporting regime could produce negative consumer outcomes, according to the Finance Brokers Association of Australia.
Speaking to The Adviser, FBAA executive director Peter White highlighted how the new requirements for lenders to provide comprehensive credit reporting (CCR) by 1 July 2018 is anti-competitive and may have unintended consequences.
Noting that the USA has been using credit reporting for years, but that some borrowers can be penalised for their previous borrowing habits despite having a good credit report at the time of application, Mr White said: “The current arrears rate in the USA is 6 per cent; for us in Australia, it sits between 0.6 [per cent] and 1 per cent, and it’s closer to the lower end of that scale. So, we don’t have a problem with how we control our data for credit reporting purposes in the use of providing credit.”
He continued: “For years, we have been talking about comprehensive credit reporting and now we have the Turnbull government coming out and saying that it has to be done by July 2018. They’re saying that this will provide better customer outcomes — but that to me has a signification question mark over it.
“We’ve experienced that lenders that are controlling that data piece in America are saying that comprehensive credit reporting has provided no benefit, and in actual fact has created a negative benefit. One of the examples given in The Adviser's US Study Tour suggests that if you have a blemish on your credit score from only a little while ago, but today everything is hunky-dory, you’re still going to be penalised on your credit report based on history. So, it will still carry a negative impact forward, even though you may be the greatest borrower today.”
‘Reeks of cleaning up the mess’
Mr White drew a comparison to the legislation of the National Consumer Credit Protection Act, saying: “When things were dragging along then, [the government] said: ‘If you don’t get your acts together, we’re just going to have to legislate and you’re going to have to clear up the mess.’ This reeks of cleaning up the mess.”
The fact that the major banks hold the majority of this credit information was also of concern, the head of the broker association said, as what the government was doing would affect the banks commercially.
He explained: “This is the bank data that they have collected and that has cost them money, and now they’re going to have to share it for free with everyone. So, there is a commercial component in this that needs to be considered.
“So, what we’re looking at is a potential huge burden on industry, a questionable consideration of commercial realities and free sharing of data that has cost banks significant amounts of money, for what will be a questionable outcome.
“We’re trying to create a better outcome, and we’re all for better outcomes, but basing this on the US model, this could actually be the reverse.”
Mr White concluded: “I don’t think it’s the right approach to force this in the manner that [the] government is doing. I think they would have been better off having better stakeholder engagement with the banks to have a better rationalisation of what the potential outcomes would be because the market models in other countries say it doesn’t add any value. In actual fact, it may potentially make things worse, not better.
“Stakeholder engagement should be the port of call before you bring in the big stick and say you must do this and that’s it. I think they have got it wrong.”