Consumer groups raise concern over major credit reporting changes

Updated

Consumer groups are warning that Federal Government changes to credit history reporting rules will make it more difficult for low-income Australians to get loans.

Under the changes being introduced this week, banks will be required to report payment defaults more thoroughly and more regularly.

Until this week lenders have only been required to report a customer default on loans when they are more than 60 days late in their payments.

However, from Wednesday, more detailed information about credit card and loan repayments will be handed over to credit reporting agencies.

The Australian Retail Credit Association says the new rules offer a clearer picture of people's credit records.

Steve Brown from Dun and Bradstreet, one of the biggest credit agencies, thinks the changes need to go further.

He believes missed payments on electricity, gas, water and phone bills should also be recorded.

"It would allow people who don't today have access to a financial service credit product to demonstrate that they have got a good track record of meeting non-banking and financial service credit products," he said.

David Grafton from Veda, another big credit agency, says there are even more ways to get a clearer picture of a person's credit record.

"Information on somebody's balance relative to their credit limit would be very important as a predictor of potential credit stress," he said.

"It's a very powerful predictor, if you run a statistical exercise then you can show that that would be immensely helpful to credit providers."

Minor defaults recorded

Consumers groups are worried about the changes, and say the most concerning aspect is that late repayments of only a few days will be recorded in people's credit histories.

Sorry, this video has expired Video: Steve Brown explains the changes (ABC News)

Kat Lane works at the New South Wales Consumer Credit Legal Centre.

"The big issue is this is something that's been pushed in by industry to manage making decisions on credit risk when lending to people and, of course, the problem is for consumers is that this isn't necessarily a good thing for them," she said.

"Australians who are just struggling with paying their everyday bills, if they're more than five days late on their credit card, their home loan or their personal loan, then suddenly they're going to have a mark on their credit report.

"That may mean that when they go to get credit, they may have to pay a higher interest rate."

Ms Lane believes it is unlikely that lenders will use the information to scale back on the number of loans and credit cards they give out, instead she expects them to simply use the information to charge more interest.

"So you go into the bank to go get a home loan and you've got several little marks from being just over five days late on paying your credit card over the last year, and suddenly the bank will say, 'Well, according to this, your risk is a bit higher and therefore your interest rate is a bit higher'," she explained.

"I think the low-income and disadvantaged people in our society are going to be severely disadvantaged by these changes because a lot of them, particularly those people living working poor or on part-Centrelink struggle to pay their bills already, particularly their loans, and they're going to be people who are constantly facing higher credit costs."

It may be too late to start changing repayment habits.

"The repayment history information isn't just being collected from March 12 this year, it actually started collection in December 2012 and, as a consequence, that means that any late repayments in the last year could mean that you've already got a mark on your credit report for a late repayment," Ms Lane added.

During the 1990s, Nigel Waters served as Australia's Deputy Privacy Commissioner.

He now works with the Australian Privacy Foundation and has serious concerns about this week's changes.

"The new rules basically allow them to get a picture of your detailed transaction and repayment history," he said.

"All that does is allow them to target people more effectively for credit offers. So it's basically, in our view, largely a marketing exercise."

Mr Waters says the changes reflect the industry's laziness in checking information provided by loan applicants.

"They've always been able to get that picture from bank references and seeking more information from people," he said.

"Basically, they're just lazy. They want a quick and cheap and easy way of knowing more about you, and we just think that's unnecessary and unduly intrusive."

Concern over lack of public awareness

Mr Waters says public awareness of the changes also remains limited.

"We're very disappointed, firstly, that the Government, when it made these changes, didn't fund the public education campaign," he said.

"I think a lot of people are going to be very surprised and very upset when they find out that that's the case."

Mr Grafton from Veda agrees that many people are likely to be unaware of the changes.

"I have to say I think that there's a mixed level of awareness," he said.

"I know there's been a fair amount of press and media coverage of this issue, but I suspect there is a case to be made for more consumer education."

A website explaining the credit changes has been set up by the credit reporting industry.

Australia's Privacy Commissioner, Timothy Pilgrim, says the changes have been publicised on his commission's website.

"The office of the Australian Information Commissioner's website does have quite a large number of hits on it, it is extraordinarily well used, so we're making sure we use that to the greatest extent possible," he said.

"Like all government organisations we're given a budget to undertake all our functions and we've been using that to the greatest extent possible."

When asked whether his office needed more resources to advertise the changes, Mr Pilgrim refused to be drawn.

"I think all government agencies can put up good cases for additional funding in many areas," he replied.

"Our requirement is to make sure that we use the funding we've got to the best extent possible, and I believe that we're doing that."

Topics: business-economics-and-finance, consumer-finance, banking, australia

First posted