New mandatory comprehensive credit reporting laws for lenders
Comprehensive Credit Reporting (CCR) was first introduced in Australia in 2014. However, later in 2018 the Australian Federal Government will introduce new laws which make it mandatory for the big four banks to use CCR more fully and apply it when making credit assessments.
The introduction of CCR changed the type of consumer credit information that can be collected by credit bureaus and used by credit providers when making a lending decision. Previously, Australia only had a negative credit reporting system, which meant that a consumer’s credit report could only contain negative information such as credit enquiries, credit payment defaults and serious credit infringements like bankruptcy.
What else has changed?
The new regulations will set out the circumstances when a credit reporting body must share credit information supplied through the mandatory regime. Our current Treasurer Scott Morrison recently commented “The Federal Government does not propose to extend the mandate beyond the major banks at this point in time, given that they provide over 80 per cent of mortgages to Australian borrowers and once the major banks begin supplying information, strong commercial incentives will encourage other lenders to participate.”
Will other lenders be forced to apply CCR?
The Government has issued a timetable to phase-in the mandatory changes and may mandate the inclusion of additional institutions, at a later date. An initial bulk supply of credit information will be required from the big four banks and will be split across two years.
By 28th September 2018, large ADIs must supply credit information on 50 percent of the consumer credit accounts within the banking group to all credit reporting bodies they had a contract with, as at 2nd November 2017.
By 28th September 2019, large ADIs must supply credit information on the remaining accounts, including those that opened after 1st July 2018 and those held by subsidiaries of the large ADI to the same credit reporting bodies as the first bulk supply.
Following the initial bulk supply of information, large ADIs must continue to keep the information supplied accurate, complete and up-to-date. This will include supplying information on subsequently opened accounts. This information must be supplied to credit reporting bodies that received the initial bulk supply and with whom the licensee continues to have a contract under the Privacy Act.
The mandatory regime applies to all eligible consumer credit accounts – these are accounts which provide or can provide consumer credit such as home loans, personal loans, car loans, credit cards and overdrafts.
How will the new laws be governed?
CCR relies on the existing protections established by the Privacy Act and Privacy Code. Oversight of these aspects will be provided by the Australian Information Commissioner to preserve and protect the security and privacy of a consumer’s credit information.
ASIC will be responsible for monitoring compliance with the mandatory CCR regime laws. It will have new powers to collect information and requisition audits to confirm the supply requirements are being met. ASIC can also prescribe the technical standards for the reported credit information.
In addition to these arrangements, the Attorney‑General will lead a review of the operation of hardship arrangements under the Privacy Act. The review will respond to concerns raised by industry and consumer advocacy groups around how hardship arrangements are treated and will make recommendations on whether reforms are required. The Attorney-General is expected to complete the review by late 2018.
A positive change for the mortgage broking industry!
Under CCR, positive data can now be included on credit reports, which can help your customers when they are applying for credit. Positive data that can be included on their credit reports and the dates that the accounts were opened and closed, credit limits, types of accounts and 24 months of repayment history.
Importantly, the repayment history information can only be provided by, and shared with, licenced credit providers – this doesn’t include telco and utility companies.
The regime will be a game changer for lenders as it will provide greater transparency on a borrower’s true credit position and their ability to pay a loan. It will reduce exposure to defaults and allow a financial institution to calibrate its lending according to risk. For example, it will enable lenders to offer lower interest rates to lower risk customers and give them the ability to lend to riskier customers at premium rates.
CCR will also be a game changer for consumers, as it will enable lenders to better assess the credit risk of customers. It will also an increase competition in lending, which will provide access to better financial products for Australian households and small businesses. This will lead to a better deal on mortgages, personal and business loans in the long run.
Therefore, if your customers have a good credit history – they’re paying down their mortgage, haven’t missed a payment on their car loan and their credit cards are under control – you will be able to demand a better deal on interest rates, or shop around armed with their data. Borrowers with “one or two black marks” on their credit report will also find it easier to get a loan under CCR, provided their recent history of repayments is positive.
Need more information?
If you have any questions about CCR and how it may affect your business and your customers, the Compliance Team will be happy to help. Simply click your help icon in Mercury to get in touch, or email us at email@example.com