The governments patience has run out and they will now force the major banks to change the way they share customer data.
The Privacy Act 1988, the legislation governing consumer credit reporting in Australia, was amended on the 12th of March 2014 to introduce Comprehensive Credit Reporting.
In 2014 a Financial System Inquiry was held to establish direction for the future of Australia’s financial system. The final report, released on the 7th of December 2014, made 44 recommendations relating to the Australian financial system. Recommendation #20 was to:
“Support industry efforts to expand credit data sharing under the new voluntary comprehensive credit reporting regime. If, over time, participation is inadequate, Government should consider legislating mandatory participation.”
In November 2017 the Turnbull government announced that, due to inadequate participation, it would force the major banks to have 50% of their comprehensive credit data ready for reporting by the 1st of July 2018, increasing to 100% a year later
So, what is Comprehensive Credit Reporting (‘CCR’)?
Most developed countries around the world use a CCR system.
Australia has previously used a negative credit reporting system, where financial institutions were able to voluntarily provide negative consumer credit information; that is, information such as the number of credit enquiries an individual has made, payment defaults and serious credit infringements.
CCR, also referred to as positive credit reporting, changes the type of consumer credit information that can be collected by credit bureaus and used by credit providers when making a lending decision.
Under the CCR system, consumer credit reports will contain much more information, such as:
- The number of credit accounts held by an individual;
- When credit accounts were opened and closed;
- Credit limits; and,
- 24-month repayment history.
How will this affect Australian borrowers?
Treasurer, Scott Morrison, has described CCR as an overdue change that will lead to one thing – “a better deal on your mortgage, your personal loan or business loan.”
With more information available to assess the risk profile of a borrower, credit providers will be able to tailor pricing to an individual borrower’s profile as oppose to a group of borrowers’. This is likely to see individuals with a strong financial profile able to negotiate lower interest rates because of their desirability as a borrower.
On the other hand, individuals with a less attractive financial profile are likely to be hit with higher fees and interest rates because of them being deemed “high risk” borrowers.
If you have any questions about the CCR changes coming into effect this year, please do not hesitate to contact us.
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