Damian Paull - Australian Retail Credit Association - A review of the process toward the adoption of comprehensive credit reporting and response from stakeholders

The adoption of the comprehensive credit reporting.

Damian Paull

Chief Executive Officer

www.arca.asn.au

Understanding the legislative jigsaw of the Australian Credit

Reporting System

Taking advantage of the new data to empower better

lending decisions

The importance of building consumer awareness.

AGENDA

UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM

www.arca.asn.au

Owner Occupied Housing $886 Billion


www.arca.asn.au

Investor Housing $427 Billion


www.arca.asn.au

Other Personal Credit (Auto, Personal

Loans, Credit Cards) $135 Billion

www.arca.asn.au

Credit reporting involves providing information about an individual’s

credit worthiness to banks, finance companies and other credit

providers, such as retail businesses that issue credit cards or allow

individuals to have goods or services on credit.

ALRC report 108 “For Your Information’


Key Highlights

• Only 8% of customers disclosed their existing

debts fully.

• Undisclosed debts ranged from $3k to $120k.

• In >75% of cases, if debts had been fully

disclosed it most likely would have changed the

decision to lend.

A major international FSP analysed a sample of bankrupt accounts to compare the debts disclosed at the

time of approval against the debts at the time of bankruptcy...


Credit Reporting Framework

Privacy (Credit

Reporting)

Code

Obligations

sourced from

Privacy

legislation,

registered with

Commissioner

Principles of

Reciprocity and

Data Exchange

Obligations set by

industry – eg.

Reciprocity plus

others

(Refers to Industry

and external

standards)

Compliance Monitoring

External

Standards

eg. ASIC RG,

ISO

complaints-

handling, IT

standards

Guidance (non-binding)

Industry

Standards

Technical

standards set by

industry, for data

quality,

consistency,

exchange

Legislation

Privacy Act

and

Regulations

Competition

and Consumer

Act Part IV



www.arca.asn.au

Legislation

Privacy Act

Part IIIA of the Privacy Act 1988 regulates the credit reporting system and

follows the following key principles:

• Transparency

• Collection

• Use and disclosure

• Quality and Security

• Access and Correction In recognizing the importance of consumer protection, the shift to more comprehensive credit reporting is accompanied by enhanced protection relating to; • notifications • direct marketing • identity theft - ban periods and • correction requests.


www.arca.asn.au

Legislation

Privacy Act

Regulations

2013

In relation to Credit Reporting and or the operation of Part IIIA, the

regulations include:

• The definition of various terms relevant to the credit reporting

provisions in Part III A of the Privacy Act

• Permitted disclosures of credit information to a credit reporting body

(see s 21D of the Privacy Act

• Transitional provisions excepting energy utilities, water utilities and

commercial credit providers from the requirement to be a member of a

recognised external dispute resolution scheme before disclosing credit

information to a credit reporting body until 11 March 2015 (see s

21D(2)(a)(i) of the Privacy Act)


www.arca.asn.au

The Code sets out how certain provisions contained in the Act are to be

applied and or complied with.

The code deals wit the following matters: • Credit reporting system arrangements

• Open and transparent management of credit reporting information

• Information collection procedures

• Credit information handling practices, procedures and systems

• Consumer credit liability information

• Information requests

• Repayment history information

• Default information

• Payment information

• Publicly available information

• Serious credit infringements

• Transfer of rights of credit provider

• Permitted CRB disclosures

• Security of credit reporting information

• Use and disclosure of credit-related personal information by CPs and affected

information recipients

• Protections for victims of fraud

• Use by a CRB of credit reporting information to facilitate a CP’s direct marketing

• Access

• Correction of information

• Complaints

• Record keeping

• Credit reporting system integrity

• Information Commissioner’s role

Privacy (Credit

Reporting)

Code

Obligations

sourced from

Privacy

legislation,

registered with

Commissioner


Principles of

Reciprocity and

Data Exchange

Obligations set by

industry – eg.

Reciprocity plus

others

(Refers to Industry

and external

standards)

Reciprocity is a key principle for credit data sharing.

A creditor could accept sharing its information and break its information

monopoly if it gains access to the information of other creditors and, thus, be

able to perform a better credit risk assessment and thus use his resources

more efficiently.

The reciprocity principle is enforced in credit registers through provisions that

ensure that access to credit data is granted only to those who contribute with

their information.


www.arca.asn.au

Principles of

Reciprocity and

Data Exchange

Obligations set by

industry – eg.

Reciprocity plus

others

(Refers to Industry

and external

standards)

Principle 1

Bound to comply the PRDE.

Principle 2

Access to CCLI and RHI - get what you give

Principle 3

Service agreements acknowledge compliance with reciprocity and the

ACRDS.

Principle 4:

Transitional rules support early adoption of partial and comprehensive

reporting

Principle 5:

Monitoring, reporting and compliance requirements

Principle 6:

A broad review of the PRDE to be completed after three years.


www.arca.asn.au

Industry

Standards

Technical

standards set by

industry, for data

quality,

consistency,

exchange

1. Supports the compliance requirements and responsibilities of the Privacy

(credit reporting) Code, The PRDE and applicable legislation

2. Supports the completeness, accuracy and currency (up-to-date) of data to

be held by a Credit Reporting Body

3. Caters for and is consistent with the common interests of all Signatories

irrelevant of size or nature of Credit business (Banks, Finance companies,

Credit Unions, Utilities, Telco’s, Debt Collection Agencies, ….)

4. The form and content of data exchanges should be aligned with

Signatories operations

5. Must be Credit Reporting Body independent

6. Should minimise the IT development effort for Signatories to extract

required data from their systems in support of principle 2

7. Should minimise the processing and operational effort for Signatories to

supply data to Credit Reporting Businesses in support of principle 2

8. Should be consistent/aligned with any existing data standards commonly in

use by the Credit Industry where appropriate

9. Should be aligned/adhere to industry standards where appropriate eg.

Australia Post Address standard.

• 15

www.arca.asn.au

The presence of a properly regulated comprehensive credit reporting

system;

• Assists lenders to identify financial risks more accurately and

potentially earlier

• Improves economic performance of retail credit lending

• Increases access to mainstream credit, eroding financial exclusion

• Assist consumers to avoid over indebtedness and take greater

personal control of their credit identity

• Boosts productivity and consumer spending

(World Bank and BIS)


www.arca.asn.au

• Credit assessment

• Account management -

avoiding serious risk of

default

• Pre- screening

TAKING ADVANTAGE OF THE NEW DATA TO EMPOWER BETTER LENDING DECISIONS

www.arca.asn.au

Credit Limit + Repayment History

Higher Accuracy in Deducing Financial Status

More Informed Lending Decisions

Increase Competition for Credit Market

Offer Differentiated Products to Individuals of Different Risk Profile


www.arca.asn.au


A clearer picture: credit providers will have a more

complete picture of your ability to repay debts.

Better matching of credit to your needs: Credit

providers can better match the terms and amount of

credit.

Fairer access to credit: Under the new system, there

can be more information in credit reports to better help

credit providers make a decision when consumers are

applying for credit.

Increased consumer protection:

• Accessing Credit Reports

• Corrections and Complaints

• EDR

• Ban Periods

• Direct Marketing prohibition (new data)

• New regulatory powers and penalties


Taking Advantages of the new data to make better lending decisions?

www.arca.asn.au

A Veda pilot study identified the following preliminary findings that indicate that

Comprehensive Credit Reporting deliver significant benefits to:

Lenders, as it provides a broader view of their applicant and their overall risk

(internal and external)

Lenders and Consumers, as this additional information provides a better view of

the individual’s overall credit commitment and their ability to service credit debts

and so supports responsible lending

The economy, as it has the potential to release the amount of credit extended to

individuals while keeping the overall risk the same (or, alternately, lower the risk

of the Lenders'’ credit portfolio)

THE IMPORTANCE OF BUILDING CONSUMER AWARENESS


www.arca.asn.au

As credit reporting is designed to affect individual behavior, without

borrower knowledge of the consequences of the reform, the change in

their behavior is likely to be more limited and the system will not fully

capture the benefits of reform.



www.arca.asn.au

41% - CONCEPTUALLY AWARE OF CREDIT REPORTING AT A BASIC LEVEL. MOST HAVE

ENCOUNTERED IT WHEN APPLYING FOR CREDIT.

GIVEN THERE IS LITTLE UNDERSTANDING, THERE IS CONFUSION AND CONCERN WITH ‘WHO CAN’

AND ‘HOW MUCH’ INFORMATION CAN BE ACCESSED

THEREFORE, THERE IS A STRONG NEED TO EDUCATE AND PREPARE CONSUMERS FOR THE

CHANGE THROUGH INFORMATION.

www.arca.asn.au
