Credit reporting plan still prescriptive

Finance industry commentators were scratching their heads yesterday about the decision of the Australian Law Reform Commission to exclude credit reporting agencies and credit providers from the agency's central proposal for reform of the Privacy Act - a move to a streamlined, principles-based regulation.

On Tuesday the ALRC released a 3000 page report detailing 301 proposals for reform of the Act. Its core recommendation is the adoption of a set of "universal privacy principles" that would set the guidelines for data collection, use and disclosure, marketing, data quality and security, access and correction and trans-border data flows.

Commission president David Weisbrot said: "The ALRC is proposing there be a single set of privacy principles for information handling across all sectors and all levels of government. This will make it easier and less expensive for organisations to comply, and much more simple for people to understand their rights."

He might have added: as long as you are not in the consumer finance industry.

The sections of the Privacy Act that deal with credit reporting, Part IIIA, are anomalous. They are highly prescriptive, setting out detailed descriptions of "permitted content" that can be collected by credit bureaus and included in their reports. The ALRC recognised that Part IIIA was complex and created costly overlaps with other parts of the Act.

Rather than include credit reporting in the principles-based self-regulatory trend spelled out elsewhere in its report it concluded: "Credit reporting does require a certain level of prescription."

It has proposed that the credit reporting provisions in the Act be repealed and written into a set of regulations that would continue the approach of having permitted content.

Head of external relations at Veda Advantage, Chris Gration, said: "The existing law provides consumer protection designed in the 1980s. It's out of date and all parties agree it is ineffective.

"Unfortunately, the ALRC's proposal to translate existing law into regulations will not succeed in strengthening or modernising consumer protection for a 21st century credit market.

"Everyone agrees it is overly prescriptive. We should have a set of principles and a code of conduct, with a limited set of prohibitions in regulations."

On the question of whether or not Australia should move to a positive credit reporting system, the commission recommended that credit bureaus be allowed to store a number of additional pieces of information in credit files. These include the date of opening of a credit account and the date of closing an account, the credit limit, the name of the credit provider and the type of credit being provided (credit card, personal loan and so on).

It rejected industry submissions calling for the inclusion of current balance (the amount of the limit drawn down) and repayment history.

Under the current rules credit files prepared by credit reporting agencies can include the identity of the borrower, notice of overdue payments, cheques worth more than  $100 that have been dishonoured twice, bankruptcy orders and court judgements, previous applications for credit reports and a credit provider's opinion that that individual has committed a serious credit infringement.

Gration described these proposals as a good start. "They are a good platform for reform but we need to go further."  

Gration said Veda had approached the Government seeking regulatory relief to run a data study on what data is most predictive of default. He said the local industry was too reliant on overseas studies and needed its own body of research.

Dun & Bradstreet chief executive Christine Christian rejected this argument. "I don't understand that criticism. At the moment we don't know the extent of a person's commitments. We only know about defaults.

"The consumer might be holding six credit cards. Under the current system a credit provider would not know that. This proposal would mean the lender can find out the consumer's level of commitment. That is a far cry from what we have now."

"If we add these things the commission is proposing we will see an improvement in default rates."

The head of the Consumer Action Law Centre, Carolyn Bond, said her opposition to more comprehensive credit reporting remained until there was better evidence that lending would be more responsible as a result.

"More information could assist in more accurate pricing of risk - but this doesn't make the lending any more responsible.  We see an increasing number of lenders who do not even ask about income levels, but base a consumer loan on value of house equity alone.

"One thing I think we all agree on is that access to more information will increase the overall level of consumer debt.  Some of this increase could be responsible lending - but I suggest that we would see a significant increase in irresponsible lending as well.

"My reading of the commission's report has not changed that view."