The consumer data right should only be extended to include non-bank lenders if steps are taken to lessen the risks of consumer detriment, a group of community law centres and financial counsellors argues in a submission.
Last month, the government issued a consultation paper setting out a plan to extend the CDR to non-bank lending, merchant acquiring, general insurance and superannuation, which it is calling open finance.
The consultation paper envisages that the same kind of data that ADIs make available would be made available by non-bank lenders. This includes payments, charges, rates, repayment schedules, contract terms and conditions, customer contact details.
It would apply to personal and business credit and charge card accounts, home loans, personal loans, business finance, investment loans, line of credit facilities, asset finance and consumer leases.
In response to the consultation paper, Financial Rights Legal Centre, Financial Counselling Australia and Consumer Action Law Centre made a joint submission arguing that the application of CDR to non-banks “has the potential to provide opportunities for greater financial inclusion if done with appropriate guide rails”.
According to the submission, there are companies in the non-bank sector “that have historically contributed to substantial consumer harm and are not accountable to industry codes of any real value”.
To mitigate these risks the group recommends that the open finance rules include:• limiting the scope of eligible non-bank participants to those credit licensees subject to the comprehensive credit reporting regime;• restricting specific uses of data, including the collection of data to identify financial hardship for the specific purpose of direct marketing further high-cost credit products;• prohibiting non-bank lenders from using CDR data to circumvent the rules of the comprehensive credit reporting regime; and• introducing an offence for unaccredited firms to obtain, use or hold data obtained via the CDR.
The group said the CDR rules are overly reliant on consent and disclosure to mitigate consumer harm and this is unlikely to prevent unfair behaviour.
Under CDR, “the onus is on individuals to engage, comprehend and act upon the complex information being presented to them”.
“We are aware from our casework that some non-bank lenders obtain consumers’ bank account passwords to screen scrape financial data. If the account is low in funds they spam the consumer with direct marketing material offering further high-cost loans.”
It said the extension of the CDR as currently propose would undermine protection in the comprehensive credit reporting regime, such as restrictions on access to repayment history and financial hardship information.
“It would be a perverse outcome if providers of unregulated credit designed to avoid consumer protections (such as buy now pay later) used the CDR to gain access to repayment history and financial hardship information.”