A controversial change to Australia’s credit reporting system takes effect this week, when credit providers will be allowed to disclose financial hardship information to credit reporting bodies.

Under a variation to the Credit Reporting Code, from July 1 credit reporting bodies will be permitted to collect, use, disclose and retain financial hardship information.

A financial hardship arrangement is defined as an agreement that defers or reduces the obligations of a debtor for a temporary period.

The change was made to give credit providers a fuller picture of a consumer’s financial situation.

The Australian Retail Credit Association said the changes would “safeguard” consumer’s repayment histories because credit files would reflect the revised repayment arrangement and not the original contract. There would be no risk of the credit provider inadvertently listing a late payment.

A number of protections have been included to deal with complaints from consumer advocates that the new rule is too intrusive.

Disclosure of hardship information will be restricted in some circumstances, most notably where a credit provider is seeking to collect overdue payments. The intention of the change is to allow credit providers to use the information when assessing new credit applications.

Credit reporting bodies cannot use hardship information in calculating an individual’s credit score (a credit provider may use the information when calculating an internal score).

Hardship information cannot be accessed by telcos or other non-financial institutions.

Information about financial hardship arrangements will be deleted from credit reports after 12 months, unlike repayment history data, which stays on credit files for two years. 

The new rule will also allow consumers to access their credit reporting information that is held by a credit reporting body free of charge every three months. Under the current rule a consumer could get their credit report free of charge every 12 months.