The big question the government’s review of Australia’s credit reporting framework will address is whether credit reporting remains of value to lenders in light of the development of financial data sharing through the Consumer Data Right.
The Attorney-General’s Department has published an issues paper on credit reporting, expanding on the terms of reference for a review of the system issued by Attorney-General Mark Dreyfus in February.
Dreyfus appointed former APRA special projects director and now independent consultant Heidi Richards to conduct the review, which is to be handed to the government by October.
Under the credit reporting system, information relating to more than 23 million credit accounts, worth an estimated A$2.1 trillion of household lending, is supplied by Australia’s credit providers to credit bureaus. According to the Australian Retail Credit Association, in 2023 there were 85 credit providers supplying comprehensive credit information to bureaus.
The issues paper says: “While the credit reporting regime and the CDR are different, it could be inefficient to mandate reporting of the same or very similar data through two different regulatory regimes and technical channels unless there is a good cost-benefit rationale.
“The increasing accessibility of detailed transactional and other behavioural data about a consumer, either through CDR or other means, has potentially significant implications for the usefulness of the credit reporting regime over time.
“Technology developments in the financial services industry are changing the way lenders assess a borrower’s creditworthiness. Granular, transaction level data can now be shared instantly between financial institutions to verify a borrower’s income and loan repayments.
In addition, the issues paper raises concerns about competitiveness and costs in the credit reporting market. Australia has four credit bureaus – Equifax, illion, Experian and newcomer CreditorWatch. The ACCC is currently reviewing an application from Experian to acquire illion.
The issues paper says prices for credit inquiries are reported to be substantially higher in Australia than in other countries and reciprocity requirements under credit reporting data standards “impose costs on smaller lenders that may wish to access credit reports but find the data reporting obligations prohibitively costly.”
Another reason to question the future of credit reporting in its current form is that no one appears to be able to demonstrate that it has achieved one of its stated goals – improving access to credit.
One of the arguments for comprehensive credit reporting, when it was introduced in 2014, was that a more comprehensive view of a borrower’s position would allow lenders to consider the recent repayment history of an applicant with a poor credit history and, thereby, improve access to credit.
The issues paper says it is difficult to determine whether CCR has improved access to credit.
If the review does recommend some merging or rationalisation of credit reporting and CDR functions, it is hard to see what that would look like. Despite their similarities, they are different in many ways.
CDR is premised on consent from the consumer, while credit reporting involves ongoing reporting of some types of credit information, regardless of whether the consumer is willing to disclose that information.
Credit reporting gives access to