This article by me was first published in Retail Banking Review.

The Government has confirmed that it will accept the Australian Law Reform Commission’s recommendation to amend the Privacy Act to allow credit reporting to include information about an individual’s repayment history to compliment its proposed credit licensing responsible lending obligations.

What information will be included in credit reports?

The changes will permit credit reporting information to include the following categories of personal information, in addition to those currently permitted in credit information files under the Privacy Act:
(a) the type of each credit account opened (for example, mortgage, personal loan, credit card);
(b) the date on which each credit account was opened;
(c) the current limit of each open credit account; and
(d) the date on which each credit account was closed.

But the information must be deleted two years after the date on which a credit account is closed.

The Government will require the credit reporting industry to develop standards around how it lists the types of credit accounts as well as when a credit account is deemed to be closed. For example, in relation to account closure, confusion exists for individuals around whether some credit products are closed after final payment or whether these are ongoing lines of credit (such as interest free accounts).

The Government proposes that the listing of the four data sets with credit reporting agencies will be permitted to occur in relation to existing accounts open at the time that amendments to the Privacy Act take effect. The Government does not consider there is justification for the argument that listing this type of information should only occur with respect to new accounts opened after the commencement of the amendments.

The Government will consult with stakeholders on whether the ‘plus four’ data sets should be shared prior to the commencement of repayment history (noting that use and disclosure of these data sets will not be dependent on the commencement of the responsible lending obligations).

Repayment history

The Government will also permit credit reporting information to include an individual’s repayment performance history, comprised of information indicating whether, over the prior two years, the individual was meeting his or her repayment obligations as at each point of the relevant repayment cycle for a credit account and, if not, the number of repayment cycles the individual was in arrears.

The Government agrees with the ALRC’s view that the predictive value of this extra data set will lead to more informed lending practices, which in turn will result in greater efficiency and effectiveness in consumer credit lending. The Government considers that the benefits this data set will provide to the Australian credit market, and in turn to individuals and credit providers, outweighs the possible adverse privacy effects.

Collection and use of repayment history information will be subject to the proposed commencement of the responsible lending obligations in the National Consumer Credit Protection Bill 2009.

The Government proposes that, in order to allow viable repayment history to be assessed from the commencement of the repayment history provisions, the period from when repayment history may be reported will commence from 14 April 2010. This will mean all credit consumers will be on notice that six months from the date of release of the Government’s response on 14 October 2009, any repayment history on credit accounts may become available at a later date (ie when the repayment history provision commences) to a credit reporting agency and any other credit providers from which the individual may seek credit.

As the responsible lending obligations will only be applicable to licensees subject to the National Consumer Credit Protection Bill 2009, the Government proposes that repayment history information should only be handled by credit providers subject to the obligations in that Bill.

The Government notes that the full responsible lending obligations will not commence until January 2011 and therefore commencement of provisions about the use and disclosure of repayment history information will be subject to this same commencement date.

Other changes

• The Government will not expand the definition of credit to include commercial credit. However, in line with the National Consumer Credit Protection Reforms, the Government intends to extend the protections of the credit reporting provisions in the Privacy Act to include credit provided to purchase residential investment properties.

• Credit providers and credit reporting agencies that are small businesses will be required to comply with the Privacy Act.

• Credit reporting agencies will not be allowed to maintain information about foreign credit and foreign credit providers or disclose credit reporting information to foreign credit providers but will allow trans-Tasman use and disclosure of credit reporting information.

• Credit reporting agencies are not permitted to list overdue payments of less than $100.

• Information about presented and dishonoured cheques will not be included in the list of permitted contents allowed to be retained by credit reporting agencies.

• Limited categories of information about bankruptcy administration should be allowed to be included in credit reporting information. It should clearly distinguish the type of bankruptcy administration to which the individual has been subject (ie whether it is mandatory or voluntary).

• a credit provider should be required to demonstrate that it has taken reasonable steps to contact the individual where it intends to list a serious credit infringement  (eg fraud) based on a reasonable suspicion of non-compliance.

• collecting sensitive (eg health) information for credit reporting purposes will be prohibited .
• collecting credit reporting information about individuals who the credit provider or credit reporting agency knows, or reasonably should know, to be under the age of 18 will be prohibited.

• a credit provider, before disclosing overdue (or missed) payment information to a credit reporting agency, must have taken reasonable steps to ensure that the individual concerned is aware of the intention to report the information.

• credit reporting information must not be used or disclosed in any circumstances for the purposes of direct marketing.

• credit reporting agencies will be allowed to use and disclose credit reporting information for the purposes of identity verification under the AML/CTF Act.

• individuals will be able to highlight to potential credit providers in their credit reporting information that they have been a victim of fraud, including identity theft.

• statute-barred debts should not be allowed to be listed in credit reporting information.

• where a default or serious credit infringement has been listed in an individual’s credit reporting information and the individual enters a new scheme of arrangement relating to that listing, any future default under that arrangement may be listed separately.

• all bankruptcy information should be listed for only five years after date of arrangement

• there will be a statutory right of individuals to receive, on request and within a reasonable timeframe, a free copy of their credit reporting information from a credit reporting agency.

Timetable

The Government will begin preparing exposure draft legislation to implement the proposed changes. The exposure draft will be released in early 2010 for further consultation.

Any changes will be reviewed within five years of commencement of the comprehensive credit reporting amendments.