Comprehensive Reporting

Australia's credit reporting regime is about to change for the better.

Laws that restrict what can be recorded on a credit report will be eased, allowing for five new additional data sets to be included on credit reports:

  • The date when a credit account was opened;
  • The current limit of each open account;
  • What the nature of the credit account is;
  • The date when an account was closed;
  • Account payment history over the previous 24 months.

Together, these five additional sets will create comprehensive credit reports.

The most important of these is account payment history, which will show whether a person has been overdue or missed payments on credit obligations.

Account payment history will be the most single powerful predictive element of a person's credit report. Its predictive power will be twice than of all the other four new elements combined.

Background

Australia's current credit reporting regime is nearly twenty years old.

It permits the collection of only negative data, and of the OECD nations, only New Zealand and France have this approach.

Veda Advantage has led a determined campaign to modernise Australia's credit reporting laws and allow for comprehensive credit reports.

The campaign commenced in 2006 with the Australian Law Reform Commission's review (ALRC) of privacy legislation; the laws that restrict what data can be recorded on a credit report.

Some industry organisations only wanted modest change to credit reports, such as the date an account was opened or closed.

Veda supported more significant reforms and campaigned for the inclusion of account repayment history.

The industry association, Australian Retail Credit Association (ARCA) modelled account payment history. It found that account payment history will contribute 44% of a credit reports predictive power.

In contrast, the existing data fields only contribute 10% of predictive power.

The massive boost in the predictive ability of credit reports can significantly improve the industry's ability to predict and prevent credit defaults.

Backing the move for account repayment history, and based on analysis conducted in the report The Benefits of Broadening Access to Credit via Comprehensive Credit Reporting, Access Economics found that a move to comprehensive reporting could boost the Australian economy by $1.7bn*, help lower interest rates, and lower default rates.

The report demonstrated that the move to a comprehensive credit reporting system could also decrease the number of Australians who are financially over-committed and suffering from debt-related stress.

Veda's campaign for comprehensive reporting was vindicated in August 2008, with the Australian Law Reform Commission recommending five new data sets be added to credit reports - including account repayment history.

The Minister responsible, Senator John Faulkner, also announced that the Rudd Government will fast track credit reporting reforms during their term in office.

It is expected the new changes will be legislated in December 2009 with comprehensive reporting to start in July 2010.

In addition, the Federal Government announced that from July 2009, all lenders must obtain an ASIC issued licence; which will include adherence to responsible lending principles.

Credit markets and the lending environment are being transformed - and Veda is well advanced to ensure customers gain from the changes.

Below are some of the submissions Veda has made to the Government on comprehensive credit reporting:

*The $1.7 billion figure represents the Net Present Value of real private consumption between 2008 and 2020, with future years' spending discounted using a discount rate of 5%.

For more information, please contact Chris Gration or Matthew Strassberg.