Australia’s new comprehensive credit reporting system

1. Australia’s new comprehensive credit reporting system Presented by Lachlan Edwards Consumer Action Law Centre Worker advice line: 9602 3326 Rural access: 1300 881 020advice@consumeraction.org.au www.consumeraction.org.au

2. Structure of presentation 1.The Basics: outline of credit reporting system 2.The old credit reporting system 3.The new credit reporting system: • What has changed? • Specific case work issues and case studies 4.Other important or emerging case work issues

3. What is credit reporting? A way for creditors to determine a consumer’s credit worthiness - the risk of lending to someone Register(s) of information about people’s financial situation A record held by a credit reporting body of information about a persons credit activities.

4. How does credit reporting work? The Privacy Act 1988 allows only certain information to be included, kept or “listed” on a credit report Creditors and public registers provide that information to Credit Reporting Bodies Credit Reporting Bodies hold that information in a “credit report”. They include Veda, Dun & Bradstreet, Experian

5. How does credit reporting work? The Privacy (Credit Reporting) Code says how creditors can go about reporting information to credit reporting bodies Credit report can only be accessed by someone the consumer has authorized to have access or those allowed by law Creditors can use the information to determine a consumer’s application for credit such as a loan, credit card, utilities account or phone account.

6. The Old Credit Reporting System

7. The old Credit Reporting System Applied before 12 March 2014 Listed only certain information that was “negative” From our casework experience, it was difficult to have incorrect listings removed or corrected

8. What is kind of “information” could go on a credit report? Under the negative system, “bad” information could be listed, including: • Enquiries, • Defaults, • Serious credit infringements (clearouts), • Court judgments, and • Acts of Bankruptcy.

9. Why change the system? • Other legal systems around the world have a comprehensive system • Old system was hard to understand • Old system only told part of the story (the negative part) about a consumers credit activities • Comprehensive credit reporting could assist responsible lending purposes through inquiring about and verifying information provided by a consumer

10. Why change the system? Roxon in Second Reading Speech: “Banks and financial institutions will be able to see more accurate and positive information about: (1) the types of accounts that families have and when they were opened and closed; (2) the current credit limits of each account (but obviously not the day-to-day balance, to protect privacy); and (3) positive information about repayment history—for example, when a credit card was paid off on time, not just information about overdue payments.

11. Why change the system? Roxon in Second Reading Speech: “These reforms will mean more families can access credit. And it will mean the banks can assess credit risks more accurately.”

12. Why change the system? Explanatory memorandum: "… the purpose of the credit reporting system is to balance an individual’s interests in protecting their personal information with the need to ensure sufficient personal information is available to assist a credit provider to determine an individual’s eligibility for credit following an application for credit by an individual.“

13. The New Credit Reporting System

14. The new credit reporting system The Privacy Amendment (Enhancing Privacy Protection) Act 2012 amended the Privacy Act 1988. Commenced on 12 March 2014

15. Comprehensive credit reporting In a nutshell it means: • more information can be recorded on a consumer’s credit file that could be “positive” , such as information about their repayment history and repayment arrangements; • there are more consumer protections and dispute resolution should be easier.

16. Sources of Credit Reporting Law 1. Privacy Act 1988 (Cth) • Basically prohibits everything from being on a credit report, then lists a number of exceptions that can be included • Details what credit reporting bodies can and cannot do 2. Privacy (Credit Reporting) Code • The new Code sets out the procedures for listing/reporting information e.g. what a credit provider must do before listing a default 3. Privacy Regulation 2013

17. Benefits for consumers... • Better lending because credit providers have more information • Consumers should have access to better interest rates and should be left with less debt • Stricter rules around what can be listed • Stricter timeframes to require CPs and CRBs to take steps • Ability to resolve complaints through EDR

18. Disadvantages for consumers... • Some consumers not get access to credit where in the past they may have • Late payments will show up on a credit report (for credit contracts only) • May be some teething problems

19. The new Credit Reporting system: details of changes

20. Summary of key changes • New rules for accessing credit reports • New rules/procedures for listing a Default • Refinement of Serious Credit Infringements • More information: • Repayment history information • New arrangement information • Payment arrangement information • Current liability information • Correction process should be easier • Complaints procedures and the requirement of credit reporting body to be a member of EDR

21. How to get your credit report

22. Getting a copy of your credit report You can request a copy directly from the particular credit reporting body through their website or calling them. Each person is entitled to one free copy each 12 months. It must be provided within a maximum of 10 days. Additionally, you are entitled to a free copy if: • You have been refused credit in the previous 90 days, or • If the request relates to a request to correct information on your credit report

23. Getting a copy of your credit report • Some credit reporting bodies will offer a service of providing a credit report quicker than 10 days. This service is for a particular fee and may also include associated services such as alerts or updates. • If your client gets a copy of their credit report, this will mean their most recent address will be placed on their credit file and then be available to credit providers • Note “credit scores” must also be provided.

24. Who can list information on a credit report?

25. Who can make a listing on a credit report? Section 6G provides an updated meaning of credit provider: (1)(a) a bank (1)(b) a company that carries on business of providing credit or credit cards (2) Organisation provides credit and repayment is deferred, in full or part, for at least 7 days (in connection with sale of goods/services or leases/hire) Note there are some exclusions (e.g. employers, real estate agents) and the regulations can specify particular things

26. What information can be on a credit report — changes to existing information

27. Defaults “Default” is a form of late payment. The debt must be over $150 Payment must be overdue by 60 days Certain notices must be given to the consumer

28. Defaults: quick guide A default can be listed where: 1. Payment is overdue by at least 60 days 2. The credit provider must notify the consumer, to their last known address, by issuing, separately: • A section 6Q notice • A section 21D notice, which must not be issued less than 30 days after 6Q notice 3. Debt is not statute barred 4. Amount: $150 or more (but this can include interest/fees)

29. Defaults: specifics Time limits: on a credit file for 5 years Amount of listing: the amount on the 21D notice plus interest, fees etc Hardship: cant list a default where there is an outstanding hardship request, or less than 14 days has passed since hardship rejected. Note exceptions Date of listing: no later than 3 months after 21D notice given

30. Serious Credit Infringements • Now three types, two of which deal with fraud • The third is the more commonly considered “clearout” where the person shows an intention to no longer repay the credit contract

31. Serious Credit Infringements The Privacy (Credit Reporting) Code states that the credit provider must take reasonable steps to contact the individual before making the listing. If the consumer pays, the listing must be removed Consider “Judgment proof” clients

32. What information can be on a credit report — New categories of information

33. New arrangement information • This deals with the scenario where a debt has been listed a default or serious credit infringement and then the consumer and creditor make an arrangement to pay the debt • The credit provider who reported the listing must update the consumers credit file to reflect this arrangement

34. Payment information Where a default is listed, “payment information” is updated where the debt is paid in full or a settlement amount negotiated.

35. Repayment history information RHI is a “comprehensive” record of repayment history RHI records: • monthly payments made/missed, • payment due dates, and • if the payment is made, the date it is made.

36. Repayment history information Only information about consumer credit products (loans, leases etc) are included in RHI. This does not apply for late Telco and Utilities or other “debts”. RHI is kept on a credit report for 2 years from the day on which the monthly payment was due.

37. Repayment history information There is a 14 day grace period once you are over due (miss a payment). After that 14 days, the credit provider can make the listing. RHI is recorded as series of numbers: 0 = up to date 1 = 29 days over due (after the 14 day grace period) 2 = 30-59 days overdue 3 = 60 – 89 days overdue 7 = 180+ days overdue

38. Repayment history information There is some uncertainty on how certain things will be recorded in numbers e.g. hardship variations It can only be accessed by credit licensees subject to the NCCPA, and information can only be disclosed by credit licensees

39. Difference between defaults and repayment history information • Defaults are overdue payments by a longer period,on credit report for longer • Defaults can be listed for late utilities bills, Telco bills (and others) • Repayment history records ALL late payments for credit contracts • Repayment history ONLY applies for credit contracts and doesn’t apply to other contracts like Telco or Utilities • Repayment history is more detailed on how long you are in arrears/overdue or might have taken to get back in control

40. Consumer credit liability information • This is information about the consumer current financial liabilities • Credit providers can use it and consumer disclosures about information in applications (and the likelihood of it being incorrect or out of date)

41. Case Study 1 • Joan has a credit card with a Bank. She works casually and some weeks her income drops. • Joan’s income drops significantly due to a downturn in her industry. She misses her monthly credit card minimum payment of $60. She doesn’t tell her bank, thinking it will be fine and her income will increase next month. • The next month she is let go and misses her credit card repayment. Can the Bank make any listing on her credit report?

42. Case Study 1 • Joan has been told that the Bank has disclosed Repayment History Information to a credit reporting body about her. • She gets a copy of her credit report and brings this to you. It shows a series of numbers in relation to the credit card, these are: • 0, 0 , 1 , 2

43. Case Study 1 • Joan manages to find work and contacts her Bank to let them know. She asks for a repayment arrangement to pay $20 per month. The bank agrees. • Does the bank have to disclose any new information on her credit report?

44. Case Study 1 • Six months later Joan is back up to date on her loan. She gets a copy of her credit report and ask you to look at the repayment history information. It looks like this: • 0, 0, 1, 2, 2, 2, 2, 1, 0 ,0 • Is there anything wrong here?

45. Case Study 1 • Alternative 1: • 0, 0, 1, 2, 3, 4, 5, 1, 0 ,0 • Alternative 2: • 0, 0, 1, 2, 0, 0, 0, 1, 0 ,0

46. How the new system will work in our everyday practice

47. Correcting mistakes: identifying the mistake • Creditors now have obligations to act if a consumer complains that information isinaccurate, out of date, incomplete, irrelevant or misleading • The first responder must act. • Everyone must be a member of EDR e.g FOS, COSL, EWOV, TIO. • EDR is given priority in dealing with disputes. • If dispute is not dealt with by EDR, can complaint to the Privacy Commissioner (OAIC)

48. How to fix a credit report? 1. Get a copy of the credit report: • Veda:  MyCreditFile.com.au, ph: 1300 762 207 • D&B: CheckYourCredit.com.au ph: 1300 734 806 • Experian: ph: 1300 783 684 2. Complain to the creditor or credit reporting body 3. Complain to EDR/Ombudsman scheme or (if that fails) to the privacy commissioner (the OAIC) 4. Get advice from Consumer Action

49. Case Study 2 • John applies for a car loan and is refused. • He is told over the phone by Car Loans Company that he has a black mark on his credit report and that is why he was refused. • Annoyed, he comes to you and asks if you can help • What are his options?

50. Case Study 3 • John gets a copy of his credit report. • He has a default listed in relation to an old credit card. The credit provider has listed the outstanding amount as $500. • You talk through his finances at the time of getting the credit card and he may have been overcommitted or irresponsible lending. What can John do?