Eyeballing credit

Privacy and credit reporting changes will mean the authorities
can soon hold a magnifying glass to your credit activities

By David Jacobson

November 13, 2009

The Government has confirmed that it will accept the Australian Law Reform Commission's (ALRC) recommendation to amend the Privacy Act to allow credit reporting to include information about an individual's repayment history.

What 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.

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, outweigh 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.

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 epand 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
  
  

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

• 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).
  
  Collecting sensitive (eg. health) information for credit reporting purposes will be prohibited.
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• 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.
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• Credit reporting information must not be used or disclosed in any circumstances for the purposes of direct marketing.
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• Credit reporting agencies will be allowed to use and disclose credit reporting information for the purposes of identity verification under the AML/CTF Act.
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• 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.

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.

David Jacobson is a partner with Langes Lawyers, a specialist financial services practice with offices in Sydney, Adelaide and Brisbane.