Turnbull Government proposals to mandate ‘comprehensive credit reporting’ (CCR) will have negative consequences unless changes are made, according to Consumer Action Law Centre and Financial Rights Legal Centre.
Prior to CCR, the only information on credit reports was ‘negative’ information, such as information about defaults on credit contracts, legal judgments and bankruptcy. With CCR, there will be much more information on credit reports, including credit limits, credit types and information about whether repayments are made on time.
‘There are a number of problems with more information being put on our credit reports, particularly information about whether you pay back loans and credit cards on time’, said Gerard Brody, CEO of Consumer Action.
‘Some lenders are likely to use this information to charge customers more for credit. We may see an influx of expensive priced-for-risk products, like credit cards charging up to 50 per cent per annum for those deemed not to be good payers. These sort of toxic products exist in other countries like USA and the UK’, said Mr Brody.
More information on credit reports also means there will be more mistakes, which will be a boon to businesses that promise to “fix” people’s credit reports.
‘There has been a huge growth in unregulated debt management businesses in Australia in recent years. We call these businesses debt vultures, because they target people struggling with debt. Credit repair businesses are a type of debt vulture, promising to clean or fix people’s credit reports’ said Karen Cox, Coordinator of Financial Rights Legal Centre
‘The problem is that they tend to mislead people and charge thousands of dollars for bad quality services. Putting more information on credit reports will just turbo-charge these unregulated businesses’, said Ms Cox.
Other concerns include exactly how this information will be recorded where someone is in financial difficulty and has entered into a payment arrangement with their bank.
‘There is a real concern that people will be discouraged from contacting their bank when they’re in financial difficulty. The best thing a person who is behind in repayments can do is contact their lender, and we should not be discouraging people from getting on top of their financial situation’, said Mr Brody.
The groups said that some information on credit reports can help lenders ensure that they only provide loans that people can afford to pay, but that repayment information was a step too far.
‘Information such as credit limits is really important. A lender should be able to verify any loans you have with other lenders before giving you a loan. However, repayment history information has more problems than benefits,’ said Ms Cox.