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Consumer groups concerned about credit history changes

 Consumer groups, including Kat Lane at the Consumer Credit Legal Centre are warning that Federal Government changes to credit history reporting rules will make it more difficult for low-income Australians to get loans.

Pat McGrath  of the ABC

ELEANOR HALL: Consumer groups are warning that Federal Government changes to credit history reporting rules will make it more difficult for low-income Australians to get loans.

Under the changes being introduced this week, banks will be required to report payment defaults more thoroughly and more regularly..

And privacy advocates say the new measures have not been properly publicised.

Business reporter Pat McGrath has more.

PAT MCGRATH: Until this week lenders have only been required to report when their customers default on loans when they’re more than 60 days late

But from Wednesday, more detailed information about credit card and loan repayments will be handed over to credit reporting agencies.

The Australian Retail Credit Association has set up a website to explain the changes.

CREDITSMART.ORG.AU VIDEO (voiceover I): Your borrowing capacity is impacted by your credit history, which can be harmed when you fail to pay your bills on time and, as a result, your serious payment defaults are reported.

CREDITSMART.ORG.AU VIDEO (voiceover II): Similarly, it can be kept nice and strong by always making your payments on time.

PAT MCGRATH: The industry says the new rules offer a clearer picture of people’s credit records.

Consumers groups are worried about the changes. They say the most concerning is that late repayments of only a few days will be recorded in people’s credit histories.

Kat Lane works at the New South Wales Consumer Credit Legal Centre.

KAT LANE: The big issue is this is something that’s been pushed in by industry to manage making decisions on credit risk when lending to people. And, of course, the problem is for consumers is that this isn’t necessarily a good thing for them.

A lot of people who are, basically, Australians who are just struggling with paying their everyday bills: if they’re more than five days late on their credit card, their home loan or their personal loan, then suddenly they’re going to have a mark on their credit report. And that may mean that when they go to get credit, they may have to pay a higher interest rate.

PAT MCGRATH: Kat Lane believes it’s unlikely that lenders will use the information to scale back on the number of loans and credit cards they give out.

Instead, she expects them to simply use the information to charge more interest.

KAT LANE: So you go into the bank to go get a home loan and you’ve got several little marks from being just over five days late on paying your credit card over the last year. And suddenly the bank will say, “Well, according to this, your risk is a bit higher and therefore your interest rate is a bit higher.”

I think the low-income and disadvantaged people in our society are going to be severely disadvantaged by these changes because a lot of them, particularly those people living, working poor or on part-Centrelink struggle to pay their bills already – well, particularly their loans. And they’re going to be people who are constantly facing higher credit costs.

PAT MCGRATH: And it may be too late to start changing repayment habits.

KAT LANE: The repayment history information isn’t just being collected from March 12 this year: it actually started collection in December 2012. And as a consequence, that means that any late repayments in the last year could mean that you’ve already got a mark on your credit report for a late repayment.

During the 1990s, Nigel Waters served as Australia’s Deputy Privacy Commissioner.

He now works with the Australian Privacy Foundation and has serious concerns about this week’s changes.

NIGEL WATERS: The new rules basically allow them to get a picture of your detailed transaction and repayment history. And all that does is allow them to target people more effectively for credit offers. So it’s basically, in our view, largely a marketing exercise.

PAT MCGRATH: But the industry says that’s just so that they can have a more targeted, clearer picture of people’s ability to repay, doesn’t it?

NIGEL WATERS: Well, they’ve always been able to get that picture from bank references and seeking more information from people. Basically, they’re just lazy. They want a quick and cheap and easy way of knowing more about you. And we just think, you know, that’s unnecessary and unduly intrusive.

PAT MCGRATH: And Nigel Waters says public awareness of the changes remains limited.

NIGEL WATERS: And we’re very disappointed, firstly, that the Government, when it made these changes, didn’t fund the public education campaign. And I think a lot of people are going to be very surprised and very upset when they find out that that’s the case.

ELEANOR HALL: That’s Nigel Waters from the Australian Privacy Foundation, ending that report from our business reporter Pat McGrath.

And banking industry spokespeople were unavailable to comment on the changes today.

Article available at: http://www.abc.net.au/worldtoday/content/2014/s3960088.htm