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Media release: Proposed credit reporting arrangements won’t give consumers more confidence to apply for hardship, may harm small businesses

The Financial Rights Legal Centre (Financial Rights) has expressed concerns about the Government’s plans to amend the Privacy Act to allow financial hardship information to appear on customers’ credit reports. (1) The Attorney-General made the announcement today to support the Government’s intention to introduce mandatory comprehensive credit reporting.

“These proposed changes to the Privacy Act will only discourage vulnerable customers from proactively seeking assistance when they are experiencing financial hardship,” said Karen Cox, Chief Executive Officer, Financial Rights.

“Far from bringing in any promised benefits for consumers or for the broader community, these changes will set the Australian credit industry’s great work improving hardship processes back 10 years.”

The government says these changes will make consumers more confident to apply for hardship. Financial Rights believes this is simply not the case. Consumers are very protective of their credit report. People contacting the National Debt Helpline often ask about whether seeking a hardship arrangement from their credit provider will affect their credit rating. To date we have been able to reassure people that as long as they stick to any repayment arrangement they make, only their current lender will ever know. When people find out asking for hardship may impact their ability to borrow in the future, they will do just about anything to avoid it, including borrowing from other high cost providers to meet their repayments, with disastrous long term consequences.

Government and industry concerns about people borrowing more money when they are already in hardship are understandable. The proposed fix is misguided. People will be less likely to apply for hardship and, ironically, more likely to try to borrow their way out of debt instead.

A recent review of comprehensive credit reporting arrangements in New Zealand found that they had not delivered the promised benefits to consumers and the community, with any benefits largely accruing to the finance industry.

“While we are glad to hear that hardship information will be prohibited from being used to calculate a consumer’s credit score, we are deeply concerned that access to hardship information will not be limited to lenders assessing new applications for credit, and instead will be visible to all who can access consumers’ repayment history information.”

“Consumers could lose access to existing lines of credit if a lender is able to see that they are in hardship on another unrelated account, and this could have devastating effects on small businesses that are reliant on lines of credit to cover their cash flow; to order stock and supplies, or to secure their ongoing revenue.”

“The Government needs to reconsider these proposed amendments to ensure Australian experiencing financial hardship are not discouraged to seek the help they need.”

(1)- Media release: New credit reporting arrangements to facilitate better lending deals for consumers and protect vulnerable consumers, Friday, 02 August 2019: https://www.attorneygeneral.gov.au/Media/Pages/new-credit-reporting-arrangements-2-august-2019.aspx