What is positive credit reporting and does it matter?

From 1 July 2018 the major banks (and any other authorised deposit taking institutions (ADI’s) with assets of at least $100 billion) will be required to supply to credit reporting bodies (CRBs) both negative and positive (‘comprehensive’) credit information about their open and active accounts.

This new requirement will be introduced in two stages. Only 50% of accounts will be affected by the proposed 1 July 2018 commencing date. Credit information on the remaining 50% of accounts (open and active as at 1 July 2019) will be required to be supplied from the latter date.

In each year, 28 September will be the cut-off date by which information must be supplied by the relevant ADIs.

Consistent with the Privacy Act the ADIs and CRBs must have previously put in place an agreement to protect the information so supplied form misuse, interference or loss.

Credit providers, including the abovementioned ADIs, have been allowed to report both negative and comprehensive (positive) credit information since March 2014, but the tendency has been to disclose only negative information, such as overdue payments, court judgements or bankruptcy.

Comprehensive credit information includes the number of credit accounts held by an individual, credit limits and repayment histories. Despite the leeway given since 2014, the larger credit providers have primarily been disclosing only negative customer information.

To put an end to this practice, on 2 November 2017 the federal government announced that it would legislate for a mandatory comprehensive credit reporting regime. However, the regime is not yet law. The government has merely introduced a draft of the proposed legislation, exposing if for public comment up to February 23rd. It is expected that the final form of the new laws will be introduce into parliament not long after.

The new legislation will be brought in as amendments to the National Consumer Protection Act 2009. This indicates the new law’s intention, which is to oblige lenders to present a more rounded view of a customer’s financial situation and their ability to repay. This has implications for responsible lending protocols and procedures, more so than if credit decisioning was only being made on negative information.

Compliance with the new laws will be monitored by ASIC, which from time to time may call for reports from the affected ADIs. In addition the credit providers must supply Treasury with periodic audit reports and statements that demonstrate compliance with the new regime.

There are financial penalties of over $2 million for failure to comply. The only exception to compliance is if the ADI and CRB are already signatories to a similar regime operated by the Australian Retail Credit Association.