Turn a Negative Into a Positive

As Comprehensive Credit Reporting (Positive Credit Reporting) is set to be launched in Australia it would be useful to discover the impact this will have on both borrowers and lenders.

Currently only negative information is recorded on a credit file. Comprehensive Credit Reporting empowers lenders to list borrower’s good qualities, not just the bad. The million dollar question is how will the introduction of the new system change from the old and preserve the rights of the consumer. Or will the consumer be once again short changed?

By way of background, as part of the 2007 election policies the government announced it would give serious consideration to recommendations made by the Australia Law Reform Commission as to Privacy in particular Credit Reporting.

The reforms are significant and have been released as part of draft provisions to be adopted as part of the new Australian Privacy Principles. Currently the draft reforms have been referred to a Senate Committee for consideration. Once considered by Senate the reforms shall be introduced to Parliament who shall have the power to make the reforms law. Legislation as to reform is inevitable and is likely to take effect some time in 2012.

Essentially, the main feature of comprehensive credit reporting is the additional information able to be recorded on a credit file. There are five additional pieces of information being added, type of account, date the account was opened, the date the account was closed, credit limit placed on the account and the repayment history.

Our current system provides for accounts which are 60 days or more in the arrears to be listed as a default on a credit file. The new regime provides for expanded information to be recorded, the proponents of this system tell us this will provide as clearer and more precise insight as to credit worthiness. In addition they argue this additional information is essential if lenders are to comply with stricter responsible lending practices, and as such benefits will flow to both lenders and borrowers.

Recently a great deal of hype and commentary has been released about this topic. Sufficiently agitated are the arguments in support of the new proposals, together with augments which detract from the new regime in particular the concept that marginal borrowers shall be prevented from borrowing in the future. Of little concern to all commentators is the recording of information on a credit file with sufficient precision so as to avoid information being recorded on a credit file which is inaccurate and not up to date.

The proposed legislation fails the consumer in that it has not adopted more stringent requirements as to the accuracy of information being published. Common sense dictates additional information being allowed to be recorded would increase the prospect of such information being wrong. For too long the system has relied on credit providers to report accurate information. Credit Providers are motivated by the collection of their debt they are not motivated by the needs and rights of consumers in having their credit file depict a true picture as to credit worthiness. Further, the new proposals once again are a cause for frustration in that there is a distinction drawn between consumer and commercial credit. Commercial credit has been hung out to dry and is not legislated for.

Finance professionals are cautioned to place higher significance when advising their client’s on matters of finance as to the importance of the information contained in the client’s credit file. A credit check should be conducted at the very being of the retainer prior to lodging an application for finance, so as to avoid nasty surprises. The finance professional should be equipped with sufficient understanding as to the workings of a credit file and how to indentify mistaken entries which may cause their client to be declined for a loan. An alliance with companies who specialise in repair credit files is imperative if more loans are to be approved. Only time will tell us the true impact the new credit reporting legislation will have on borrowers.
Readers should note the opinion expressed in this article is the opinion of Joseph Trimarchi Solicitor of Joseph Trimarchi & Associates a law firm specialising in Australian Credit Reporting Law. This article is designed for educational purposes only in adding to commentary for the purposes of agitating issues arising from the proposed credit reporting legislation, it is not designed as legal advice. Any party requiring legal advice should consult with a legal professional who has sufficient understanding of this field of law.

Feel free to contact our team on (02) 9890 4811 Australia Wide or drop us an email at joe@josephtrimarchi.com.au
Joseph Trimarchi | Solicitor
March 2012