The move towards a more comprehensive credit reporting system was finally realised by the commencement of the long-awaited reforms to the Privacy Act on 12 March 2014. As well increasing the amount of information available for use in credit reports, the reforms will have an impact on the way such information is collected, used and disclosed by imposing significant new privacy responsibilities on credit providers and credit reporting agencies.
What is a credit report?
If you’ve ever applied for a loan or any other type of credit for example a credit card, chances are you’ll have a credit report. A credit report is an accumulation of information about your credit history, which allows credit providers to judge whether or not to extend you credit. Previously, credit histories contained only limited personal details and ‘negative’ information such as defaults, judgments or bankruptcies.
What are the major changes?
The most significant reform is the inclusion of new categories of data which will provide a more comprehensive picture of a consumer’s credit history, by including positive as well as negative aspects of a person’s credit activity. The main new data categories are:
- repayment history information: This can include information about if and when individuals have met monthly repayment obligations. Any repayments made 5 or more days late will be recorded for 2 years.
- consumer credit liability information: This will include the type of credit account opened by the individual, the name of the provider and whether they are a licensee, the date on which the consumer credit was entered into and terminated and the current limit of the credit account.
Other major changes include the introduction of a mandatory Credit Reporting Code to be complied with by credit providers, a new civil penalty regime and significant new powers given to the Information Commissioner to ensure compliance with the new regime and resolve disputes.
What does this mean for consumers?
The changes to the system will likely have both positive and negative impacts on consumers. On one hand, credit providers will have access to a lot more information about your financial situation and credit history and be able to share it with other credit providers. Repayment history, the opening and closing dates of accounts and the account limits on your credit cards will all be available. Therefore it is important to be more vigilant about your financial activities and how they may affect your credit report.
A major benefit is increased accessibility to your credit information, which will allow you to monitor and correct your credit history. Under the new laws, you are entitled to access your credit report from a credit reporting agency for free at least once every 12 months and in certain other circumstances.
The reforms also provide a simpler method for making complaints about incorrect credit listings. Consumers can now complain directly to the Information Commissioner, who can compel credit providers and reporting agencies to use alternative dispute resolution to more quickly and efficiently resolve complaints.
What does this mean for credit providers and credit reporting agencies?
Credit providers and reporting agencies generally agree that the new changes are for the better since they increase the amount of information available, allowing a more comprehensive picture of a consumer’s credit risk.
However, increased access to information comes with enhanced compliance responsibilities. The mandatory Credit Reporting Code in particular provides details about how certain information can be handled and increases the obligations of credit providers and reporters to ensure the accuracy of their data. For example, credit reporters and providers will be required to put in place privacy policies and procedures and take ‘reasonable steps’ to implement them.
Non-compliance with these obligations will be costly, with a new civil penalty regime being introduced, which imposes penalties of up to $340,000 for individuals and $1.7m for corporations. Many of the penalties are strict liability offences, meaning you don’t need intent, knowledge, recklessness or negligence to have breached the regime.
The changes to the credit reporting system are complex. If you require assistance as a consumer or corporation in understanding your rights and responsibilities please do not hesitate to contact us.