Lenders fail to pass on credit benefits
Borrowers are yet to see the benefits from the deeper intrusions into their privacy granted to lenders six years ago.
A report by the Office of the Privacy Commissioner on ‘‘comprehensive’’ credit reporting said there was little evidence the public was getting the ‘‘enhanced competition’’ and cheaper loans promised by lenders.
Comprehensive credit reporting allows credit agencies such as Equifax to collect more information on individuals.
It was also believed that some borrowers who were being turned down for loans by the likes of banks would qualify under comprehensive credit reporting, and therefore not have to turn to highinterest, lower-tier lenders and loan sharks.
Credit agencies collect payments data on individuals from the likes of banks and power companies, allowing them to create credit files and credit scores.
Lenders then access these files and scores when considering applications, so people with poor credit can find it hard to get loans.
From six years ago, the credit agencies were allowed to not only record ‘‘negative’’ data such as missed loan payments and defaults, but also ‘‘positive’’ information such as payments on time.
Collecting both positive and
"The industry continues in creditscoring practices that have the potential to penalise consumers who shop around."
Privacy Commissioner John Edwards
negative data was termed ‘‘comprehensive’’ credit reporting.
But Privacy Commissioner John Edwards said: ‘‘The privacy intrusion inherent in comprehensive credit reporting is justified only if it delivers public benefits to individuals, communities and the economy generally; it is not enough simply to contribute to the profits of lenders.
‘‘We have not seen compelling evidence yet of the wider benefits that should flow from comprehensive credit reporting such as enhanced competition, risk-based credit offerings and a greater willingness of mainstream lenders to lend to previously underserved communities.’’
Edwards also criticised lenders for not using some of the consumer-friendly elements of the comprehensive lending regime, including one designed to help would-be borrowers to shop around.
Anyone who visits several lenders in this way might find the multiple credit checks recorded on their file as a result can damage their credit score.
To counter that, a ‘‘quotation inquiry’’ option was created that did not leave a black mark simply because of an approach.
‘‘It is … of concern that credit providers have not implemented arrangements for ‘quotation inquiry’ credit checks which were allowed for six years ago and instead the industry continues in credit-scoring practices that have the potential to penalise consumers who shop around for a good credit deal,’’ Edwards said.
He also found that victims of identity theft were finding it a difficult and lengthy process to get credit reporting agencies to clear their credit files.
Many lenders were not using driver licences to verify identities, which might cut down loan fraud.
The Privacy Commissioner made 13 recommendations designed to ensure the public benefits of comprehensive credit reporting are delivered as the system matures.
The office would now engage with the industry to ‘‘identify the most promising steps to take’’.
Some of the recommendations could lead to changes to the binding Credit Reporting Privacy Code.