New credit reporting arrangements to facilitate better lending deals for consumers and protect vulnerable consumers
New credit reporting arrangements will improve transparency for credit providers of customers who have entered into financial hardship arrangements and enable people experiencing financial difficulty to demonstrate good credit behaviour by complying with the hardship arrangement.
Amendments to Australia’s credit reporting framework follow a review last year of the operation of financial hardship arrangements by the Attorney-General’s Department.
These changes to the Privacy Act will support the Government’s mandatory comprehensive credit reporting regime, which will increase lending competition and deliver better deals for Australian consumers.
Currently, due to provisions in the Privacy Act, when a person is engaged in a hardship arrangement with one credit provider, this arrangement cannot be disclosed to other credit providers. This has seen circumstances arise where people who are struggling to repay one credit provider, are provided with another line of credit from a different provider. The changes announced today aim to address this situation and provide these people with more confidence to apply for hardship.
“Proposed changes to the Privacy Act will make sensible changes to allow for transparent and responsible lending practices where people are subject to hardship arrangements,” Attorney-General, Christian Porter said.
“The amendments will benefit consumers by making sure credit products are suitable, and ensuring consumers are encouraged to seek hardship arrangements if they are struggling to meet repayments under their credit contract.
“Draft legislation will be released shortly to enable public consultation on the proposed changes which will introduce a new category of information within credit reporting, enabling hardship information to be reported alongside repayment history information.
“Under the proposed changes, hardship indicators will identify where a hardship arrangement is in place and whether a consumer is making payments in accordance with that arrangement.
“A separate indicator will show where there has been an agreed permanent variation to a credit contract. Hardship information will be subject to the same protections as repayment history information concerning collection, use and disclosure under the Privacy Act, but will be subject to a shorter retention period.
“These changes balance the needs of both credit providers and consumers. They are intended to give credit providers relevant information about consumers who are in financial hardship, or have recently experienced hardship, in order to facilitate better and informed lending decisions.
“The purpose of hardship information is to communicate to credit providers that there is an alternative arrangement in place, triggering a prospective credit provider to make further enquiries to ensure that a credit product is suitable for a consumer.
“Additionally, these changes are intended to maintain incentives for consumers to proactively seek assistance from credit providers if they are experiencing or at risk of financial hardship, such as loss of income following illness or unemployment.
“Importantly, while hardship information will appear on a consumer’s credit report, credit reporting bodies will be prohibited from using hardship information to calculate a consumer’s credit score.”
Encouraging competition in the financial sector is part of the Morrison Government’s plan to build a stronger economy.