Damian Paull - Australian Retail Credit Association - A review of the process toward the adoption of...
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Transcript of Damian Paull - Australian Retail Credit Association - A review of the process toward the adoption of...
The adoption of the comprehensive credit reporting.
Damian Paull
Chief Executive Officer
www.arca.asn.au
Understanding the legislative jigsaw of the Australian Credit
Reporting System
Taking advantage of the new data to empower better
lending decisions
The importance of building consumer awareness.
AGENDA
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Owner Occupied Housing $886 Billion
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Investor Housing $427 Billion
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Other Personal Credit (Auto, Personal
Loans, Credit Cards) $135 Billion
www.arca.asn.au
Credit reporting involves providing information about an individual’s
credit worthiness to banks, finance companies and other credit
providers, such as retail businesses that issue credit cards or allow
individuals to have goods or services on credit.
ALRC report 108 “For Your Information’
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
Key Highlights
• Only 8% of customers disclosed their existing
debts fully.
• Undisclosed debts ranged from $3k to $120k.
• In >75% of cases, if debts had been fully
disclosed it most likely would have changed the
decision to lend.
A major international FSP analysed a sample of bankrupt accounts to compare the debts disclosed at the
time of approval against the debts at the time of bankruptcy...
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
Credit Reporting Framework
Privacy (Credit
Reporting)
Code
Obligations
sourced from
Privacy
legislation,
registered with
Commissioner
Principles of
Reciprocity and
Data Exchange
Obligations set by
industry – eg.
Reciprocity plus
others
(Refers to Industry
and external
standards)
Compliance Monitoring
External
Standards
eg. ASIC RG,
ISO
complaints-
handling, IT
standards
Guidance (non-binding)
Industry
Standards
Technical
standards set by
industry, for data
quality,
consistency,
exchange
Legislation
Privacy Act
and
Regulations
Competition
and Consumer
Act Part IV
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Legislation
Privacy Act
Part IIIA of the Privacy Act 1988 regulates the credit reporting system and
follows the following key principles:
• Transparency
• Collection
• Use and disclosure
• Quality and Security
• Access and Correction In recognizing the importance of consumer protection, the shift to more comprehensive credit reporting is accompanied by enhanced protection relating to; • notifications • direct marketing • identity theft - ban periods and • correction requests.
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Legislation
Privacy Act
Regulations
2013
In relation to Credit Reporting and or the operation of Part IIIA, the
regulations include:
• The definition of various terms relevant to the credit reporting
provisions in Part III A of the Privacy Act
• Permitted disclosures of credit information to a credit reporting body
(see s 21D of the Privacy Act
• Transitional provisions excepting energy utilities, water utilities and
commercial credit providers from the requirement to be a member of a
recognised external dispute resolution scheme before disclosing credit
information to a credit reporting body until 11 March 2015 (see s
21D(2)(a)(i) of the Privacy Act)
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
The Code sets out how certain provisions contained in the Act are to be
applied and or complied with.
The code deals wit the following matters: • Credit reporting system arrangements
• Open and transparent management of credit reporting information
• Information collection procedures
• Credit information handling practices, procedures and systems
• Consumer credit liability information
• Information requests
• Repayment history information
• Default information
• Payment information
• Publicly available information
• Serious credit infringements
• Transfer of rights of credit provider
• Permitted CRB disclosures
• Security of credit reporting information
• Use and disclosure of credit-related personal information by CPs and affected
information recipients
• Protections for victims of fraud
• Use by a CRB of credit reporting information to facilitate a CP’s direct marketing
• Access
• Correction of information
• Complaints
• Record keeping
• Credit reporting system integrity
• Information Commissioner’s role
Privacy (Credit
Reporting)
Code
Obligations
sourced from
Privacy
legislation,
registered with
Commissioner
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
Principles of
Reciprocity and
Data Exchange
Obligations set by
industry – eg.
Reciprocity plus
others
(Refers to Industry
and external
standards)
Reciprocity is a key principle for credit data sharing.
A creditor could accept sharing its information and break its information
monopoly if it gains access to the information of other creditors and, thus, be
able to perform a better credit risk assessment and thus use his resources
more efficiently.
The reciprocity principle is enforced in credit registers through provisions that
ensure that access to credit data is granted only to those who contribute with
their information.
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Principles of
Reciprocity and
Data Exchange
Obligations set by
industry – eg.
Reciprocity plus
others
(Refers to Industry
and external
standards)
Principle 1
Bound to comply the PRDE.
Principle 2
Access to CCLI and RHI - get what you give
Principle 3
Service agreements acknowledge compliance with reciprocity and the
ACRDS.
Principle 4:
Transitional rules support early adoption of partial and comprehensive
reporting
Principle 5:
Monitoring, reporting and compliance requirements
Principle 6:
A broad review of the PRDE to be completed after three years.
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
Industry
Standards
Technical
standards set by
industry, for data
quality,
consistency,
exchange
1. Supports the compliance requirements and responsibilities of the Privacy
(credit reporting) Code, The PRDE and applicable legislation
2. Supports the completeness, accuracy and currency (up-to-date) of data to
be held by a Credit Reporting Body
3. Caters for and is consistent with the common interests of all Signatories
irrelevant of size or nature of Credit business (Banks, Finance companies,
Credit Unions, Utilities, Telco’s, Debt Collection Agencies, ….)
4. The form and content of data exchanges should be aligned with
Signatories operations
5. Must be Credit Reporting Body independent
6. Should minimise the IT development effort for Signatories to extract
required data from their systems in support of principle 2
7. Should minimise the processing and operational effort for Signatories to
supply data to Credit Reporting Businesses in support of principle 2
8. Should be consistent/aligned with any existing data standards commonly in
use by the Credit Industry where appropriate
9. Should be aligned/adhere to industry standards where appropriate eg.
Australia Post Address standard.
• 15
www.arca.asn.au
The presence of a properly regulated comprehensive credit reporting
system;
• Assists lenders to identify financial risks more accurately and
potentially earlier
• Improves economic performance of retail credit lending
• Increases access to mainstream credit, eroding financial exclusion
• Assist consumers to avoid over indebtedness and take greater
personal control of their credit identity
• Boosts productivity and consumer spending
(World Bank and BIS)
UNDERSTANDING THE LEGISLATIVE JIGSAW OF THE AUSTRALIAN CREDIT REPORTING SYSTEM
www.arca.asn.au
• Credit assessment
• Account management -
avoiding serious risk of
default
• Pre- screening
TAKING ADVANTAGE OF THE NEW DATA TO EMPOWER BETTER LENDING DECISIONS
www.arca.asn.au
Credit Limit + Repayment History
Higher Accuracy in Deducing Financial Status
More Informed Lending Decisions
Increase Competition for Credit Market
Offer Differentiated Products to Individuals of Different Risk Profile
TAKING ADVANTAGE OF THE NEW DATA TO EMPOWER BETTER LENDING DECISIONS
www.arca.asn.au
TAKING ADVANTAGE OF THE NEW DATA TO EMPOWER BETTER LENDING DECISIONS
A clearer picture: credit providers will have a more
complete picture of your ability to repay debts.
Better matching of credit to your needs: Credit
providers can better match the terms and amount of
credit.
Fairer access to credit: Under the new system, there
can be more information in credit reports to better help
credit providers make a decision when consumers are
applying for credit.
Increased consumer protection:
• Accessing Credit Reports
• Corrections and Complaints
• EDR
• Ban Periods
• Direct Marketing prohibition (new data)
• New regulatory powers and penalties
TAKING ADVANTAGE OF THE NEW DATA TO EMPOWER BETTER LENDING DECISIONS
Taking Advantages of the new data to make better lending decisions?
www.arca.asn.au
A Veda pilot study identified the following preliminary findings that indicate that
Comprehensive Credit Reporting deliver significant benefits to:
Lenders, as it provides a broader view of their applicant and their overall risk
(internal and external)
Lenders and Consumers, as this additional information provides a better view of
the individual’s overall credit commitment and their ability to service credit debts
and so supports responsible lending
The economy, as it has the potential to release the amount of credit extended to
individuals while keeping the overall risk the same (or, alternately, lower the risk
of the Lenders'’ credit portfolio)
THE IMPORTANCE OF BUILDING CONSUMER AWARENESS
Taking Advantages of the new data to make better lending decisions?
www.arca.asn.au
As credit reporting is designed to affect individual behavior, without
borrower knowledge of the consequences of the reform, the change in
their behavior is likely to be more limited and the system will not fully
capture the benefits of reform.
THE IMPORTANCE OF BUILDING CONSUMER AWARENESS
Taking Advantages of the new data to make better lending decisions?
www.arca.asn.au
41% - CONCEPTUALLY AWARE OF CREDIT REPORTING AT A BASIC LEVEL. MOST HAVE
ENCOUNTERED IT WHEN APPLYING FOR CREDIT.
GIVEN THERE IS LITTLE UNDERSTANDING, THERE IS CONFUSION AND CONCERN WITH ‘WHO CAN’
AND ‘HOW MUCH’ INFORMATION CAN BE ACCESSED
THEREFORE, THERE IS A STRONG NEED TO EDUCATE AND PREPARE CONSUMERS FOR THE
CHANGE THROUGH INFORMATION.
www.arca.asn.au
THE IMPORTANCE OF BUILDING CONSUMER AWARENESS