They’ve been sold as ‘enhancing’ our privacy, but these changes are anything but. There’s a new system for how personal credit files work and you could be the loser.
A government move to “enhance privacy protection” has been used as a Trojan horse to ensure much more of your personal financial information is available to big lenders. And the first some people will know of it is when they apply for credit and get stung with a higher interest rate.
The former Labor government accepted that Australians need greater privacy protections, and laws came into effect this month that were supposed to do just that. But Crikey has found the laws are not what they seem.
Last week we examined how the new Australian Privacy Principles may be unworkable and of little use. This story is about a related “privacy” reform: changes to how a personal credit file works.
This has been sold as ”more comprehensive reporting” with “improved privacy protections”. It actually amounts to lenders obtaining and sharing much more information on people seeking credit (a home loan, a personal loan, a credit card). It might also favour big lenders over small ones, and could result in higher fees across the board.
When you seek a loan, the lender (a bank, a finance company) will find out if you are a good bet by accessing your credit file, which is created by a private credit reporting body like Veda or Dun and Bradstreet. The file contains personal information plus any defaults or late payments on a loan.
Previously, a payment more than 60 days overdue would go on a person’s file. This has changed to five days. (It doesn’t apply to utility bills, and most late payments drop off the file after two to five years — longer for more serious matters.)
A long-time consultant to the finance sector who has been trying to implement the new rules (and who does not wish to be named) told Crikey: “A lot more information is collected on you, and it just means a lot more red tape.” She describes the situation as a debacle and the reforms as “really murky and really messy”.
She says the rules have been largely developed by the big lenders so “the fox and the cat” are in charge of the henhouse. Only the big lenders can afford to hire the expertise and IT staff to make it work; ”this is about the big banks having more control over the market.”
“People will have no idea just what they’re in for.”
The consultant says credit reporting bodies are “making a fortune” and the new scheme is a gift to the so-called credit repair industry, an American concept where firms charge to correct errors on credit files. It can cost between $2000 and $3000 to get a credit reporting body to challenge an error. And the consultant says with credit reporting bodies collecting more information, other costs will rise too.
The consultant says the changes are very complex (here’s an incomprehensible guide to them) and the industry is scrambling to cope. “People will have no idea just what they’re in for,” she warned.
David Leermakers from the Victorian-based Consumer Action Law Centre also has concerns. “This is not an enhancement to your privacy,” he told Crikey. “We were dubious from the outset that it was necessary to share all this extra information. That’s a debate that we lost.”
Lenders may argue the new scheme allows them to do their job better, but Leermakers says it may simply make it easier for them to charge individuals higher interest rates (that’s called “risk-based pricing”).
He pointed to a recent example, under the old system. A woman obtained a $6250 loan from GE Money for debt consolidation (mostly to pay off a credit card). She was charged interest of 34.95% pa, although GE Money was advertising a rate from 17.49% for personal and debt consolidation loans. Here’s GE’s get-out clause:
Leermakers is also concerned the changes will boost the expensive “credit repair” industry. You have a legal right to one free check of your credit file each year, but Choice and Crikeyhave found the credit reporting bodies don’t make that easy. If there’s a mistake on there, Leermakers says the credit reporting bodies can charge thousands to fix it.
The back story to this reform process is that in 2008 the Australian Law Reform Commission released a mammoth report arguing that privacy protection should generally take precedence over other interests and should be boosted. The then-Labor government’s response came in the form of changes to the Privacy Act, including this credit reporting reform (which seems to sit oddly under the banner of “enhancing privacy protection”). These changes passed Parliament in 2012 and most took effect on March 12 this year. So the laws are more Labor’s baby than the current Coalition government’s. Elements of the credit reporting reform are still in the process of being implemented, so aren’t fully in place.