Recent government reforms adopting positive credit reporting according to the 2012 IBIS World Industry Report into Australian Debt Collecting may see defaults drop by some 30 or 40%.
This is part is due to creditors being privy to additional information on credit files in particular, the payment history as a factor in determining credit worthiness.
Positive Credit Reporting will show the last (24) months of payment history. Our current system only records defaults which are payment arrears of (60) days or more. With better insight lending institutions will better be able to identify clients who may be of high risk and as such stop lending to those clients thereby reducing the rate of recorded defaults.
In theory the newly adopted system will eliminate the dangerous lending practices experienced pre (GFC), except for the fact that the GFC started in the United State a country which adopted positive credit reporting many years prior to the carnage.
Perhaps the lack of transparency in credit reporting was not a contributing factor in the (GFC); possibly irresponsible lending practices adopted by lenders should be treated as the main contributor.
It seems Australian regulators have sided with lenders and placed the onus of credit worthiness on consumers, this coupled with NCCP Legislation will see marginal borrowers squeezed out of the market place.
Little regard is given to the vicissitudes of life. Most borrowers at some point of the loan term encounter a problem which may see them late for a payment but not sufficiently late to cause a default to be recorded, and a positive system will highlight these minor indiscretions and may be cause for finance rejection.
Under the new regime of credit reporting five sets of data shall impact on credit worthiness, the date the account was opened, the limit placed on the account, the type of credit, the date the account was closed and by far the most important the account payment history.
Supporters of this regime sing its praises by advocating that positive reporting will improve the quality of data and result in reduced defaults, decreased approval times and reduce overall debt.
There is little argument to suggest the comprehensive regime will not achieve its intended purpose. However, the views to suggest our weakest members, namely marginal borrowers, will be denied the privilege of finance are largely ignored.
Most commentators in this area have little to offer by way of opinion with regards to the impact the greater volume of information will have on the accuracy of information recorded on a credit file.
Experience tells us mistakes are made regularly by credit providers in listing information on a credit file. Common sense tells us as the volume of information recorded increases so does the prospect of mistake.
The challenge confronting credit reporting agencies, creditors and regulator is to ensure information recorded on a credit file is accurate, up to date and a true reflection of credit worthiness.
These organisations must shift their think to encompass and embrace the rights of individuals to have only accurate information recorded on a credit history.
A more balanced system is required; one which strives to find equilibrium and is less tolerant of the wishes of large lending institutions and more accepting of consumer needs.
The time for caution has arrived. Individuals must understand a positive credit reporting regime does not tolerate minor indiscretions.
Regulators are not doing enough to educate consumers as to the proper maintenance of their credit history.
Therefore the burden of educating consumers falls on the shoulders of professionals in the finance industry such as finance brokers, financial planners and accountants.
Finance professionals providing clients with sound advice should consider the following in order to assist with the protection of that clients’ credit worthiness.
• Make sure clients understand the importance of paying all bills and loans on time.
• Ensure the client subscribe to a credit file alert system which notifies them of activity on their credit file.
• Never submit a loan application without first conducting a credit file check.
• Educate their clients to record with precision any disputed issues arising with credit provider.
• Conduct a yearly review of a clients credit file.
• Use the services of reputable credit repair organizations to assist with the removal of incorrectly listed information which may be challenged.
A drop in the rate of recorded default will be achieved by the adaptation of a positive credit reporting regime, however at what cost? It can only be achieved at the expense of societies weakest financial members the marginal borrower.
About the author: This article is writer by Joseph Trimarchi of Joseph Trimarchi & Associates Solicitors a Law Firm specializing in Australian Credit Reporting Law. The article is written purely for educational purposes and should not be relied on as legal advice.
