Jul 292007

Credit privacy set to be tested
The forerunner of many impending alterations to the way borrowers and lenders will be conducting their business in the near future.

The Privacy Act 1988 is only one piece of legislation which impinges negatively on the ability of borrowers – business and personal – and lenders to conduct sound, prudent transactions in this country. The Trade Practices Act has some detrimental aspects to it from a financial institutions perspective, as does the Financial Transactions Reporting Act (FTRA) and the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006
but the real bug-bear from any lender’s perspective would have to be the Uniform Consumer Credit Code. Thus far, no mention of future amendments to that legislation, however it is known that Kevin Rudd has already stated that he will address the matter of irregularities between states in the administration of these pieces of legislation, should he take the reins later this year. As a lender myself, I eagerly look forward to those changes, which will hopefully bring more consistency across the country in how people like me do business across state borders. That’s another issue for another post.
From the perspective of the Privacy Act 1988, it is indeed a cumbersome, clumsy and restrictive piece of legislation which might have seemed a solid suit of armour to Mr & Mrs Borrower in 1988, protecting them from the probing and intrusive lances of the Banks, et al, but 19 years on, and both sides of the transactional fence are finding the Act more troublesome than not. The Privacy Act 1988 allows for the sharing and transmission of credit information between credit agencies and lenders and between financial institutions and credit agencies, however it’s the quality and validity of that credit information which is suspect at best. Certainly, Veda Advantage, Lawpoint, Dunn and Bradstreet to mention a few do have access to some valuable insights on individuals, business and corporates but in truth, it’s veneer stuff which in some cases tends to cast more doubt that provide clarification.
For example, It’s well understood within the finance industry that Telco’s – Telstra, AAPT, Primus and others – will slap a default on a subscriber without so much as a by-your-leave, and often without any thorough-going attempt to discover just why their account might not have been paid on time. Ever moved house, and either forgotten to arrange to forward your mail or not advised your phone company of your new address? Innocent enough circumstances which can easily arise in the trauma of moving, yet telcos are renown for acting reflexively, lodging a default on a credit record and not attempting to make further contact with their subscriber. Certainly, the subscriber gets the message, either shortly thereafter or in the longer term when they attempt to borrow next, but is this proper business practice on the part of the telcos? Yet, the Privacy Act permits this behaviour because other more relevant contact information is sacrosanct, or unshared under the Act.
Nor does the Act allow for correction or removal of non-salient credit information from records, without the express, written instruction of the record holder. One would think that once a default was corrected, whether it was a valid lodgement or not, that the lodging party would remove the record. Not so. The record holder must instruct the lodging party – in writing – to do so. The record holder cannot instruct the credit agency to remove the lodgement either, yet it is the record holders credit records we’re dealing with. After all, only you, the record holder, can access your record unless you give permission to other parties, as in a loan contract. There is also the question of Bankruptcy and judgement recordings on credit records. No detail, no validating rationale, such as business failure or marriage dissolution. Just Bankruptcy and it sits on a record for seven years with no reprieve. Even if you’ve been cleared from Bankruptcy for a long time, if that bland recording still exists on your record, it’s akin to being handed the Black Spot
. I’ve personally lent to former bankrupts and never had a qualm about it because I knew their story, however, more and more lenders these days conducting credit analysis by computer scoring methods will not look beyond an adverse credit report. They could, but that takes time and people resources which aren’t available, and besides, the Privacy Act virtually grants carte blanch to decline credit, rather than approve under those circumstances. Defaults and judgements, in many situations, are the death knell of many a loan application, and often with no good cause.
I can see both sides of the argument as briefly alluded to by the above article, however as a lender, I believe it’s long past time the industry reviewed its governing legislation. Financiers are in the business of lending money. Not in buying and selling information. Information is essential to making sound, prudent lending decisions and while the libertarians in society might like information to be solely the property of the owner, I’m more of the view that information of a credit nature belongs equally to the borrower and the credit industry itself. The two must co-habit on a basis of equal understanding. Without the lenders, the borrower cannot borrow. Without the borrower, the lenders will be out of business. Lenders aren’t interested in whether or not you’ve paid your last Telstra bill of $350 because eventually, you will. Like it or not. We do, however, need to know exactly why you had a court judgement awarded against you, who the plaintiff was and the circumstances under which the proceedings occurred. Lending is about risk and approval of credit is about mitigation of risk where possible. Without adequate information, and the ability to share and administer that information in a two-way channel, the process of risk assessment, risk mitigation and ultimate decision making is flawed.
I look forward eagerly to any proposed changes to legislation, and to providing input to any Senate Committee review process. It’s vital for the country’s economy that business and individuals work co-operatively, sharing what needs to be shared and protecting that which needs protection on a logical basis.

  One Response to “By Default”

  1. You are right on the money…lenders need the right information to ensure they get the lending decision correct…but that is only part of the story. Credit file content alone won’t deliver the right outcome. Controls over access and use are also needed. These are needed to ensure this information is consistently reliable (via strict definitions and rules about placing info on a file) and appropriately used (not for marketing purposes).
    All 3 elements are needed to ensure better lending decisions.
    I’d be very interested in any other feedback you get in relation to your posting.

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