From July 2021, changes to comprehensive credit report legislation come into effect. 

Consumers will have greater access to their credit information.  Lenders will be restricted in disclosing financial hardship information in certain circumstances.

In 2017, when Scott Morrison was Treasurer, he announced that the Government would be introducing mandatory credit reporting in late 2017, deeming it as a “game-changer for customers and lenders, and will lead to greater competition in lending and, naturally, provide better access to finance for Australian households and small businesses”.

However, the implementation of any significant changes to mandatory credit reporting have in practice, moved at a snail’s pace.  This was until recently, when an amended law (first introduced to Parliament in December 2019) making Comprehensive Credit Reporting mandatory from July 2021 passed in both houses of Parliament.

The aim of the amended law is to provide lenders with greater context and detail surrounding a consumer’s credit history – and to provide consumers with greater access to their credit information.  Previously, credit reports were only required to include defaults, serious infringements and credit inquiries.

The key amendments to the National Consumer Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 include:

1.      enabling a consumer to access their credit reporting information that is held by a credit reporting body free-of-charge every 3 months (previously every 12 months);

2.      ensuring that credit reporting bodies provide consumers with the following if they are instructed by the consumer that they wish to access their credit reporting information:

2.1.      their rating on a credit score scale (including if this requires the credit reporting body to generate the rating);

2.2.      information that explains what credit information is held by the body that was used to derive the rating;

2.3.      an explanation about the relative weighting of the credit information used to the derive the rating; and

2.4.      information about the credit score scale used by the body, including how the consumer’s rating relates to the other ratings on the scale.

3.      bringing in new protections around financial hardship so that credit reporting bodies are prevented from disclosing financial hardship information about an individual in certain situations (set to occur on 1 July 2022).  This includes:

3.1.      preventing them from disclosing to a credit provider to either collect payments that are overdue or assess the individual’s suitability as a guarantor for an application for credit made by another person; or

3.2.      to a mortgage insurer to assess the risk of the individual defaulting on mortgage credit for which the mortgage insurer has provided insurance to a credit provider.

Treasurer Josh Frydenberg has welcomed these changes, stating that the regime will enable consumers to “demonstrate their credit worthiness and seek a better deal”, while lenders will have greater opportunities to “compete for consumers with positive credit histories”.

With respect to the changes regarding the reporting of financial hardship, set to commence in July 2022, it is anticipated that a new category of hardship information will be reported alongside repayment history information.  Additionally, lenders will only have access to this hardship information in situations where the consumer is seeking to access new credit, or if the consumer consents to provide this information.

The changes also mean that the big four banks will be required to supply credit information on about 50% of consumer accounts within the banking group to all credit reporting bodies that they had a contract with on 2 November 2017, by 28 September 2021.  Mr Frydenberg made comment with respect to this change, that “Australia’s large banks will now be required to participate fully in the credit reporting system in order to provide more Australians with better access to credit”.

At this stage, it is unknown if this new law will truly be a “game-changer” as suggested by Mr Morrison.  However, the consumer-centric notions that arise from greater access to information and contextualising situations of financial hardship are promising.

Such changes will only be beneficial to consumers through education and the Government’s plans on making these changes understood and accessible to the public.