The federal government is set to reintroduce its mandatory comprehensive credit reporting legislation after being left stranded in the run-up to the May election, nearly two years after the bill was first announced.
The draft bill, which requires major banks to provide credit information and active consumer credit accounts to eligible reporting bodies and FinTechs, has been released by Treasury for consultation and is expected to be introduced to Parliament by the end of the year in preparation for a launch next year.
The legislation would also be amended by government to change the reporting of financial hardship arrangements.
Then-Treasurer Scott Morrison announced in late 2017 plans to introduce a mandatory comprehensive credit reporting regime, after a near non-existent take-up of a voluntary version of the scheme that was already in place.
Under the new scheme, banks will have to provide positive credit data, such as how many accounts have been opened, credit limits and monthly repayments in order to give a “more balanced reflection of credit history”.
The scheme would be highly beneficial for the Australian FinTech sector, providing a wealth of opportunities and a more even playing field with the major banks. It would allow FinTechs to get a better picture of the risk profiles of potential customers and allow them to offer more accurate risk-based pricing.
The original legislation was introduced to Parliament in June 2018 and was passed by the lower house. Despite being given a green light by a senate committee, it was not brought on for debate before this year’s federal election.
At the start of this month, Attorney-General Christian Porter said the government would re-introduce the legislation, along with an amendment allowing for the reporting of financial hardship information within the credit reporting scheme.
The current Privacy Act prevents a credit provider telling another provider when an individual is engaged in a hardship arrangement, leading to a situation where a person struggling to repay one debt could be provided with another line of credit through another provider, Mr Porter said.
The government’s amendment will alter the Privacy Act to allow for the reporting of financial hardship arrangements, improving transparency and “enabling people experiencing financial difficulty to demonstrate good credit behaviour by complying with the hardship arrangement”.
“The amendments will benefit consumers by making sure credit products are suitable, and ensuring consumers are encouraged to seek hardship arrangements if they are struggling to meet repayments under their credit contract,” Mr Porter said in a statement.
“These changes balance the needs of both credit providers and consumers. They are intended to give credit providers relevant information about consumers who are in financial hardship, or have recently experienced hardship, in order to facilitate better and informed lending decisions.”
It’s the only change made to the mandatory comprehensive credit reporting bill since its introduction last year.
The draft legislation says there is currently an “information asymmetry” where a “consumer has more information about his or her credit risk than the credit provider”, leading to mispricing and misallocation of credit.
If the legislation is passed by Parliament, banks will be required to supply credit information on 50 per cent of the consumer credit accounts to all credit reporting bodies by June 2020, and all credit information by the following year.
The government’s intent to reintroduce the legislation has been welcomed by FinTech Australia, with its general manager Rebecca Schot-Guppy saying it will benefit both FinTechs and consumers.
“Post-Hayne Royal Commission, it is essential that FinTech and all financial services industry credit providers have responsible lending at the core of what they do, which is why Mandatory Comprehensive Credit Reporting is such important legislation,” Ms Schot-Guppy told InnovationAus.com.
“A fuller understanding of consumer’s credit history through reporting of hardship alongside reporting history information will better equip lenders to access borrowing capacity and help to protect consumers in hardship.
“The introduction of positive reporting history information has been a good move for consumers who are now are able to demonstrate good behaviour and add depth to their credit files.”
Treasury is now seeking submissions on the amended draft legislation before it is introduced to Parliament.