Stephen Jones (Whitlam, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I am pleased to be speaking on this important piece of legislation, the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019. It concerns mandatory credit-reporting arrangements. It is probably worth explaining a little bit how these arrangements work. For a bank or any financial organisation to pass personal financial information to a third party, they would need the permission of the owner or the party to whom the information relates. Otherwise, they would be in breach of the National Privacy Act and the National Privacy Provisions. However, Labor has always considered that there was a consumer benefit in having a national credit-reporting arrangement. We think it's pro-competition because it sets up a regime whereby we can have a standard and objective set of measures which enable a bank or another financial institution to assess the creditworthiness and the credit history of an applicant for a credit product. To enable such an arrangement to be put into place, clearly we needed to make some amendments to the national privacy legislation. Indeed, that's exactly what Labor did back in 2012. We put in place a comprehensive credit reporting regime by amending the Privacy Act to allow for credit providers to share repayment information with credit reporting agencies who can consolidate that information and then onsell it to lenders. We believe it's pro-competitive. It supports competition in the financial industry. It allows small banks and lenders who do not have access to the significant amounts of information and perhaps the market reach to get access to financial data, enabling them to make better lending decisions.

I make the point of identifying small banks and small financial institutions for this reason: most of the large banks have already got this information. If they've been dealing with a customer for many, many years and have access to multiple financial product information and the repayment history, they'll have that data. It's the small banks who won't have access to that data. Therefore, when they get an application from a consumer who wants to switch banks, it's that much harder for them to assess their credit history and therefore their creditworthiness.

Credit reporting also allows for increased price discrimination by lenders and may reduce the ability of people with bad credit histories to receive loans. The legislation before the House, in part, goes to this issue. Let me explain this: the current framework for the Privacy Act does not adequately support transparency of credit reporting information and does not currently support all of the passing on of information that we think is necessary.

One of the things that has been identified is what is described within the industry as a hardship flag. Let me explain how that works. Let's take a very probable set of circumstances that can occur at the moment, after the bushfires, the floods and even the hailstorms. Somebody has a credit arrangement with their bank. Their property has been burnt down and their business has been burnt down. They're going to have a period of time out of work or with disrupted income flows. The bank knows that. The banks, for the most part, have published nationally their willingness to enter into hardship arrangements, suspend repayments et cetera. That person goes to their bank and they say, 'Look, I need a holiday on my repayments because of this hardship.' A good banker, and most of them are, will agree and put in place an informal suspension of repayment requirements.

For the most part, in those sorts of hardship circumstances where it's a natural disaster or some other unforeseen event, it won't constitute a variation to the credit contract. The credit contract remains in place but there's an informal arrangement between the bank and the creditor. A hardship arrangement is flagged within the bank's system but is not passed on to the credit reporting agency as a hardship flag. What is passed on is that the repayment history has been interrupted. What the bank actually passes on to the national credit reporting agency is what is referred to as RHI, or repayment history information, that relates to each and every one of those individual customers. So, if we take the current bushfires as an example, when an informal arrangement is reached with your bank and you're not meeting your mortgage repayments, the bank will still pass on information to the national reporting agency, and that will affect your credit score.

This obviously has to be dealt with and, in the context of widespread disruption to economic activity visited upon businesses and households by the bushfires, this should be urgent business. We should be dealing with this. This should be urgent business to ensure that the initial hardship visited on somebody by the natural disaster is not compounded by the fact that they have a hard-to-repair interruption to their repayment history information. We want to have that fixed. We were actually concerned when this matter came before the last parliament that we needed to be cognisant of a review that was going on with the Attorney-General's Department so as to ensure the feedback through the Attorney-General's Department was reflected in the legislation. Our initial view is that most of that has. I will flag here that we won't be opposing the bill in the House—we support the general thrust of what is being proposed here—but it is almost certain that we will be moving some amendments in the other place.

Labor believes that there is a need to ensure that the current credit-reporting arrangements allow more-frequent and more-detailed access to information on behalf of consumers. We want to ensure that consumers are able to have access to information that relates to them. There are two reasons for that. It's their information, and there may be errors in the information or the need for them to repair some of that credit history information. Quite often when somebody is going to take out a new loan or apply for the refinancing of a loan the bank will have access to the information but the individual may not. We want to ensure they have that. Under current arrangements, the current framework within the Privacy Act, individuals are only allowed to access a free copy of their credit information once every year and in certain other specific circumstances. In addition, under the current arrangements reporting agencies have used loopholes within the Privacy Act to refrain from disclosing what is known as 'credit scores'—RHI credit scores. As a result, credit-reporting agencies have developed quite a profitable side business in the onselling of those credit scores—in fact, charging customers to access the individual's personal credit history. We think it's the individual's information and that they should have access to that and should have more timely access to that information.

The sorts of amendments that we will be proposing will allow individuals to access a copy of their credit information held by a credit-reporting agency free once every 10 days. They will require derived or generated credit scores to be disclosed to individuals as part of their rights of access to credit information. They will require the individuals to receive a statement summarising the key determinants of their credit score as part of their rights of access to credit information. They will allow the Australian Information Commissioner to create rules in relation to each of the above proposals. These are propositions that are strongly supported by consumer advocates. It is worth pointing out that similar provisions currently exist in New Zealand. We don't believe, on the information available to us, they will impose any significant new cost on the credit-reporting industry. They will, however, provide additional rights to consumers and additional competition benefits to the sector as a whole.

With these observations, I commend the bill to the House. I hope it has a swift passage here, and I look forward to progressing in the other place some of the issues that I've foreshadowed.

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

I appreciate the opportunity to speak on the bill. I also appreciate that this time the member for Whitlam has decided to agree with us without moving an amendment, so we are finally making progress in the House.

The National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 will deliver benefits for both consumers and credit providers, and increase competition in the lending market by reducing credit data advantage held by the major banks. Comprehensive credit reporting seeks to achieve several benefits both for credit providers and for consumers. Consumers will have better access to consumer credit, with reliable individuals and small-business owners drawing on their credit history to seek more competitive rates when purchasing credit. In addition, consumers that possess a poor credit rating will also be able to demonstrate their credit worthiness through future consistency and reliability.

Credit providers will have the ability to obtain an accurate and comprehensive picture of a consumer's financial situation. This will enable providers to better meet their responsible-lending obligations and price credit according to a consumer's credit history. As the member for Whitlam pointed out, schedule 1 of the bill means that the five largest banks will be required to supply 50 per cent of their comprehensive credit information to credit-reporting bodies within 90 days from 1 April 2020. The information on the remaining accounts must be supplied within 90 days from 1 April 2021.

The security of consumer information is of high importance to the government. The Privacy Act already has strict provisions that apply to how consumer credit information is handled. The bill maintains these provisions, and also requires credit providers to satisfy themselves that a credit-reporting body is meeting reasonable security standards before they supply consumer data. The bill also requires the credit-reporting body to store credit information within Australia and external territories or according to alternative security requirements in regulations, if established, for storage outside Australia. The Australian Securities and Investments Commission will enforce the new mandatory regime. Where credit providers and credit-reporting bodies are subject to requirements under the bill they will be subject to penalties if they fail to comply.

The second schedule of the bill will establish a new type of credit information—financial hardship information—in the Privacy Act to allow reporting of consumer credit contracts affected by hardship arrangements, with hardship indicators to identify such circumstances. To ensure consumers are not being unfairly disadvantaged by this change, the bill will amend the credit act to prevent banks from using financial hardship information as the sole reason to freeze an existing credit account or to reduce a credit limit on an existing credit account. The bill will also prevent credit-reporting bodies from incorporating financial hardship into credit scores. The Office of the Australian Information Commissioner will continue to oversee the credit-reporting system, including receiving and attempting to receive complaints about mishandling of credit information or inaccurate credit information. The OAIC also has the power to investigate, order compensation and issue fines. The bill also requires the government to complete, prior to 1 October 2023, an independent review of the mandatory regime and the credit-reporting provisions, including the impact of hardship-reporting requirements.

The state of Georgia in the United States, for reasons known only to them, decided to ban credit-reporting bureaus until the year 2004. When they finally legalised this form of credit reporting, it allowed people, banks and financial institutions in that state to massively increase the amount of credit available to consumers by over 50 per cent, reduce margins by over half to all consumers, and to grow the economy in Georgia by an above-average rate for the next decade and a half. Credit reporting is key to what the financial services sector does in order to make sure that our economy gets to grow, in order to ensure that people are able to live their lives to the full capacity they want to live them.

This parliament now insists—in my view dangerously, but nonetheless—that financial institutions are responsible for the decisions that consumers make in terms of whether they can or cannot afford the credit that they have decided to borrow and that that falls solely on the financial institution, which they're doing. This parliament has hamstrung financial institutions from doing that by only allowing them to have limited information in terms of credit scores. It has also stopped third-party people from being able to provide applications and services which allow them to help consumers break through the complexity of our financial system to find the best products that they want.

This bill and the reforms contained within it are critical to us delivering a better life for millions of Australians who have been denied credit, who have been denied the best form of credit that they can have and who sometimes have been provided with credit they should not have taken. I commend the bill to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Link to this | Hansard source

The continuing flow of credit is the lifeblood of the Australian economy, and this must be effectively balanced by the need for free-flowing credit along with responsible protections for customers and their personal data. Since Labor's 2012 reforms to the credit reporting system, we've encouraged competition in the credit lending marketplace. This system allows smaller banks and lenders who do not have access to significant amounts of financial data themselves to make better lending decisions.

This bill legislates the requirement for major banks and credit providers to provide detailed credit information to credit reporting bodies, with the aim of enabling credit providers to better meet responsible lending obligations. At the same time, it provides protections for consumers to ensure that the supply of that credit information can't be abused by unscrupulous operators within the sector.

Schedule 1 of the bill requires major banks to provide detailed credit information to credit reporting agencies from 1 April 2020. This element of the bill will have no immediate effect. All eligible major banks already supply this detailed credit information to credit reporting agencies, so it is basically legislating something that already occurs within this industry. But, admittedly, it is a reform that the banks have only taken on in recent years.

Schedule 2 sets out new standards for how people in financial hardship should be treated by credit reporting agencies. The new standards will create two hardship flags that are placed into credit reports for individuals. The hardship flags will set out whether an individual has a permanent variation or a temporary variation to their credit obligations.

The changes in this legislation bring it into line with current industry best practice and will allow for customers to better demonstrate their credit worthiness. This change will also generate more transparency and accountability and competition in the credit market. The bill also establishes new standards, as I mentioned earlier, for people who are experiencing financial hardship. These two financial hardship flags can be placed into credit reports for individuals. Those hardship indications will better distinguish between customers experiencing long-term hardship and a permanent variation to their credit obligations and customers experiencing a temporary variation to their credit obligations. This allows customers more freedom to access hardship provisions without undue fear of negatively affecting their credit rating into the future.

These protections are important. We have all seen how, in other jurisdictions, credit ratings can be used against customers—in particular, vulnerable customers—to deny them credit in situations where they otherwise would not be affected. By allowing customers greater access to nuanced hardship provisions, the bill seeks to ensure the continued flow of credit in our economy and to allow customers to access legitimate hardship provisions before their financial situation deteriorates beyond repair.

Further amendments could be made to reduce the length of time for these hardship provisions and how much information is stored by credit reporting bodies once the hardship provisions have ended. We know that people go through situations in life where they experience hardship in terms of their financial position, but they get out of it. They work their way through it. That financial hardship doesn't last forever. Similarly, when people access these nuanced provisions and are taken by the hardship flags, once they are out of that situation that particular classification shouldn't last forever on their credit file. Perhaps that's something the government should consider further into the future. This will further remove barriers for customers to access hardship provisions, which will be better for both credit providers and customers, allowing credit providers to receive the money they're rightfully owed and ensuring customers can continue to make repayments within their means.

The banking royal commission has demonstrated that customers need more protection and freedom, and under this bill customers will continue to be eligible to only one copy of their credit information each year. This puts customers at a disadvantage when making financial decisions and shopping for the most competitive credit. Individuals should be able to access their own credit information significantly more often. They should also be entitled to know how this credit information is calculated and what the key determinants of their scores are. In the credit market, information is powerful. It's time that we levelled the playing field and gave customers access to their own information about their own credit scores. The credit-reporting system should be as transparent as possible so that people can access, understand and seek corrections to their credit-reporting history.

The Information Commissioner should be given the liability to protect sensitive personal data, as customers have seen too often in recent years that large financial institutions we trust with our personal data have been unable or unwilling to adequately protect some of that data. Effective oversight of personal information available in the credit-reporting marketplace is central to ensuring public trust of credit reporting systems. This bill reflects many of those concerns which we've heard from the industry, customers and the Office of the Australian Information Commissioner by allowing credit providers to withhold personal credit information if they reasonably believe that the credit-reporting body is not complying with the data security requirements of the Privacy Act. That's an important reform as well.

The bill in its current reform goes some way to bringing the legislation in line with current industry practice, but the government should consider further reforms in ensuring protections for customers seeking credit and information on their personal data in a regular and timely fashion. Nonetheless, this bill is an improvement and a codification of the way the industry works at the moment. On that basis, Labor will be supporting the bill and its passage.

Celia Hammond (Curtin, Liberal Party) Share this | Link to this | Hansard source

I'm pleased to speak in support of the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019. The government has consulted widely with credit providers and consumer groups in relation to this bill, and all are supportive. The bill is another example of the reforms implemented by this government that are designed to increase competition in the financial sector. The bill is going to implement the government's comprehensive credit-reporting regime and will place Australia in line with many other developed nations who already have comprehensive credit-reporting regimes in place—this includes the US, the UK and New Zealand. This regime will provide benefits to lenders and borrowers while also preserving and enhancing important security and consumer protections. It will also increase competition in the lending market by reducing the credit data advantage held by the major banks.

Consumers are going to have better access to credit, and those with a reliable credit history will be able to use this to seek more competitive rates. Those consumers who possess a poor credit rating will be able to demonstrate their credit worthiness through future consistency and reliability. Credit providers will have a more complete picture of a consumer's financial situation. This will help them to better price credit, better assess risk and meet the responsible-lending obligations.

Schedule 1 of this bill amends the credit act to establish a mandatory, comprehensive credit-reporting regime which will apply from 1 April 2020. It does this through requiring our largest banks, those with total resident assets of over $100 billion, to provide comprehensive credit information to credit reporting bodies from 1 April 2020. By mid-2021 our largest banks will have supplied comprehensive credit information on all consumer accounts to every eligible credit reporting body.

This bill, importantly, is also going to ensure the security of consumer credit information. That's an issue of high importance to this government, and data privacy is an issue of grave and significant importance to all Australians. This bill is going to strengthen the already strict provisions of the Privacy Act relating to how consumer credit information is handled. The current provisions in the Privacy Act regarding disclosure and use or collection of credit information are maintained. This amendment is not going to affect those, but this bill is going to add to the protections in a number of ways, including, firstly, requiring credit providers to satisfy themselves that a credit reporting body is meeting reasonable security standards before they supply their customer data, and, secondly, requiring credit reporting bodies to store credit information within Australia and external territories or according to alternative security requirements in regulations for storage outside Australia, if established—if the regulations are put in place.

As I said before, while people are happy accessing and providing information, people are very concerned about what their data and information are utilised for. This particular bill will enhance the existing protections relating to credit. It should also be noted that the Australian Securities and Investments Commission is going to enforce the new mandatory regime. Where credit providers and credit reporting bodies are subject to requirements under the bill, they will be subject to penalties if they fail to comply.

Schedule 2 of the bill incorporates the results of a review by the Attorney-General into the treatment of financial hardship information, providing the legal certainty required for this information to be shared. Based on this review, the bill establishes a new type of credit information in the Privacy Act that will indicate consumer credit contracts affected by a financial hardship arrangement. To ensure that consumers are not unfairly disadvantaged by this change, the bill will amend the credit act to prevent banks from using financial hardship information as the sole reason for freezing an existing credit account or reducing a credit limit on an existing credit account. The bill will also prevent credit reporting bodies from incorporating financial hardship information into credit scores. This should assuage any concerns that consumers have with respect to their data.

The Office of the Australian Information Commissioner will continue to oversee the entire credit reporting system, including receiving and attempting to resolve complaints about the mishandling of or inaccurate credit information. The OAIC has the power to investigate, order compensation and issue fines.

As with most laws, a balancing act needs to be taken. In this case, as with everything that came out of the Hayne royal commission, we want to make sure that there's not an undue restriction on people's access to credit. As has been noted before, particularly in light of the disasters and the tragedies that happened throughout the end of last year and the beginning of this year, it is important for our small businesses and our families to have access to credit and to not have that access restricted. At the same time, and to balance that, we need to measure it against irresponsible lending practices and risky borrowing. This bill achieves that. It will set up a framework that will make sure that that balance is actually attained. To that end, I commend this bill to the House.

Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source

I rise to briefly speak on the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019. The bill will establish a mandatory comprehensive credit reporting regime to apply from 1 April this year. It will provide that a credit provider cannot refuse to provide further credit, or reduce a consumer's credit limit, merely because of financial hardship and that information that will exist.

While Centre Alliance support the bill, we are concerned that the hardship arrangement indicators scheme, as outlined in schedule 2, may lead to unfair outcomes for people who are financially vulnerable. However, it has been noted by both the Financial Rights Legal Centre and the Consumer Action Law Centre that the retention of hardship information for a period of 12 months may ultimately mean people are less likely to reach out to credit providers to help for fear of having a hardship flag placed on their file. As noted by the Financial Rights Legal Centre, this may have a perverse impact on those families and businesses that are coming to terms with the financial consequences of the bushfires.

Many banks are offering assistance packages to those who may be unable to meet their financial obligations in the short-term. However, those individuals who then access any assistance will have a hardship brand on their credit report, and that hardship information will remain on their credit report for a period of 12 months, notwithstanding their financial difficulties may only have been for a few months or even, indeed, weeks. As a consequence, individuals may be forced to seek out riskier forms of credit such as high-cost payday loans, which are trapping Australians in a cycle of debt. Similarly, as individuals in hardship are unfairly rejected for credit, there may be no other option for those experiencing financial hardship than to turn to those payday lenders and consumer leases to secure the goods they need to recover from the recent bushfires. This will make getting out of the poverty trap, out of the debt trap, even more difficult.

In relation to payday lenders and consumer leases, I again note that there have been over 1,000 days since the government accepted the independent Review of Small Amount Credit Contracts and that the government is still yet to introduce legislation to address all of the recommendations of the SACCs review. I therefore move the following amendment in the terms circulated in my name:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House notes with concern that:

(1) the retention of hardship information on individuals' credit reports for 12 months is unfair and will discourage people from seeking help from credit providers;

(2) this bill may encourage people to seek out riskier forms of credit, such as high-cost payday loans that are trapping Australians in a cycle of debt; and

(3) it has been over 1,000 days since the Government accepted the recommendations of the independent Review of Small Amount Credit Contracts but the Government is yet to introduce legislation to address these recommendations.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Helen Haines (Indi, Independent) Share this | Link to this | Hansard source

I'm pleased to second the motion and I reserve my right to speak.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Mayo has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.