How big data is helping Aussie consumers get a better deal
Comprehensive credit reporting (CCR) is a boon for consumers, and the banks are leading the way.
CCR has been drip-fed to Australian consumers over the last five years. It was first introduced on a voluntary basis in 2014. A CCR bill was introduced to parliament in 2018 but never progressed into law due to the Federal Election.
The government had been hoping to bring to parliament this year, but again it's been shelved.
Not that it matters. The big four banks completed migration to the new CCR system ahead of any legal requirement to do so, with about 80% of all mortgages and 60% of all personal loans now on the system.
Credit reporting was previously a 'negative system', meaning only credit defaults would be recorded.
The new system, by contrast, will include full repayment histories and other details such as loan size, allowing consumers to build a fairer credit profile with positive transactions. In the same way, more well-rounded credit profiles will boost responsible lending.
The new system also boosts competition, another win for consumers. Fintechs, neobanks and smaller mutual banks now get to see the payment history of major bank clients.
Yes, the new system means more data is available to lenders, but only under certain conditions, thanks to Australia's strict privacy laws. This is a far cry from a Wild West scenario where data is up for sale to the highest bidder.
"Your credit report isn't a public document, it's a private document," says Mike Laing, CEO of the Australian Retail Credit Association.
Laing says there are only three circumstances when the credit report is viewed:
1. When the consumer wants to see it;
2. When a consumer goes to a lender to apply for a loan, at which point a lender can view the report;
3. If a consumer has a loan, misses payments and is under threat of defaulting. This then permits other lenders to view the credit profile.
Credit bureaus do sell credit files to lenders, but banks and other lenders do not sell between themselves.
Once a month, lenders update credit information to one of the three national credit bureaus - Equifax, Experian and illion.
This new system, though a marked improvement on the old one, does not mean consumers should take a hands-off approach to their credit profile.