New credit law would make life harder for bushfire victims
The bushfire crisis ravaging the country has thrown thousands of Australians into untold financial hardship.
For many victims, financial hardship arrangements with banks or other credit providers will be a necessary way to navigate the road to recovery. Yet new legislation is set to put financial hardship agreements on credit records, threatening people's capacity to borrow.
The new Mandatory Credit Reporting law will require the major banks to supply six types of information:
1. loan details/loan type (e.g. home loan, credit card);
2. amount of loan, whether the person is the borrower co-borrower or guarantor;
3. who the loan is with;
4. whether the account is open or closed;
5. Repayment history information: repayment history of the loan for the previous two years
6. Financial hardship information, which will indicate whether the customer has entered either a permanent variation or temporary relief from payment obligations on grounds of hardship. This information will be retained for 12 months.
The first five requirements are already par for the course - banks have been allowed to supply this information on a voluntary basis since 2014.
But if the law passes when Parliament is back in session in February then banks will be required to supply the first five new types of information from April 1, 2020, and financial hardship information from April 1, 2021.
It's the sixth requirement of financial hardship information, in combination with repayment history information, which rocks the boat.
If you miss repayments, the repayment history information on your credit record will reflect the number of months in default.
However, if you talk to your lender and explain you are in hardship and they agree to a change in your obligations, the repayment history information won't be impacted but the financial hardship information will reflect the agreement for a year.
Whether repayment stress is reflected in one set of information or another on the credit history seems inconsequential.
It's there, for both existing and potential credit providers to see.
The changes have drawn the ire of the Financial Rights Legal Centre.
"We strongly believe including financial hardship information in credit reports will lead to fewer consumers proactively talking to their lenders when they need hardship assistance," says CEO Karen Cox.
"This will undermine a decade of hard work and success in cementing good hardship practices."
The changes couldn't come at a worse time.
"In this current bushfire crisis the last thing people need to worry about is what is going to go on their credit reports," says Cox.
"Banks are offering very generous assistance to their customers that have been affected and we want consumers to get in touch with their banks and make arrangements ASAP.
"Once this law passes, asking your bank for a pause on your repayments to give you some breathing space after a bushfire will result in a hardship brand sitting on your credit report for 12 months (or longer)."