Proposed comprehensive credit reporting rules under fire

The credit reporting industry is divided over the finalisation of key comprehensive credit reporting operating rules, with the two largest credit bureau operators arguing that there are serious flaws in the proposed rules.

The Australian Competition and Consumer Commission has published industry submissions in response to an application by the Australian Retail Credit Association for authorisation of the Principles of Reciprocity and Data Exchange - a cornerstone of the comprehensive credit reporting regime.

Under the comprehensive credit reporting changes introduced last year, the range of data that credit providers could provide to credit reporting bureaus was expanded to cover such things as a borrower's repayment history.

The industry's self-regulatory body, ARCA, developed a Credit Reporting Privacy Code and a data standard. The final piece of the puzzle, the Principles of Reciprocity and Data Exchange, was submitted to the ACCC for authorisation in February.

ARCA's application to the ACCC for authorisation of its PRDE was made almost 12 months after the new regime took effect. The industry body's tardiness in fulfilling its self-regulatory obligations has never been properly explained and now threatens to be a major embarrassment to the industry, given the opposition to its proposals from key players and the potential for further delay.

The main element of the PRDE is the reciprocity obligation, where signatories to the comprehensive scheme (which is voluntary) agree that only those credit providers supplying comprehensive data can have access to comprehensive data.

Another important element of the PRDE is the consistency obligation, which says that credit providers must deal with bureaus on a consistent basis.

A third key element is that signatories accept that sanctions apply for non-compliance.

Most of the submissions to the ACCC supported the PRDE but there were a couple of important exceptions.

Australia's biggest consumer credit bureau operator, Veda, said it was opposed to some of the more prescriptive elements of the PRDE.

Clause 15 requires that a subscriber credit provider engaging in comprehensive reporting supply the same level of data to all bureaus with which it has service agreements.

Veda's submission said: "The consistency provisions of the PRDE, which compel credit providers to contribute data at the same level to all credit reporting bureaus they have a service agreement with, may mean that small credit providers do not participate in comprehensive data sharing at all."

The Customer owned Banking Association was also concerned about the consistency obligation. It said that Clause 15 would impose additional costs on small credit providers. Some small lenders have a data interface with one bureau and use a portal for access to a second back-up bureau.

COBA said: "These credit providers would be unable to participate in comprehensive credit reporting without incurring significant development costs to establish additional interfaces."

The other substantial consumer credit bureau operator, Dun & Bradstreet, had a concern with a section of the PRDE (Principle 2) that says: "It is necessary to be a PRDE signatory in order to exchange PRDE signatory consumer credit liability information and repayment history information with other PRDE signatories… A credit reporting bureau may receive contributions of partial information or comprehensive information from a non-signatory credit provider, and a bureau may also supply partial information or comprehensive information to a non-signatory credit provider. However, a bureau must not supply signatory credit provider partial information or comprehensive information to a non-signatory credit provider."

Dun & Bradstreet said this would result in exclusive data sharing agreements and the establishment of closed user groups applying their own standards and principles of data exchange.

"Credit providers and credit reporting bureaus must be required to be signatories to the PRDE before participating in the exchange of comprehensive credit information. Without this requirement, exclusive arrangements for data exchange can and will exist," Dun & Bradstreet said.

On a more general note, the Australian Financial Conference said the comprehensive credit reporting regime was becoming too complex and too prescriptive, which could deter participants.

The scheme includes the credit reporting provisions of the Part IIIA of the Credit Act, the Credit Reporting Privacy Code, PRDE and the data standard.

Veda also took up this theme, saying ARCA's approach to rules was too prescriptive and would benefit from moving to the more principles-based approach that applied in New Zealand and the United Kingdom.