The Treasurer announced on 2 November 2017 that the government intended to legislate for a mandatory comprehensive credit reporting regime to come into effect by 1 July 2018 (see: Governance News 6/11/2018).  On 8 February, the government released the exposure draft legislation (National Consumer Credit Protection Amendment (Mandatory Comprehensive Credit Reporting) Bill 2018) and accompanying explanatory material for consultation.  The closing date for submissions is 23 February 2018.

Key Points

The Treasurer has described the draft Bill as 'a game changer for consumers – leading to better deals on mortgages, personal loans and small businesses loans' as positive information (as opposed to only negative information) will be reported.

The draft Bill proposes to (among other things):

• Amend the National Consumer Credit Protection Act 2009 (Credit Act) to mandate a comprehensive credit reporting regime.

• Require large Authorised Deposit Taking Institutions (ADIs) (banks) and their subsidiaries (who hold an Australian credit licence) to provide comprehensive credit information on open and active consumer credit accounts to certain credit reporting bodies from 1 July 2018.

• Expand ASIC’s powers so it can monitor compliance with the mandatory regime.

• Impose requirements on the location where a credit reporting body must store data.

Further detail

• Mandatory Credit Reporting Regime: The draft Bill proposes to amend the National Consumer Credit Protection Act 2009 (Credit Act) to establish a mandatory comprehensive credit reporting regime which will apply from 1 July 2018.  The explanatory memorandum notes that the proposed amendments 'do not require or allow disclosure, use or collection of credit information beyond what is already permitted under the Privacy Act and Privacy Code'.

• Application: The mandatory regime, if enacted, would apply to ‘eligible licensees’ (large Authorised Deposit taking institutions (ADIs) (Banks) and their subsidiaries that hold an Australian credit licence).  The draft explanatory memorandum states that an ADI is considered large where its total resident assets are greater than $100 billion. Other credit providers will be subject to the regime if they are prescribed in regulations.  The draft explanatory memorandum states that the 'concept of a "large ADI" relies on the legislative instrument made under the Banking Act 1959 as amended by the Treasury Laws Amendment (Banking Executive Accountability Regime) Act 2018.  The draft explanatory memorandum adds that a subsidiary is defined with reference to the definition included in the Corporations Act 2001.

• Implementation: If enacted, the draft Bill would require the major banks to supply 50% of their comprehensive credit reporting data to credit reporting bodies by 1 July 2018, increasing to 100% a year later.  The Treasurer noted that a 90 day transitional period is included in the draft legislation to give the major banks time to meet these deadlines.  The Treasurer noted that 'All of the four major banks have publicly volunteered to commit to contributing their credit data in the coming months'.

• Requirement to keep the information up to date and accurate: The draft Bill proposes that credit providers have supplied credit information under the mandatory regime will also be required to keep the information up to date and accurate, including by supplying information on eligible accounts that are subsequently opened. 

• ASIC will monitor compliance: The draft Bill proposes that The Australian Securities and Investments Commission (ASIC) will be responsible for monitoring compliance with the new regime.

• New penalties and offence provisions: The draft Bill proposes that new civil penalties and offence provisions be included in the Credit Act where a licensee or a credit reporting body does not meet the obligations imposed by the mandatory regime.  These include the following.

  • ASIC may seek a civil penalty where an eligible licensee fails to supply credit information as required under the mandatory regime.

  • ASIC may seek a civil penalty where a credit reporting body does not disclose information (or discloses information when it should not) that it has received under the mandatory regime.

  • A civil penalty must be imposed by a court. The maximum penalty that can be applied is 2,000 penalty units if the person is a natural person (currently $420,000) and 10,000 penalty units if the person is a body corporate (currently $2.1 million).

  • ASIC may also seek criminal offences if either a credit provider or credit reporting body has breached a requirement under the mandatory credit reporting regime.

  • The maximum penalty that can be applied is 100 penalty units (currently $21,000).

  • The draft explanatory memorandum notes that the government plans to make a regulation to enable ASIC to issue an infringement notice as an alternative to pursuing civil or criminal proceedings in court. 

• Security of data: Credit reporting bodies will also have a new obligation placed on them as to where consumer credit data can be stored.

• The regime is limited to the major banks but may be extended in future: The Treasurer stated that 'at this point in time', the requirement to participate in comprehensive credit reporting will not extend beyond the major banks due to the 'strong commercial incentives that will encourage other lenders to participate in supplying and consuming comprehensive credit reporting data, once the major banks participate' (ie to access the information, providers will have to voluntarily participate in the regime). The draft legislation, the Treasurer added, includes the power to extend the mandate to include other credit providers in the future if needed.

ARCA has welcomed the release of the draft legislation: The Australian Retail Credit Association (ARCA) has issued a statement welcoming the 'certainty provided by the Federal government's release of draft legislation enabling a mandatory comprehensive credit reporting regime'.   The statement adds that comprehensive credit reporting has been 'globally recognised for increasing the availability and affordability of responsible credit to borrowers. Positive information, which includes information about on-time loan repayments, will improve the ability of credit providers to assess a consumer’s true credit performance and make better lending decisions. CCR is also an important tool for consumers to take control of their credit reputation'.

ARCA Executive Chairman Mike Laing commented: 'The draft legislation will allow industry to transition to comprehensive credit reporting with confidence.  We welcome that the legislation makes it clear that industry will lead and administer the data sharing framework. We are especially pleased to see the industry developed principles of data sharing embedded in the legislation'.

Background

• Since March 2014, the Privacy Act 1988 (Privacy Act) has allowed credit providers and credit reporting bodies to use and disclose ‘positive credit information’ or ‘comprehensive credit information’ about a consumer including information about the number of credit accounts a person holds, the maximum amount of credit available to a person and repayment history information.  However, it does not mandate the disclosure of comprehensive credit information by credit providers to credit reporting bodies.

• In the 2017-18 Budget, the Government committed to mandating a comprehensive credit reporting regime if credit providers did not meet a threshold of 40 per cent of data reporting by the end of 2017.  

• The draft explanatory memorandum notes that the proposed mandatory comprehensive credit reporting regime is consistent with the recommendations of both the Financial System Inquiry 2014 (Murray Inquiry) and the Productivity Commission Inquiry into Data Availability and Use that the government legislate in the absence of voluntary participation.  The regime is hoped to foster competition.

• The AFR reported at the time of the Treasurer's November announcement, that mandating comprehensive credit reporting would be widely welcomed by fintechs seeking to compete with the major lenders on the basis that it would enable them to see 'good credit histories' as well as negative.