Wednesday, 3 February 2021
National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019; Second Reading
I rise to speak on the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019. At the outset, I can confirm that Labor will be supporting the bill alongside the constructive amendments being proposed by the government to improve the bill. This bill legislates the requirement for major banks and credit providers to make available detailed credit information to credit-reporting bodies, with the aim of supporting credit providers to better meet responsible lending obligations. It also provides protections for consumers to ensure that the supply of credit information isn't abused by unscrupulous operators within the sector.
Schedule 1 will require the major banks to supply detailed credit information to credit-reporting agencies, and it's worth noting that this element of the bill will have no immediate effect, because all eligible major banks already supply detailed credit information to the agencies. Schedule 2, however, sets out new standards for how people in financial hardship should be treated by the credit-reporting agencies. The new standard will create two categories of hardship flags that may be placed into the credit reports of individuals. The distinction between these two categories is that the hardship flags will set out whether the individual has a permanent variation or a temporary variation to their credit obligations. As I will talk about later in my remarks, this distinction is important for the protection of consumers.
Broadly, credit reporting matters. It's a procompetitive measure, and it supports competition in the financial industry. In particular, it allows smaller banks and lenders who do not have access to significant amounts of financial data to make better lending decisions. The credit-reporting system must be, however, as transparent as possible so that consumers can access, understand and seek corrections of their credit-reporting history. The current framework in the Privacy Act does not adequately support transparency of credit-reporting information. Individuals are only allowed to access a free copy of their credit information once every year or in other very specific circumstances. Credit-reporting agencies have also used loopholes in the Privacy Act to refrain from disclosing credit scores. As a result, these agencies have developed a very profitable side business in selling individuals access to their own data, their own personal credit history. Labor believes that individuals should have access to their individual information and that that access should be timely.
I mentioned earlier that this bill establishes flags for people who are experiencing financial hardship, and they will be placed into the credit reports of individuals. These hardship indicators are important. They will better distinguish between customers who are experiencing long-term hardship and require a permanent variation to their credit obligations and customers who experience a temporary variation to their credit obligations. This will be an incredibly important consumer protection. It will allow customers the space to access hardship provisions without undue fear that their credit rating will be negatively affected into the future. By allowing customers access to these more nuanced provisions, the bill seeks to ensure the continued flow of credit in the community and in the economy and to allow customers to access legitimate hardship provisions before their financial situation deteriorates beyond repair.
The real thing is this: many people do experience hardship, but, if they are given temporary support by their lender, they are able to work their way through situations in life where they experience such hardship. But, once they are out of that situation, the hardship classification should not last forever on their credit file. Addressing this requirement will remove barriers that inhibit customers from accessing hardship provisions. It'll be better for credit providers and for customers. It will allow credit providers to receive the money they are rightfully owed and will ensure that customers continue to make repayments within their means.
We can consider an example of this kind: if a person with a credit arrangement with their bank loses their property and their business as a result of a bushfire—and I've met a person in exactly this circumstance—this person will experience a period of immense and, frankly, tragic hardship. They will experience a period of time out of work or with disrupted income flows. The lender is aware of the circumstances that've caused this situation. They understand that the person has been affected by circumstances well beyond their control. The person goes to the bank and says, 'I need a holiday on my repayments because of this hardship.' The bank agrees and puts in place an informal suspension of repayment requirements. For the most part that suspension will not constitute a variation to the credit contract so the credit contract with the bank remains in place, but there is an informal agreement between the bank and the creditor. At the moment, the hardship's flagged within the bank system but it's not passed on to the credit reporting agency. What is passed on is the repayment history and what the repayment history shows without the additional piece of information is that the repayment history has been interrupted. The problem is this: that informal arrangement creates a situation where information is passed on to the national reporting agency that affects the customer's credit score but doesn't really reflect their actual financial circumstances. It's inaccurate, it's unfair and it's something we need to deal with.
It's disappointing, given the disruptions caused to so many people's lives as a result of the 2019-20 summer bushfires, that it's taken this long for the legislation to come before the Senate. It's high time that the parliament ensures that an initial hardship, visited on somebody as a result of an occurrence like a natural disaster well beyond their control, isn't compounded by the fact that they have a hard to repair interruption to their repayment history information. Labor wants that fixed.
As I mentioned earlier, access to information is also critical. Labor believes there is a need to ensure that the current credit reporting arrangements allow more frequent and more detailed access to information for consumers. We want to ensure that consumers have access to the information that relates to them. There are two reasons. Firstly, it's their information. There might be errors in that information or the need for them to repair some of that credit history information. Secondly, it's an information asymmetry. Quite often, if someone is going to take out a new loan or apply for the refinancing of a loan, the bank has access to the information but the individual consumer may not. We want to ensure that in those circumstances they have access.
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. 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. As a result, credit reporting agencies have developed quite a profitable side business charging customers to access their own personal credit history.
We support amendments that will allow individuals to access a copy of their credit information held by a credit reporting agency. These changes will require derived or generated credit scores to be disclosed to individuals as part of their right to access their own credit information. They will require the individuals to receive a statement, summarising the key determinates of their credit score, as part of their right of access to credit information. These propositions are strongly supported by consumer advocates.
It's worth pointing out that similar provisions currently exist in New Zealand and have done nothing to undermine the capacity of credit providers to offer services. We don't believe, on the information that's available to us, that the provisions will impose any significant new cost on the credit reporting industry. However, they will provide additional rights to consumers and additional competition benefits to the sector as a whole.
Labor proposed amendments to the bill to improve transparency of the credit reporting system. We've had a constructive dialogue with the government and we welcome their willingness to bring forward these amendments in the Senate and thank them for their accommodation of these sensible proposals. As I have already alluded to, these amendments strengthen this legislation by allowing individuals to access a copy of their credit information, held by a credit reporting agency, for free every three months and requiring the derived or generated credit scores to be disclosed to individuals as part of their right to access credit information. We also require a statement to be provided to individuals that summarises the key determinates of their credit score, as part of their right to access credit information. Consumer advocates are strongly in support.
I do want to make a comment in relation to the second reading amendment that I believe will be moved by Senator McKim. It goes to another piece of legislation and makes reference to the government's baffling decision to remove incredibly important lending protections for consumers. The Liberal Party have never been in favour of a financial system that serves Australia. Their highest priority, as evidenced over years and years and years of public statements and policy decisions, has been in favour of a financial system which serves the interests of their mates in the big banks. It's the only way to explain voting 26 times against establishing a royal commission. They have never had a vision beyond what their mates in the banking sector tell them over a very nice lunch. The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill—an Orwellian title if there ever was one—will strip back responsible lending obligations from almost all consumer credit contracts. It is quite unbelievable that they would have the audacity to bring forward legislation of this kind after the information that was made public, the scandals that were made public through the banking royal commission.
Indeed, the legislation goes directly against the first recommendation of the royal commission, which explicitly told the government not to fiddle with the responsible lending obligations. These obligations were put in place by Labor in 2009 to ensure that banks and lenders made sure their credit products were suitable for their customers. They were designed precisely to prevent the sort of behaviour that we saw in the global financial crisis. And this bill is nothing less than a free kick for the big banks, stripping away necessary protective legislation just to save a few bucks on paperwork. It will also undermine the credit reporting system we're talking about today, a system which we support and which is intended to help banks lend responsibly. And in supporting the amendment that will be moved by Senator McKim, we want the government to know that the Australian people don't want them to give the banks another free kick.
As I said, we're in support of the legislation before us today. It was first proposed in the last parliament. It has been sitting in the current parliament for over a year. Like most things this government is seeking to do, it progresses with no real urgency. But Australians experiencing financial hardship will benefit from these reforms, which allow them more access to their own information and ensure that they're not tied to periods of financial hardship in credit reporting systems for any period longer than is absolutely necessary. I commend this bill and the amendments that will be proposed by the government to the Senate.