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.
As we've heard, the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 will require banks to provide more information about the credit history of their customers to credit bureaus. The theory is that credit bureaus will be able to better inform banks about a potential new customer's creditworthiness. Therefore, banks are more likely to provide loans or to not provide loans appropriate to a customer's circumstance. Currently banks are required to report negative data about customers to credit bureaus—that is, payment defaults, bankruptcies and court judgements for example. This bill would require banks, starting with the major banks, to report positive credit data—that is, loan details and repayment history for example.
This bill implements the recommendation of the 2014 Murray financial system inquiry that positive credit reporting should be mandated, if banks don't do it voluntarily. And, completely unsurprisingly, banks haven't done it voluntarily. The Murray inquiry stated that comprehensive credit reporting would reduce information imbalances between lenders and borrowers; facilitate borrowers switching between lenders and greater competition; likely improve credit conditions for borrowers, including small and medium-size businesses; and reduce the likelihood loans will default.
In Australia the promise of comprehensive credit reporting fits within the framework established by the National Consumer Credit Protection Act. By giving banks access to more complete information about a potential customer, comprehensive credit reporting should better enable banks to meet the requirements of the act—namely, that they assess whether a loan would be unsuitable for a customer before providing it. However—and there is so often a 'however' with this government—the trouble is that this government is systematically trying to dismantle the very framework of consumer credit protection that this bill is built onto. At the very same time that the Senate is being asked to mandate the sharing of customer information so that banks can better assess the suitability of a loan, this government is seeking to abolish the requirement that banks must assess the suitability of a loan.
Here's the Treasurer, Mr Frydenberg, on introducing this bill:
Credit providers will have a more complete picture of a consumer's financial situation. This will help them to better price credit and meet their responsible lending obligations.
That's the Treasurer explaining in the other place how this bill will help banks meet their responsible lending obligations.
Those are the very same responsible lending obligations that the Treasurer is now trying to abolish. Those are the responsible lending obligations that the then assistant minister to the Treasurer, Mr Sukkar, when introducing the original version of this bill into the 45th Parliament, said 'are an important part of consumer protection arrangements'. These are the responsible lending obligations that Commissioner Hayne said should not be amended, in recommendation 1.1 of the banking royal commission that the government under former Prime Minister Turnbull was dragged kicking and screaming into proposing and supporting because former Prime Minister Turnbull had lost the numbers on the floor of the House and could not guarantee that the House would not impose that banking royal commission, against the wishes of the Prime Minister and the government.
I can tell you now exactly what the government's going to get up and say. They're going to try and spin recommendation 1.1 to mean something that Commissioner Hayne did not mean it to mean. That's what they're going to do; I've heard it before, and we're all about to hear it again. I counsel people who are listening to this to understand that Commissioner Hayne's primary recommendation out of the banking royal commission that exposed systemic criminal conduct by our banks—a culture of greed, a culture of profit over everything—said, 'Do not change responsible lending obligations.' The ordinary English language meaning of those words is now being ignored by the government, and they are doing exactly what Commissioner Hayne recommended they not do. They couldn't make the banks abide by the law, so they're changing the law to abide by the banks—their corporate mates.
This is a government of shields for big corporate donors. The dirty, corrupting influence of political donations is writ large in so much of what this government does. Those responsible lending obligations that the government is trying to abolish, if they are properly enforced, are what stand between the banks being held to the service of their customers and the broader public, and they are what prevent the banks from basically becoming loan sharks. But this government wants to enable the banks to become loan sharks, because that will increase the profits of the big corporate banking sector in this country. Whatever value there is in introducing comprehensive credit reporting, it is being completely undermined by this government's attempts to repeal responsible lending laws.
This might look like completely incoherent policy making. I'm sure that's how it looks to a lot of people, but it's actually far more cynical than simple incoherence and incompetence. When you understand that this is a government of its mates, by its mates, for its mates, then this apparent incoherence actually makes perfect sense. It makes perfect sense when you see it through the prism of the latest donations data that's just been released this week. It shows that all the major banks are now back in the game. NAB and ANZ both took a hiatus in recent years under the pall of the royal commission and a momentary need to not look like the puppet masters that they are. But they're now back in the game; that facade is gone. In 2019-20, all big four banks donated. In fact, in total they donated $280,000 to the LNP and $260,000 to the ALP. Over half a million dollars was donated by the major banks to the major parties, basically with a fifty-fifty split—that is the very definition of hedging by the big banks. And it's working for them. Whatever needs to be done to keep the banks happy, this government will do. Political donations in this country are nothing more than legalised bribery. For this government to deliver for their corporate puppet masters, their corporate donors, if it means abandoning the first and primary recommendation of the royal commission under the cover of a pandemic, then that's exactly what they're going to do and, in fact, that is exactly what they are doing.
Beyond the interaction with responsible lending obligations, the Greens have concerns with some of the functioning of this bill, namely how information is being portrayed and consumer access to the information. To that end, we'll be supporting the government's amendment that places conditions on the provision of information related to hardship conditions entered into between a customer and their bank and requires credit bureaus to provide customers with their credit rating.
In respect of credit reports, the government's amendment is a watered-down version of an amendment circulated by Senator Whish-Wilson to the original version of this bill. The Greens would have preferred the use of the term 'credit derived information' to be clear that credit bureaus should give customers any and all interpretations of their credit data. It's unclear whether the government's amendment as worded will ensure customers see exactly what the banks see. The importance of providing customers with access to their credit scores was highlighted in 2018 when Equifax was handed a $3.5 million fine by the Federal Court for misleading, deceptive and unconscionable conduct. Equifax told consumers that the credit score that customers paid for was the same credit score used by banks, but that was not always the case. Equifax was not giving the same information to consumers about themselves that they were giving to the banks.
This gets us to a broader issue that the Australian Greens have, which is who this information being given to and who it's not being given to. This bill will require the data on tens of millions of Australians to be given to three multinational credit bureaus—Equifax, Experian and illion—whose business models are to derive credit scores for sale to banks. As was demonstrated by the Federal Court finding against Equifax, these multinationals are not particularly interested in helping consumers; they're simply interested in making obscene profits. Neither have they shown any particular interest in protecting consumers' privacy. In 2017, Equifax suffered a security breach in which the data of up to 143 million US citizens was compromised. In some ways, both of Equifax's transgressions are what you might expect when multinational private entities have a regulated oligopoly from which to profit. They've got the market sewn up around the world, so why would they care about their consumers and the public good?
There is an alternative, of course. A number of European countries have a public credit register. France, Italy, Belgium, Spain, Portugal and Slovenia have public credit registries that play a major role in collecting and collating credit information. These public credit registers are subject to parliamentary oversight and are a source of de-identified data for governments and financial regulators to help inform their understanding of financial markets and of the broader economy.
It's no surprise that the government are advocating a market based solution to a market based problem. That's what they always do and it's what they tell us they stand for. But when considering how to provide a universal system for collecting, storing and sharing consumer banking data we will be much better served by a public provider whose role is to clearly act in the interest of consumers and the wider public.
Faced with a choice between the status quo or this bill the Australian Greens will support this bill, assuming that the government's amendment succeeds. But this support is based on the assumption that this bill will improve the functioning of the existing consumer credit protection framework.
On that basis, I move the Greens second reading amendment on sheet 1190:
At the end of the motion, add: ", but the Senate:
(a) notes that:
(i) when introducing this bill on 5 December 2019, the Treasurer, the Hon Josh Frydenberg MP, said in his second reading speech that with this legislation "credit providers will have a more complete picture of a consumer's financial situation [which] will help them to better price credit and meet their responsible lending obligations",
(ii) with its National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, the Government is seeking to repeal legislated responsible lending obligations from the National Consumer Credit Protection Act 2009 (the NCCP Act), and
(iii) in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry report, which was released on 1 February 2019, Recommendation 1 stated that "the NCCP Act should not be amended to alter the obligation to assess unsuitability", which was accepted by the Government; and
(b) calls on the Government to honour its acceptance of Recommendation 1 of the Royal Commission and withdraw its National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020".
I thank Senator McAllister for indicating that the Labor Party will be supporting that amendment. That amendment, in brief, highlights the Treasurer's statement that this bill will make it easier for banks to meet their responsible lending obligations and ensure that loans are not unsuitable for customers. It also highlights recommendation 1.1 of the Hayne royal commission into banks that those responsible lending obligations should 'be enforced as they stand'. It highlights the rampant hypocrisy of this government and its flagrant rejection of the primary recommendation of the Hayne royal commission.
I make the point that the government was dragged kicking and screaming into that banking royal commission. I want to acknowledge the work that my friend and colleague Senator Whish-Wilson did on that campaign. If there is one person in this place that the Australian people should be thanking for the banking royal commission that exposed such criminal conduct, rampant greed and toxic culture in the banking sector in this country, it is actually Senator Whish-Wilson. I urge the Senate to support the second reading amendment to highlight to the government that the passage of this bill makes the case for abolition of responsible lending obligations all the more ridiculous.
Firstly I would like to thank those senators that have contributed to this debate. The National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 will implement the government's mandatory and comprehensive credit reporting regime, delivering benefits to lenders and borrowers alike. This important reform will require our largest banks to participate fully in the credit reporting system and provide clarity on the treatment of financial hardship information. The mandatory credit reporting regime will provide more Australians with better access to credit, will enable credit providers to make better informed lending decisions and will drive more competition in the lending market. The bill will deliver these benefits while also maintaining and strengthening important security and consumer protection.
Schedule 1 of this bill requires the largest banks to provide comprehensive credit information on all accounts to credit reporting bodies by September 2022. It includes provisions to ensure the security of consumer credit information and obliges credit reporting bodies to share credit score ranges and methodologies when requested by consumers, who will now also be able to seek this information more frequently.
Schedule 2 addresses concerns raised regarding the treatment of financial hardship information. It provides the legal certainty for credit providers to disclose this information and ensures that consumers will not be unfairly disadvantaged by this change by placing restrictions on the use of hardship information. With the implementation of this regime, customers with a good credit history will be better placed to shop around and to be able to obtain lower rates because their credit history will be available to all credit providers. Consumers who may have poor credit ratings will get a better chance to demonstrate their creditworthiness through their future reliability. Credit providers will also see benefits, having access to a more complete picture of a consumer's financial situation, and this will help them to better price credit for the consumer. The regime will drive competition in the lending market. With access to this data, smaller providers, including new entrants and innovative fintech firms, will be much better able to access creditworthiness and compete for customers.
Just on the second reading amendment moved by the Greens, from a government perspective, this second reading amendment is little more than a pious amendment. It would have no practical effect on the legislation if passed. In fact, the amendment that has been moved is criticising a completely unrelated piece of government legislation, which is the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, which will simplify Australia's credit framework and support the flow of credit to the Australian economy. So the amendment doesn't go to the substance of the bill; rather it goes to a bill that is currently before the Senate economics legislation committee.
Despite the rather noisy assertions of Senator McKim, the government has certainly not reneged on its acceptance of the recommendation of the financial services royal commission. Recommendation 1.1, Senator McKim, states that the NCCP Act should not be amended to alter the obligation to assess unsuitability. This relates specifically to representations that were put to Commissioner Hayne that the relevant test under responsible lending laws should be amended so that it requires lenders to determine that a loan is suitable, as opposed to the current test, which requires lenders to determine that a loan is not suitable. With respect to the recommendation, Commissioner Hayne noted:
Consumer advocacy groups urged me to recommend that the NCCP Act be amended to require lenders to determine whether a loan contract (or credit limit increase) was 'suitable' for the consumer (as distinct from 'not unsuitable'). I do not favour that proposal.
That was said in the Final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on page 59. You have cherrypicked your information. The government remains wholly committed to implementing all of the financial services royal commission's recommendations. The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 will simplify Australia's credit framework and support the flow of credit to the Australian economy, and that bill will appropriately be considered by this chamber at the appropriate time when the committee has reported. This bill before us today is about mandatory credit reporting, not the framework and the flow of credit. I commend the bill to the Senate.