Submission - Credit Reporting Regulatory Framework: Submission to ALRC Privacy Inquiry (December 2007)

2.13. Amount of content in credit reports

[ Galexia Dots ]

This section discusses the full range of options for regulating the amount of information that can appear in credit reports, including positive/negative reporting, comprehensive reporting, compromise positions etc. This is the most contentious area of credit reporting regulation in Australia.

The potential consumer harms related to the amount of content in credit reports include both privacy and general consumer harms.

Privacy issues arise because the amount of data collected and stored in a central location represents a significant privacy risk, and the amount of data therefore needs to be justified on public benefit grounds and/or balanced by other privacy protections.

Consumer issues arise because the amount of data collected is fundamentally linked to industry conduct in relation to responsible lending and responsible credit marketing.

2.13.1. Background

For many years, industry representatives have sought an expansion of the amount of content that can be included in a credit report. Proposals have ranged from limited expansion / more comprehensive reporting to full / positive reporting. The long history of these attempts are described in detail in by the ALRC in DP72 and do not need to be repeated in this Report. Privacy and consumer advocates have consistently opposed such proposals.

A good summary of the entrenched positions is provided by the Senate Economics Committee:

The [industry submissions] put the view that a change in the type of information that consumer credit bureaus can hold will have a positive impact on manageable levels of household debt in Australia and will lead to a more efficient allocation of financial resources. Proponents also maintain that this change would lead to sounder lending practices, particularly in relation to credit cards.
On the other hand, consumer advocates are concerned that industry calls for positive credit data are based on self-interest and if successful will lead to more opportunities for the industry but will not increase prudent lending, nor decrease default rates. Furthermore, they argue that the industry has not operated a fair and accurate limited credit reporting regime to date and existing problems can only be made worse by increasing the amount of information that the industry is permitted to gather.[36]

As all previous attempts at expansion have failed, the ALRC inquiry presents a significant opportunity to attempt reform. DP72 contains a proposal that is best described as a compromise position - a limited expansion of content is proposed under the banner ‘more comprehensive reporting’. New allowable content would include the details of accounts opened and closed and the credit limits that apply to those accounts. No balance information would be included and derogatory information would continue to be restricted to defaults, bankruptcies and serious credit infringements.

The ALRC suggests that this compromise position will provide some improvements in the predictive capability of the data for the benefit of future credit providers, without leading to an unreasonable intrusion into the affairs of individuals:

This extension of the current reporting system has some support from both industry and consumer groups. Importantly, credit providers would have access to more information about an individual’s current credit commitments to assist in promoting responsible lending. The proposed extension in credit reporting information would provide much of the additional predictiveness desired by proponents of more comprehensive reporting.[37]

However, the response to this compromise proposal has been mixed. While there appears to be some individual pockets of support, the broad grouping of industry representatives (under the banner of ARCA) opposes the proposal. They argue that the predictive benefit of this incremental expansion will be outweighed by the costs of implementation.

At the core of industry concerns is the absence of payment history – as this is potentially a useful tool in predicting creditworthiness:

In the USA, the FICO [Fair Isaac Corporation] scoring model[38] rates payment history and amounts owed as the two most important attributes influencing the score result, weighting them at 35% and 30% respectively. These two information sources are not available in Australia under the current negative only regime.[39]

ARCA has made a counter-proposal, submitting that in addition to the ALRC proposed data, some limited information on repayment history, covering a period of only two years and expressed in general ratings, should be included. It is important to note that some industry representatives, including ARCA members, continue to express support for full/positive reporting, while supporting the ARCA counter-proposal as an initial step towards that goal.

2.13.2. The economic/public benefit debate

One key aspect of the debate is that Australia is in a minority of countries that have restricted / negative credit reporting. This issue dominates industry submissions for reform across multiple inquiries. However, Australia appears to be in relatively sound company – the other countries in this minority are France, Spain and New Zealand. All four countries have mature privacy legislation, democratic freedoms, market economies and highly educated populations. All four countries are extremely wealthy with large, modern, stable economies, and low rates of default on credit products.

Nevertheless, industry insists that Australia and the other countries in this minority are missing out on the benefits of comprehensive reporting enjoyed by the majority:

Neither of the objectives of free flow of information and ensuring consumer data protection are served by a regulatory system that is allowing negative reporting only. A system that includes both types of data has the ability to provide the best information to lenders in order for them to make a lending decision.[40]

However, this Report question both the relevance and significance of these arguments once the broader economic context of credit reporting is considered.

It is important to note that in Australia the following factors are all relevant:

  • Default rates in Australia are low;
  • The impact of credit reporting on default rates is marginal when compared with other factors;
  • The costs of credit risk are already covered;
  • The financial services industry is extremely profitable; and
  • Ultimately responsible lending may or may not be influenced by credit reporting, as there are no responsible lending obligations in Australian law.

This last issue is not usually discussed in international comparisons, but some brief research has indicated that some key jurisdictions that allow positive credit reporting, including the UK and the US, also have strict regulations on responsible lending in place.

2.13.3. Default rates

The industry argument for an expansion of content in credit reports is partly based on an argument that default rates are a concern and that expanded / positive credit reporting will reduce default rates. However, default rates in Australia are considered by regulators and the industry itself to be very low. They are low by historical standards, and they are low by international standards.

Indeed, the credit industry itself is the loudest proponent of the claim that default rates are low. Some recent examples include:

  • Opposing national Credit Code reform (2000)
    In arguing against reform of the UCCC to strengthen hardship provisions, industry argued that default rates were low in Australia, and the market was adequately addressing responsible lending practices without the need for legislative intervention.[41]
  • Opposing credit card reforms (2002)
    In arguing against tighter regulation of consumer disclosure (e.g. comparison rates) for credit cards, the industry argued that “credit card default rates are low, consumers are not carrying excessive levels of debt and are better off today than 5 years ago, and low-income earners as a group are not susceptible to financial trouble due to credit card debt”.[42]
  • Opposing bank regulation proposals (2004)
    In arguing against the ALP’s 2004 banking policy on responsible lending requirements, the industry argued that “housing and credit card default rates are low indicating that banks are being responsible in their lending policies and the economy is strong”.[43]
  • Opposing responsible lending proposals (2005)
    In arguing against responsible lending reforms before the Senate Economics Committee, industry submissions argued that default rates were at historic lows in Australia and that there was no need for regulatory intervention.[44]
  • Opposing reform of consumer credit laws (2006)
    Industry argued that default rates were low in submissions to the Victorian Consumer Credit Review, where proposals for responsible lending were being discussed. They stated: “The vast majority of consumer credit contracts entered into by banks with their customers are complied with fully. Bank loan default rates have been low and stable for many years. [45]

It is difficult for the credit industry to maintain the position that default rates are low and of no concern when opposing reforms relating to the regulation of industry practices in the broad field of responsible lending, and then in the next breath to argue that default rates are high and of such great concern that privacy law should be amended in the field of credit reporting.

This is not just an interesting anecdote about industry lobbying – this is an important issue that has an impact on proposals to expand data included in credit reports. So, are default rates high or low?

Recent default rates collected by the Reserve Bank of Australia (RBA) are summarised in the table below:[46]


Loan type





Housing loan (full-doc)
90+ days past-due





Housing loan (low-doc)
90+ days past-due





Housing loan (non-conforming)[47]
90+ days past-due





Credit cards
90+ days past-due





Personal loans
90+ days past-due





RBA credit default rates


Overall, the RBA has concluded that default rates in Australia remain near ‘historic lows’ and also remain ‘significantly below international default rates’. However, they do note that default rates have risen alarmingly in certain geographic areas – notably Western Sydney in NSW. They conclude:

Despite the increase in non-performing housing loans over the past few years, the arrears rate remains low by international standards. Moreover, the recent increase is not unexpected, particularly given the strong competition in lending markets over the past decade or so, which has made housing finance available to a broader range of borrowers. The general easing of credit standards over this period has meant that the marginal borrower over recent years has been riskier than was the case a decade ago and, as a consequence, the arrears rate for a given level of interest rates and unemployment is likely to be higher than was the case in the past.[48]

Increased competition, lowering credit standards, downward pressure on house prices, pockets of unemployment, and multiple interest rate rises are all listed by the RBA as contributing to default rates. There is no mention of a contribution by credit reporting arrangements, and it is difficult to see how credit reporting arrangements could make an impact when compared to this plethora of more significant factors.

Ultimately, the potential link between default rates in Australia and changes to credit reporting arrangements are speculative. Improvements to credit reporting may help to facilitate responsible lending, but this may or may not result in improvements in responsible lending in day-to-day practice. Current competitive market forces appear to be driving lenders away from responsible lending, and no amount of additional data in credit reports will have an impact on this trend, especially in a jurisdiction such as Australia where there is no legal requirement to engage in responsible lending.

The costs of credit risk are also covered by a diverse range of industry measures. These include:

  • Core interest rates;
  • Penalty interest rates;
  • Core fees and charges;
  • Penalty fees and charges;
  • Interchange fees on credit card products;[49]
  • Insurance;[50] and
  • Security.

While consumers ultimately pay for the cost of credit risk in one form or another, it would be unlikely that all of these costs would reduce because of changes in credit reporting. Rises in all of these costs bear little relation to the level of defaults in Australia – which remain relatively stable and have even decrease from time to time.

2.13.4. Privacy harm

The Legal and Constitutional References Committee provided an excellent summary of the privacy harms that might arise from expanding the amount of content in credit reports:

The committee sees no justification for the introduction of positive credit reporting in Australia. Moreover, the experience with the current range of credit information has shown that industry has not run the existing credit reporting system as well as would be expected and it is apparent that injustice can prevail. As mentioned elsewhere in this Report, positive reporting is also rejected on the basis that it would magnify the problems associated with the accuracy and integrity of the current credit reporting system. The privacy and security risks associated with the existence of large private sector databases containing detailed information on millions of people are of major concern.[51]

As noted, one potential privacy harm is that an expansion in the amount of data may magnify data accuracy concerns – for example, the DP72 proposal would allow several new fields of data to be added to credit reports. However, the impact of this may depend on the general regulatory response to data accuracy concerns, and this is an area where the ALRC proposals are likely to lead to some improvements.

Data accuracy is also a concern if the ARCA proposal to the ALRC is successful. Under the ARCA proposal information on 2 years payment history (which may be positive or negative) would be included in credit reports. Payment history would be represented by a broad rating (e.g. a 0, 1 or 2), rather than by factual information (such as the amount and date of payment).

While at first glance the ARCA proposal appears to protect privacy as it limits the amount of data on the file, it may be difficult to maintain data accuracy. Data accuracy in the ARCA proposal may be affected by the following factors:

  • Credit providers will have to provide more information, requiring more data entry and more opportunities for errors;[52]
  • Credit providers may not have the same motivation to check the accuracy of data (especially disputed data) as they do to check default data in traditional credit reporting information, as the consequences of an inaccuracy will appear less severe;
  • A consumer checking their report may not understand the ratings;
  • A consumer checking their report may not recognise an inaccuracy in the ratings, in circumstances where they would have recognised an inaccurate factual record;
  • A consumer wishing to challenge the accuracy of data will have to look up records and potentially provide very detailed information in order to challenge a rating; and
  • It is unclear that disputed information or ‘notes on file’ have any impact on credit decisions under the current system, and this issue may be magnified by the ARCA proposal’s reliance on ratings rather than facts that can be easily corrected.

Additional potential privacy harm may arise in relation to data security if the scale of the credit reporting databases is increased. This issue is discussed in more detail in this Report at Section 2.5 (page 13).

2.13.5. Consumer harm

One issue of concern is whether more information would lead to up-selling, cross-selling, churning or differential pricing. The credit industry claims that up-selling does not form part of the motivation for positive credit reporting. However, up-selling, churning and differential pricing are entrenched elements of some jurisdictions where positive credit reporting is allowed.

A possible solution is to seek industry approval for a specific restriction on up-selling and differential pricing etc. This could be located in the proposed Privacy (Credit Reporting Information) Regulations. This may be a useful test of credit industry consensus and commitment and help to dilute one specific consumer concern.

Once particular types of information are included in credit reports, it can be difficult to anticipate how the data will be used in practice by the credit industry. For example, consumers are generally encouraged to shop around for the best price for all products, including credit, mobile phones, utility providers etc. However, according to advice from a credit reporting agency, this same practice may lead to problems in obtaining credit in the future. This results from the inclusion of all credit applications on the credit report, whether or not credit was actually extended to the client, and the claimed predictive worth of such information when measuring creditworthiness. [53]

The potential use of a wider range of information on a credit report is unknown.

There does, however, appear to be some agreement that the overall amount of credit will increase once more comprehensive credit reporting or positive credit reporting is introduced. This results in a general consumer concern that more people will be offered credit at a time when there are no obligations for responsible lending in Australian law, and consumer protections for credit customers are weak. 

2.13.6. Conclusion

There is no clear justification for more comprehensive reporting in Australia at this stage and there is significant uncertainty about what impact more comprehensive reporting might have on consumers, default rates and the broader community. Unfortunately, it is impossible to run a pilot project in the credit reporting environment – once a change is made it may be irreversible even if the results are negative.

Concerns over more comprehensive reporting will remain strong while there is no obligation to lend responsibly or to market credit responsibly in Australian law.

The ALRC is in a difficult position on this issue as they have been asked to consider the reform of credit reporting privacy regulation only and they have no brief to cover general (non-privacy) consumer protection arrangements. This is a very difficult issue to address with one hand effectively tied behind their back. However, the ALRC may be able to note some of the shortcomings in consumer protection law and the impact that this has on credit reporting privacy regulation.

Credit reporting agencies are also in a difficult position. Credit reporting agencies want to play a role in facilitating responsible lending and they have continually presented good cases for an expansion of credit reporting information using responsible lending as their key public benefit argument. However, credit reporting agencies are not, themselves, lenders. They have not traditionally been actively engaged in the wider debate on responsible lending and responsible credit marketing.

If credit providers do not have a legal obligation to engage in responsible lending and responsible credit marketing, efforts to facilitate responsible lending via more comprehensive credit reporting are misplaced.

This Report makes some recommendations on improvements to the regulation of responsible lending that might help to address this issue – see Section 3.3 (page 48) for more detail.

[36] Senate Economics Committee, Consenting adults deficits and household debt - Links between Australia's current account deficit, the demand for imported goods and household debt, 13 October 2005, <>.

[37] Paragraph 51.165, DP72.

[38] <>.

[39] Veda Advantage, Submission to the Australian Law Reform Commission Issues Paper 32 – Credit Reporting, March 2007, page 22, <>.

[40] Veda Advantage, Submission to the Australian Law Reform Commission Issues Paper 32 – Credit Reporting, March 2007, page 24, <>.

[41] KPMG, National Competition Policy Review of the Consumer Credit Code – Final Report, December 2000, <>.

[42] Visa International, The Credit Card Report: Credit card spending in perspective, November 2002, <$file/S1 CatherineWolthuizen.pdf>.

[43] Australian Bankers’ Association, Australian Bankers' Association Responds to ALP Banking Policy, 20 June 2004, <>.

[44] Senate Economics Committee, Consenting adults deficits and household debt - Links between Australia's current account deficit, the demand for imported goods and household debt, 13 October 2005, <>.

[45] See for example ANZ Submission to the Productivity Commission Review of Australia’s Consumer Policy Framework, May 2007 <>.

[46] Table data summarised from information contained in Reserve Bank of Australia, September 2007 Financial Stability Review, September 2007, <>.

[47] Non-conforming loans represent less than 1% of the Australian housing loan market.

[48] Reserve Bank of Australia, September 2007 Financial Stability Review, September 2007, page 44, <>.

[49] Recently limited by RBA intervention to only cover the costs of fraud and interest free periods.

[50] Widely applied to home loans for the benefit of the lender and to some consumer credit products for the benefit of the consumer.

[51] Legal and Constitutional References Committee, The real Big Brother: Inquiry into the Privacy Act 1988, 23 June 2005, <>.

[52] Note however, industry arguments that regular reporting would be automated and would remove some manual data input errors.

[53] Veda Advantage, Shopping around can be risky business, 6 February 2007,