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

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2.17. Supply of consumer credit

• 2.17.1. Under-supply of consumer credit
• 2.17.2. Over-supply of consumer credit

2.17.1. Under-supply of consumer credit

Some consumers continue to face difficulties in obtaining credit or affordable credit. These difficulties sometimes relate to credit reporting, although there are many other factors that have an impact on the under-supply of credit in Australia.

This issue is sometimes linked to the debate on more comprehensive reporting and also to the debate on listing rules. Industry argues that supply would improve with more comprehensive reporting.

Consumer caseworkers and advocates have concerns about the under-supply of consumer credit where consumers are excluded from credit because they have minor defaults – often for late payment of utility bills. This may be an area where it is difficult to get the balance right.

There may also be concerns about access to credit if delinquency information is included in credit reports (as per the ARCA proposal). Obviously the impact of such a proposal is untested so there is no data available on the potential impact. However, it would instinctively raise concerns about minor delays in payment (which would not appear on credit reports under the current rules) reducing supply of credit to low-income and disadvantaged consumers.

2.17.2. Over-supply of consumer credit

There are also concerns regarding the over-supply of consumer credit, resulting in potential over-commitment – both for individuals and for the broader community and economy.

The Senate Economics Committee noted:

The question of whether the lending policies and practices of banks and other lenders have played a significant role in increasing household debt is contentious. Representing the banking sector, the [Australian Bankers Association] maintains that demand for credit is the primary driver of increased household debt. Nonetheless, the lenders market their products aggressively, each institution seeking to maintain market share and maximise profits. Appearing before the House of Representatives Standing Committee on Economics, Finance and Public Administration, the Governor of the RBA, Mr Macfarlane was under no illusions about the lenders' motives: ‘There is a very big industry out there which is utterly determined to put out as much credit as it can’.[81]

This Report does not include an analysis of whether more credit is good or bad for the economy. However, the concerns of consumer caseworkers and financial counsellors regarding the impact of credit over-commitment on individual consumers are significant, and need to be addressed no matter what impact the supply of credit has on the overall economy. 

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[81] 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, paragraph 5.1, <http://www.aph.gov.au/Senate/committee/economics_ctte/household_debt/report/report.pdf>.

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