The Australian Retail Credit Association (ARCA) exists to promote best practice in credit risk assessment and responsible lending, as well as promoting better standards in consumer credit reporting.
Governance and transparency around credit reporting and information sharing has never been more important, as markets continue to struggle with the fallout from the GFC and consumers deal with the resultant increased uncertainty. Banks are under pressure to meet increased regulatory requirements to raise the level of assets on their balance sheets, thereby reducing their lending capacity while consumers, who must compete for smaller pools of capital, are increasingly resorting to credit finance to maintain regular payment schedules.
As is the case for many segments of the global financial services sector, the credit reporting industry is adjusting to a new paradigm in which there is less appetite for unnecessary risk and a greater role for technology to streamline information management.
ARCA is a driving force in bringing Australia’s credit reporting and information sharing in line with best practices in developed nations and several emerging economies. The passage of The Privacy Amendment (Enhancing Privacy Protection) Bill 2012 was a watershed in transforming Australia’s current negative reporting system to one that embraces a holistic or comprehensive view of borrower data. This will require credit providers and credit reporting bodies to invest in systems to capture, analyse, view, share and protect a wider scope of information, richer in facts and less vulnerable to ambiguities.
Comprehensive reporting transforms assumption-based decision making into facts-based outcomes.
Currently, credit file data is compiled using “negative” data that paints a picture of a borrower’s credit intentions as opposed to their credit reality. Providers report applications made in the past five years, and defaults, yet there is no indication of how many lines of credit an applicant has open, how much they owe or how they have historically handled repayments.
Benefits anticipated from moving from the current, narrow assessment system to one that captures a wider comprehensive view allows providers to collect and share a wider range of information in their credit reports, allowing for:
ARCA is committed to assisting the development of a compliance framework for the comprehensive credit reporting (CCR) environment which will feature a Credit Reporting Code of Conduct mandated by The Privacy Amendment (Enhancing Privacy Protection) Act 2012.
The OAIC has released materials relating the changes for both the Australian Privacy Principles and Credit Reporting principles, which are available online.
An effective and enforceable means of compliance is vital to the success of credit reporting, and ARCA is vigorously working with all stakeholders to build compliance standards that are achievable, realistic and address the critical needs of industry and consumers.