Banks obligated to share credit history data with startups and competitors
Scott Morrison’s move to enforce transparent credit history data could mean more competitive rates and financial offers.
The Australian government has announced a new comprehensive credit reporting regime that aims to help Australians get better deals from lenders. At the Collab/Collide Summit in Melbourne today, Treasurer Scott Morrison confirmed that new government legislation will ensure that lenders are collecting and sharing the positive credit history of customers. This will move lenders away from the current emphasis on a customer’s negative history and hopefully lead to a more transparent borrowing environment.
So, if you’re applying for a credit card, the issuer can view your positive repayment history as well as any history of debts or defaults. This could help increase your chances of approval if you have demonstrated a positive ability to repay previous loans.
This news follows the government’s vow to introduce this regime if lenders are not reporting at least 40% of their data by the end of December 2017. The treasurer confirmed that this 40% threshold has not been met today. The government will initially target the Big Four banks (ANZ, NAB, Westpac and Commonwealth Bank) with a new legislative framework that will require them to provide 50% of their credit data by 1 July 2018. By the end of 2018, this will increase to 100%.
FinTech Australia vice chair, founder and CEO of Melbourne-marketplace lender MoneyPlace, Stuart Stoyan, believes the changes will level the playing field in favour of customers. This is largely because more data means that the competitors of the big banks can make better risk assessments and potentially offer more competitive deals to new customers.
“Today’s announcement will help consumers get lower interest rates and better access to credit. This will especially help borrowers with a good credit history who make their repayments on time, rewarding their good behaviour with fairer rates,” said Stoyan. “Although this reform has been a long time coming, today’s announcement is welcome news and follows the important and voluntary lead of a number of fintech lenders.”
This could also potentially encourage more responsible repayment behaviours among Aussie borrowers.
“Although as many as 80% of borrowers across Australia are likely to have been making their repayments on time, this new insight for lenders is why borrowers need to remain vigilant over their repayments, so they can continue to positively impact their credit scores in the future," said Experian Australia/NZ managing director, credit services & decision analytics, Poli Konstantinidis.
This also means that the reform poses some potentially negative ramifications. For home loan borrowers, the new reporting regime will consider not only defaults and judgements, but 24 months of account payment history. So if you make a late payment on your mortgage, this could drag down your total credit score.
Although these changes will largely impact financial products at first, the treasurer has also expressed interest in extending this reform to telcos and utilities in the future.
Want to learn more? Check out our guide to open banking.