Government calls on banks to participate in comprehensive credit reporting
Banks are again under pressure to provide more credit data, this time to assist payday lenders with credit decisions.
As part of its final report of the independent review of Small Amount Credit Contracts (SACCs), the Treasury has called on banks to participate in comprehensive credit reporting (CCR) as soon as possible. The recommendation came about as part of a discussion of a national database for SACCs (more commonly known as payday lenders), but while the Treasury found a database might assist lenders to make better-informed decisions, providing additional time for the implementation of the credit reporting regime would be less costly.
While CCR was introduced in 2014, the major banks have been slow on the uptake. According to credit reporting bureau Equifax, only 24% of lenders have participated so far, and this includes none of the Big Four. NAB has been sharing data in "private mode" with credit bureaus, with a plan to move public by the end of 2016, while ANZ, Westpac and NAB have made moved towards CCR but are not as close as sharing data.
In the Treasury's report, it said the major banks are still deciding whether to participate in the regime, but should be encouraged to do so to assist SACC providers with their lending decisions.
"The Panel is of the view that the major banks should be encouraged to participate in this regime by the earliest date as the value of the regime is necessarily diminished in the absence of the information they could provide," the report said.
The recommendation for a national database, which led to the push for participation in CCR, was trying to address SACC affordability and repeat borrowing. Currently, lenders need to rely on other methods to see whether a borrower can afford an SACC and meet ASIC's regulatory requirements, such as by accessing 90 days of bank statements.
ASIC requirements include checking whether the consumer will be able to meet the repayments of a SACC without suffering substantial hardship; whether the consumer has had two or more SACCs in the past 90 days; whether the consumer is in default under another SACC or if the consumer is receiving at least 50% of their gross income from Centrelink or if the total repayments from all SACCs will exceed 20% of the consumer's gross income. According to the report, SACC providers argued sufficient information can be garnered from borrower applications to establish this, such as from bank statements.
Other recommendations made by the report include implementing an income cap on the total amount of all SACC repayments to 10% of the consumer's net income, incorporating direct debit fees into the existing SACC fee cap and limiting default fees to $10 a week to better represent the actual costs of a consumer defaulting on a loan.