1/10th of credit applicants give dodgy data

Up to 1.6 million Australian have misrepresented their financial information when applying for a loan in order to obtain credit, according to Veda Advantage’s latest Australian Debt Study.

While the study found the majority of Australians were honest about their current financial status, 823,000 people had understated their total expenses and 342,000 had overstated their income.

The study highlights around 15 per cent of Australian are looking to take on more credit in the next six months and 12 per cent of Australians have missed a minimum bill repayment in the past three months.

Chris Gration, head of external relations at Veda Advantage, says responsible lending is a huge step forward for consumer protection but without positive reporting, lenders face challenges in gaining an independent understanding of a person’s financial commitments.

“Under Australia’s current negative credit reporting system, banks do not have all the information available to help them make the most informed assessment of a person’s ability to repay their debts. They cannot see whether a consumer is overcommitted, leaving many vulnerable to falling into a debt trap,” he says.

Gration welcomes the Government’s plan to introduce positive reporting legislation by 2012.

“Implementing Government credit reporting reforms will assist lenders to more easily identify when a borrower is overcommitted.”

The Australian Privacy Foundation has strong reservations about this development.

The longstanding approach in the credit reporting industry is based on the central recording of applications for credit, and of defaults. The credit industry has fought a sustained battle to extend into something that the industry’s spin-doctors call ‘positive reporting’, but that from the perspective of consumers is simply consumer surveillance.

In 2005, Consumer Affairs Victoria released a “Consumer Credit Review Issues Paper”. This mainly concerned other issues but also asked a few short questions about a potential move to positive credit reporting. Submissions were divided on traditional lines. See the Review web-site. No change resulted from the consultation. The Victorian Government response noted there was insufficient evidence of the benefits of positive credit reporting and concluded that the issue was more suitable for Commonwealth consideration.
In addition to the APF, the Consumer Action Law Centre has been very active on these matters.

The Australian Law Reform Commission (ALRC) conducted a wide-ranging inquiry into the Privacy Act in 2006-08. The ALRC Report in August 2008 recommended “More comprehensive credit reporting: in addition to the limited types of ‘negative’ information currently permitted, it is recommended that some additional categories of ‘positive’ information should be allowed to be added to an individual’s credit file, in order to facilitate better risk management practices by credit suppliers and lenders” (ALRC 2008. See also Part G of the Report, paras. 52-59).

The Consumers’ Federation of Australia (CFA) (the national peak body for consumer groups in Australia) is concerned that the expanding the range of information collected on credit applicants will only exacerbate the current problem of inaccurate and incorrect data on customer files.

The draft legislation is expected later this year.