Comprehensive reporting - what's all the hype about?

A long awaited privacy review has finally been released this week by the ALRC, and in it a watered down version of positive credit reporting has been endorsed. As one of only 2 countries in the OECD who currently only provide negative credit reporting, ie when you haven't paid your bills, not when you have, Australian credit risk managers have always done an impressive job given their lack of borrower insight. The US have had comprehensive reporting for a long time and look at the pickle their credit managers have achieved! With the proposed changes, which are odds on to be accepted by the government and legislators, Banks will finally get some deeper insight.

What the banks have asked for and what they have got in the report are not the same thing, and the consumer lobby groups would be pleased, as would the unscrupulous and less financially sound. Ideally (to banks and credit bureaus anyway) the ALRC recommendation would have included the ability for credit histories to contain not only applications for credit (currently included) and defaults in repayment history (generally reported though in practice long after the fact currently), but they would also now store when those applications were accepted and the limit provided (this has been proposed to be included) and current balances (omitted).

Today there are many blind spots in our credit system that allow the credit impaired to still operate and obtain finance under the radar. Banks, though heavily motivated by profit, are also motivated by the "a current affair" factor, and hence are keen to avoid lending to those that might lead them into hot PR water, ie credit cards for dole recipients etc. Consumer Lobby groups have opposed positive reporting seeking to protect the individual from the less scrupulous lenders in the market place who might use the info to prey on the financially impaired with even more vigour than they do today. This, like the argument of regulated gambling, removes the onus of responsibility from the individual wrong doer to the large corporate who is facilitating the ability for the individual to fail - way too involved topic for a Friday afternoon rant! But in the meantime banks are going to still be expected to make sensible lending decisions with one hand tied behind their back, which seems like a bit of a contradictory outcome as far as the consumer groups are concerned - to prevent you marketing to the credit impaired, we'll allow you to not know their impaired. Surely the consumer groups have this around the wrong way?

My humble thoughts are that the credit impaired would be better off if the banks knew that lending to them was wrong (through disclosure of credit position) and then the credit impaired having recourse if the banks pressed on and lent anyway.

Anyway, the point of all this, and my observation, is that business banks don't generally use the information that is available to them today, so providing them with more info not to use is probably futile. Whilst consumer bankers use this information intimately, more often than not credit bureau info is not credit policy for most banks and whilst some still check credit histories of directors, most ignore the credit histories of business. Why? 3 reasons: 1) They get so much other information and have a good trust of their guts (rightly or wrongly), 2) Relatively few banks report poor credit performance because they do not wish to impair a poor clients ability to find finance elsewhere when they tell them that they are not really wanted any more and 3) The cost of automating data updates to credit bureaus, and automating feeds of credit information into lending processes is huge, and banks todate in benign credit envirobnments have not had sufficient business case to make the investment. So unless banks all suddenly chioose to make this investment, they are unlikely to use most of the new info.

have a different opinion - I'd love to hear it!