CCR set to shake up consumer finance

Government announces mandatory comprehensive credit reporting (CCR), with the ‘Big 4’ banks required to start sharing their credit data by 1st July 2018.

In Australia we like to think we are a world leader – at least in anything for which we think it’s worth leading (we’ll leave curling to the Americans.) Finance, in particular, is an area where we think we compare well. After all, we have a very well developed financial system with many extremely profitable banks, and many Australian finance companies have expanded overseas and competed successfully.

However, this profitability comes at a cost. In fact, most Australians wouldn’t know it, but we’re towards the bottom of the developed world when it comes to the ability of a consumer to secure cost-effective finance.

There are a number of reasons for this, including a highly concentrated banking industry (historically supported by a Four Pillars policy). The root cause though distills down to Australians not having the ability to leverage their past good credit behaviour to secure lower cost finance. In most developed countries, if a consumer has been making credit card, personal loan and utility payments on time, they can leverage their good behaviour, and benefit from having access to lower cost finance options.

Well, things are about to change.

Well, things are about to change. Finally, Australia is taking serious steps to catch up to the rest of the world when it comes to the sharing and availability of your credit data. The cosy world in which your bank can keep your good behaviour secret (and prevent you from shopping around) is coming to an end.

Treasurer Scott Morrison announced in November that the Government will legislate for a mandatory comprehensive credit reporting (CCR) regime to be implemented in Australia by 1st July 2018. The ‘Big 4’ banks will be the first to be mandated under this regime and will be required to have 50% of their credit data ready to be shared by the 1st July 2018, increasing to 100% on the 1st July 2019.

Better deals faster

Yes, this means the Big 4 banks will have to share your good behaviour with credit bureaus (not just the defaults that they have historically shared). With your permission, the bureaus will then be allowed to share that data with companies like RateSetter, so we can offer good credit borrowers a better deal on personal loans, car loans and green loans!

While a fully functioning CCR regime allows good credit customers to access better rates, it also allows applicants who might have previously been discriminated against because of a lack of financial data (for example young people, the recently divorced, or recent immigrants) to obtain finance.

Making the sharing of comprehensive data mandatory for the Big 4 banks was a bold but necessary move by the Government. A CCR regime has been in place for over four years, but (surprise, surprise) in that time only a handful of smaller lenders – and none of the major banks – started to report comprehensive data to credit bureaus.

First movers

At RateSetter we are acutely aware of how slow progress has been, as we were the first lender in Australia to share comprehensive data with credit bureaus. As we enter this new world, Australians need to ensure that they maintain responsible financial habits. These good habits may include:

  • Credit facilities (such as credit cards) that are not used are closed, so that any potential lender doesn’t perceive these to contribute to your ability to repay any new credit you apply for
  • Seeing beyond the gimmicks of transferring balances from one credit card to another, and instead obtaining a low rate personal loan providing the discipline to extinguish your debt balances over a reasonable time
  • Visiting websites such as www.creditsmart.org.au or www.moneysmart.gov.au to make sure you have a good understanding of CCR and Australia’s credit environment more generally
  • Ensuring all payments are made within 14 days of the due date, so that you maintain a good credit history
  • The introduction of the CCR regime is Australia playing catch-up with the developed world, but there are areas where we truly might soon become leaders in consumer finance. Most notably, the Government has announced that an open banking regime will be swiftly implemented, giving Australians greater access to and control over their banking data.

The adoption of open banking will transform the way customers use and benefit from their own data, and takes the benefits of CCR several steps further. Australian consumers will enjoy the benefits of real competition, both between and against the banks. Quickly we will move to an environment where, when thinking of obtaining finance, our first thought will be ’where can I obtain the best value’, not ’where is our nearest bank branch’.

This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.