US-style personal credit ratings are coming to Australia

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Treasurer Scott Morrison. Photo: Stefan Postles/Getty Images.

Australian treasurer Scott Morrison has announced that banks will be forced to share customers’ credit data from July next year.

The comprehensive credit reporting (CCR) system, which the NAB became the first to commit to earlier this month, sees banks send both positive and negative data about a customer to credit bureaus, allowing all financial product providers to more accurately assess credit risk.

Although commonplace in the US and UK, in Australia credit bureaus have traditionally only held default – negative – data for each consumer.

The government had been pushing for the big banks to hop onto the regime voluntarily, but progress has been slow. Draft legislation to make it compulsory was first written up in 2014, and there have been two Productivity Commission reports recommending CCR since.

With the take-up rate still too low for his liking, the time has come, the treasurer said, to make it compulsory.

“We intend to start with the four major banks, given they account for approximately 80% of the volume of lending to households,” Morrison said at the Intersekt fintech festival in Melbourne.

“The banks will be required to have 50% of their credit data ready for reporting by 1 July 2018, increasing to 100% a year later. This is a timetable the government believes is entirely achievable.”

The mandatory scheme, which the treasurer called “a game changer for both consumers and lenders”, is hoped to stimulate competition in lending from both traditional and fintech players.

The idea is that, armed with a complete picture of each customer’s risk rating, new and smaller lenders would be able to offer interest rates that undercut the major players for low-risk consumers, and offer riskier customers credit at higher interest rates — rather than reject them outright.

“If you have good credit history… you will be able to demand a better deal on your interest rates, or shop around, armed with your data,” Morrison said.

“And make it easier for customers who have one or two black marks on their name to get a loan, if their recent history of repayments is positive.”

Morrison also mentioned “discussions” currently in progress to pull telecommunications, electricity and gas providers into the CCR.

“Currently, utilities have no access to the positive payment history of Australians — only the default data, or more explicitly, every time a customer is more than 60 days late paying a bill of more than $150.”

FinTech Australia vice chair, and founder of Melbourne lender MoneyPlace, Stuart Stoyan said mandatory CCR would level the playing field.

“Until now, a number of Australia’s big banks and lenders have not been sharing the positive data which should allow customers to get better credit,” he said, adding that fintechs like Ratesetter, MoneyPlace and SocietyOne had already on-boarded CCR.

“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.”

Mandatory CCR complements open banking — a similar sort of data exchange system that allows fintechs to access a feed of customer data from big banks – which is currently undergoing an independent review to work out how it could be implemented.

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