Should the credit industry be allowed more information about you?
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KEY POINTS:
Privacy watchdogs are deciding whether to give credit companies more access to the financial details of millions of New Zealanders.
Under a new system backed by credit reporting agencies, financiers would be able to obtain more information about prospective borrowers.
A review being done to see whether the
companies should be allowed to see now-secret information - including how much credit someone has, and who has loaned them the money.
At present, the only information a lender can get about a borrower is how many times they have applied for credit - but not whether they were successful - and any negative details, such as whether they have defaulted on a loan or been bankrupted.
The credit industry wants that extended to include whether the credit applications were approved, what type they were, who the loan was with, what the credit limit was, and whether the account is still open.
Privacy Commissioner Marie Shroff said a reference group made up of government agencies, credit reporting agencies such as Dun and Bradstreet, credit providers and consumer advocates was reviewing the Credit Reporting Privacy Code.
It was to report back in May, and the public would then be invited to comment.
The proposed system is known as full file or positive credit reporting, and would replace New Zealand's negative system. New Zealand and Australia are among a handful of countries that still use the negative system.
Dun and Bradstreet's New Zealand general manager, John Scott, said positive credit reporting would prevent people who were overstretched from being given more credit. It would also better reward people with a good credit history.
"The New Zealand system works on a negative-only environment, which means if you are broadly good you are not rewarded for being good."
Mr Scott said overseas lenders asked borrowers about their income, the size of their mortgages and credit card balances, but the industry was not pushing for that here.
Instead, it wanted to be able to find out what a would-be borrower's current credit limits were, "so you can take a view 'should I extent any more credit to these people or not?'.
"It stops the credit surfing that is going on where people get themselves deeper and deeper in trouble."
Dr Michael Turner, president of an American non-profit think tank specialising in credit reporting, met the Privacy Commissioner to discuss the issue last week.
He has also presented a paper to a meeting of the APEC Business Advisory Council in Wellington.
Written in conjunction with Dun and Bradstreet, the paper says small and medium businesses would be big winners from positive credit reporting.
Dr Turner said commercial lenders found it difficult to extend credit to new or small companies, and the owners of many such companies relied on personal credit to start their business or smooth cash flow disruptions.
Under full file credit reporting, the company's credit profile became less important than that of the proprietor.
"Commercial lenders use the proprietor's credit file in combination with the company's commercial credit report to assess company credit risk, and are able to offer terms that are often times more favourable."
Dr Turner said that under negative reporting, it was not possible to establish the extent of "credit surfing", where borrowers robbed Peter to pay Paul by taking out multiple loans.
He conceded that when countries moved to full file reporting there was a short-term "valley of transition" when availability of credit contracted.
But not to change would be to miss out on eventually stimulating the economy with better access to affordable credit.
Readers respond:
It seems extremely strange that this is being proposed as a method to improve loan rating when those countries that currently have full file reporting are the ones that have created this credit crunch crisis by giving so much money to sources who do not have credit reliability. New Zealand, on the other hand, has not been drastically impacted locally due to bad debtors, but is impacted by those economies who do - those that have full file reporting. This would lead me to believe that such a drive is not such a positive as painted and that sharing so much more information is a loss of privacy rather than an improved system.
Stephen Preston
For decades now the actions of a few have affected the ability of law-abiding citizens to borrow. More importantly this has cost the average person in the street huge amounts of dollars as the overall impact means that we all pay higher interest rates than need be. You cannot blame companies for writing bad loans when they have not got all the information available. What's more, pandering to the civil libertarians by the state has resulted in negligence on a massive scale when you look at the amount of failures in recent times. Much of this could have been avoided with positive reporting.
Kane
I always just assumed that a credit check checked everything anyway. I am surprised to read how much information they don't currently get. Things like bankruptcy would be quite important if they want to know you will pay them back the money lent to you. Yes I think they should be able to see any information that may affect them.
Simeon
The more information the credit companies have the better. I have been refused so many times because too many companies had looked into my credit history. Even though I had no loans, they wouldn't offer credit because every look was a loan to them. I think if they could see that people had no loans, or 15 loans, it would be better for them and us.
Katie
The simple answer is no. I don't object to them knowing whether or not I have applied at other companies. However, whether or not that company approved my application should not have any bearing on their decision. Every credit company has different criteria that it judges its prospective clients by. I wouldn't want to be declined for credit just because a company with an ultra-strict credit policy declined to loan to me where a bank or other institution is more than willing to lend. Credit companies do not need this information to make their decisions. They already see applications, defaults and other relevant details.
Chris Barr
The agencies are lending money to strangers, so of course they need as much financial history as they can get. Would any of us lend money without finding out if the borrower could or would pay it back?
Martin Hough
The only people I can see that will be opposing any relaxing of the laws will be those that could be exposed to fraudulent applications, applicants that could be or are already financially over-exposed, and the civil libertarians. The lender gets the blame for making a wrong lending decision and a lot of it is based on what the lender can check. Relax the laws, expose the fraudsters. As an applicant, if you have nothing to hide, you will not care. The truth often comes out, too late and after the horse has bolted.
R. Wilson, Greenlane
I completely agree with this so people with good credit rating have no problem getting loans. I suggest that rental agencies and landlords be allowed to access this as well to avoid bad tenants from renting houses.
Triana Vernall
* additional reporting Elizabeth Binning
What the credit companies want to know about you:
Whether previous applications for credit were approved
If so, what are they? (mortgage, car loan, etc)
Who is the lender and what is the credit limit?
Is the account still open?
What they already know:
How many times you have applied for credit (but not whether the applications were approved).
Any negative details, such as whether you have been bankrupted or defaulted on a loan.
