KEY POINTS:
The finance industry is lobbying for access to New Zealanders' complete credit histories, including details about their income, the size of their mortgages, and their credit card balances.
Calls for credit providers to have access to a potential customer's total financial footprint are gaining momentum. The finance industry says it would reduce loan defaults, and provide access to better quality credit for some people who are currently forced to turn to fringe lenders.
New Zealand is one of only four countries (including Australia, France and Italy) to maintain a "negative" credit reporting system - meaning that only negative details such as loan defaults and bankruptcies are recorded on a person's credit file. The number of times the person applies for credit also appears, but not whether they have been turned down.
The credit industry is watching moves across the Tasman closely, where a review of Australian privacy laws has included the proposal to move to a "positive" or "comprehensive" credit reporting system.
Submissions on an Australian Law Reform Commission discussion document covering the issue closed on Friday. The commission is due to make its final report to Australia's Attorney-General by the end of March.
On this side of the Tasman, the credit reporting code - set up with the agreement of the finance industry three years ago - is due for review in April. Rival credit management agencies Dun & Bradstreet and Veda Advantage are now both vocally renewing calls for a move to positive reporting in this country.
Veda Advantage says the number of consumers defaulting on credit in the past year has risen by 22 per cent. "The cost of recovering a bad debt is around a hundred times that of thoroughly checking an applicant's credit history up front," New Zealand country director John Roberts said.
He said an Australian study had shown that 60 per cent of people lied on application forms for credit cards.
Roberts said the current reporting system also didn't allow defaulters to demonstrate rehabilitation, because their file recorded only the default and not whether they had successfully managed other debt over time.
"We're now actually calling them credit orphans, because they've got nowhere to go. What they're having to do is gravitate to the loan sharks and money lenders ... In a comprehensive reporting environment they wouldn't be so isolated."
A recent US report on Brazil's move to positive credit reporting showed that if a lender was aiming for a 3 per cent default rate, it would accept 75 per cent of loan applicants under a comprehensive reporting system, but just 40 per cent of applicants under a negative reporting system.
Dun & Bradstreet is proposing New Zealand move to a "fair" positive reporting system, a more limited model it believes would be the easiest fit with our privacy laws. General manager John Scott said it would allow credit providers to see what types of loans a person had, when they were taken out, and what the person's total credit limit was. The bank or finance company would not know how much the person actually owed, Scott said.
"The requirements of the Privacy Act and the reporting requirements stay exactly the same. We're just asking for a couple more fields to be added into the credit file."
However Veda is advocating New Zealand adopt comprehensive reporting as operates in the United States. "The reality is, with the changes that are going to have to be made by the industry [in providing data], you might as well go for the complete picture," Roberts said.
It would also allow the finance industry to move into risk-based pricing, he said - the lower the risk a customer presented, the better the terms they could be offered.
In a statement the Ministry of Consumer Affairs said it believed the concept of positive credit reporting was "worth exploring, not only for consumers but also for businesses in search of finance". It said it would be looking to undertake further work on the issue.
Privacy Commissioner Marie Shroff described the industry's claims that reform would lead to fewer loan defaults and better access to quality credit as "at this stage untested assertions".
She said New Zealand would have to look "quite hard" at whether people with good credit records should be subjected to the collection of information about their financial habits.
