The Australian Government and associated industry bodies have established a positive credit reporting system, with credit bureaus at the centre of this system.
The credit bureaus act as the gatekeepers of consumer data as well as a centralised repository for all CCR-participating credit providers.
While the majority of data is available from each bureau, the existence of unique data found in one bureau and not in another presents credit providers with access to greater and more diverse data sets.
A multi-bureau approach and the advantage of unique data
Outside of the big four banks, some smaller credit providers employ a single bureau as their source of data. However, many are discovering the benefits of utilising multiple bureaus. Having greater options gives credit providers the advantage of more extensive data on each customer, while at the same time reducing their exposure to high-risk lending decisions.
The Government’s current direction with CCR is establishing a mandatory requirement on the big four banks to load positive credit report information.
Some mutual banks have already investigated the benefits of a multi-bureau strategy and have identified the substantial benefits in the unique data sets available through illion.
illion’s consumer bureau holds unique data on under 35-year-olds within the personal finance, telco and utilities sectors.
Since 2015, illion’s tier 1 and 2 banking sector data has increased significantly, with specific insight to SACC and MACC enquiries and loans.
Using this data, one mutual bank found illion’s consumer bureau was able to identify 0.86% total adverse customers who represented high-risk customers for SACC enquiries and loans. The competing bureau’s unique data possessed 0.7% unique adverse data. Using the combined data of both bureaus the mutual bank was able to identify 2.72% of their customer applicants who represented a high risk.
With more data on hand, credit providers can now make better-informed decisions.
The Royal Commission and responsible lending
In the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, CCR and its role in supporting responsible lending has come to the forefront.
As a requirement to responsible lending, all credit providers are now required to ‘take all reasonable steps’ to ensure that borrowers are able to meet their payment obligations.
The introduction of CCR, and the big four banks loading their data, now makes accessing positive credit information a necessary step for credit providers. Using CCR to cover the credit provider’s decision practices becomes a step in better managing risk and assists in satisfying responsible lending obligations.
The Australian Securities and Investments Commission has established responsible lending conduct regulation 209 (RG 209) which licenced credit providers are required to comply with. The key concept is that credit licencees must not enter into a credit contract or consumer lease with a consumer, suggest a credit contract or consumer lease to a consumer or assist a consumer to apply for a credit contract or consumer lease if the credit contract or consumer lease is unsuitable for the consumer.
RG 209 outlines four fundamental steps for every credit provider to follow:
- Make reasonable enquiries about the consumer’s financial situation.
- Take reasonable steps to verify the consumer’s financial situation.
- Assess whether a credit contract will meet the consumer’s requirements and objectives.
- Use the first two steps to ensure a credit contract is not unsuitable for the consumer.
Conventional wisdom dictates that with an established CCR dataset, and the focus on responsible lending conduct after the Royal Commission, it is even more important than ever to use all information available.
Using multiple bureaus means achieving the most complete picture of an applicant’s creditworthiness. The risk of breaching responsible lending obligations are significant.
As the finance industry continues to evolve, so too must practising credit providers, to ensure they remain competitive, compliant and successful. Optimising resources available is crucial.
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Want to learn more about CCR and how illion can help you prepare? Contact us today.