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The Finance Brokers Association of Australia (FBAA) has warned that the draft legislation forcing banks to hand over more detailed customer credit information may backfire.
Treasurer Scott Morrison introduced a bill last week mandating “comprehensive credit reporting”, which would apply to the major banks from July. The legislation proposes to slap these banks with penalties of $2.1m per breach if they do not report more detailed customer credit history into the credit bureaus.
Banks have traditionally just provided “negative” information for Australians’ credit reports, including their being rejected for a loan and whether they have defaulted. This has limited the credit reports’ usefulness to competitors of the big banks.
Under the new regime, banks will also have to provide "positive" credit information on borrowers.
Morrison predicted that with CCR, customers with good credit histories will be able to get lower interest rates on loan products.
"Customers with good credit histories will be able to obtain lower rates, and be better placed to shop around because their credit history will now become available to all lenders," Morrison said in a statement last week.
FBAA executive director Peter White said there is “no chance in hell” this would happen.
“What will happen is that banks will maintain their current interest rate margins for customers with a better credit file, and increase the rates for those who have been through past difficulties under the guise of being of lesser quality or higher risk,” said White.
He noted that this normally affects customers who can least afford to pay higher interest rates, saying that it exacerbates their problems.
White pointed out that CCR has played out badly in the USA, where he said borrowers are punished for issues that happened 10 to 15 years ago.
“This is wrong, and we must be very cautious this doesn't happen in Australia, as we will restrict access to debt for those who shouldn't be restricted,” he said. “Penalising people with higher interest rates is unfair and will lead to very poor consumer outcomes.”
The FBAA urges Parliament to reject the legislation and said it will make its views known directly to the treasurer.
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