More intrusive credit reporting including credit scores and drivers licences to help drive 'more responsible lending'

By Gareth Vaughan

The local boss of international credit reporting agency Dun & Bradstreet says moving to a more intrusive credit reporting regime, where more information is made available about people, will reduce the number of bankruptcies and credit defaults.

John Scott, Dun & Bradstreet's New Zealand general manager, told interest.co.nz in a Double Shot interview that New Zealand needs a more comprehensive credit reporting regime, which is being introduced through changes being ushered in by the Privacy Commission.

"At the moment the current credit reporting regime in New Zealand means that only negative information, or where people haven’t met their obligations, is reported," Scott said.

In contrast Dun & Bradstreet has, for about six years, championed a shift to a more comprehensive reporting system whereby credit watchers are able to obtain more information giving a greater understanding of someone’s overall debt capacity and their obligations.

Scott said questions to be answered on how much debt someone currently has, what the limit is to their overall borrowings, what type of account they've got, and when it was opened or closed, would enable much better understanding of people's financial situations.

"This (greater) information, we know if it’s provided, will actually lead to far lower levels of bankruptcy and overall default," said Scott.

Credit scores & drivers licences in the mix

In a move welcomed by Dun & Bradstreet as improving both consumer and business lending, Privacy Commissioner Maria Shroff announced changes to credit reporting regulation in December.

These mean credit reporters like Dun & Bradstreet will be able to collect drivers licence numbers as a means of endeavouring to match people's credit information more accurately. The changes will come into effect in two stages on October 1 this year and then April 1, 2012.

Credit reports will show more information about current credit accounts such as the type of account, the credit limit, the credit provider, and whether the account is open or closed. The Privacy Commission says the potential benefits of more comprehensive credit reporting to individuals, credit providers, and the economy could be significant, and "are said" to include:

* Giving credit providers a more accurate and complete picture of an individual’s creditworthiness and allowing them to make better assessments of risk and facilitating more responsible lending decisions.
* Allowing credit products to be tailored to individuals on the basis of their creditworthiness, reducing the costs of credit for some.
*Increasing competition in the credit industry, created by access to better information by smaller credit providers which have not had the capacity to build up their own information.
* Opening mainstream credit to a wider pool of individuals who may otherwise be excluded due to a lack of information about them.
* Providing a stronger base from which to detect identity theft and fraud, as the recording of accounts opened enables the monitoring of unusual credit behaviour.

Credit reporters will be able to include a credit score in a credit report. But where they do this, they have to provide the individual with a general outline of the way the score was calculated.

Until now, credit reports have only contained details like a person's failure to pay a debt and credit enquiries, - when a person asked for a loan or wanted to buy something on hire purchase.

Benefits to include 'more responsible lending'

Shroff said the changes should bring substantial benefits to individuals in dealings with the credit system, predicting more accuracy and completeness thereby enabling better assessments of credit worthiness and more responsible lending. There would also be strong new controls to protect privacy, Shroff said.

Credit reporters will have to include an "external element" in systematic reviews of the effectiveness of their policies, procedures and controls in place to both keep credit information secure and ensure it's accurate and up-to-date and then report annually on the results.

The disclosure of credit information by a credit reporter for any purpose related to direct marketing will be prohibited.

The Privacy Commission is also considering whether to allow credit reporters to access 24 months of a person's previous transaction history so they can check whether they up to date with payments. News on whether this will be included in the changes being introduced next April is expected within the next few months.

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