Dun & Bradstreet model provides balance between negative and full-file systems

11 August 2008

Australian lenders will be able to obtain a more complete picture of a borrower's true financial position when assessing new credit applications if recommendations from the Australian Law Reform Commission (ALRC) today are accepted by the Commonwealth Government.

The ALRC recommendations, which reflect the Dun & Bradstreet model first proposed in 2004, would see Australia move from a negative-only to a comprehensive credit reporting system. This move will allow additional information to be placed on consumer credit reports.

Under current laws credit reports are only permitted to record certain pieces of information such as identification details, a list of credit applications and negative events such as defaults or bankruptcies. Importantly credit reports can not currently detail whether a credit application has been approved.

The ALRC recommendations would allow credit reports to include the following additional information when a credit application has been approved:

• Type of credit - e.g. mortgage, personal loan, credit card
• Lending institution
• Credit limit
• Date account is closed.
  

Dun & Bradstreet CEO and member of the ALRC Advisory Committee Christine Christian, believes the proposed reforms have the ability to significantly improve responsible lending practices and assist economic growth via the free flow of credit to consumers and small business.

"The Australian credit market has changed dramatically over the last decade. The volume of credit applications and range of available products are far greater than ever before but our credit reporting laws have not kept pace with this new reality," said Ms Christian.

"With credit central to the operation of the economy and management of household budgets it is vitally important we have a reporting system that enhances responsible lending practices. An understanding of existing credit commitments is critical to this."

"The current decline in lending and the general tightening of the credit market is a clear sign the system requires reform. Lenders need to be able to provide a free flow of credit to consumers and businesses which is based on the most up to date and accurate data."

International research released by Dun & Bradstreet in partnership with Dr Michael Turner, the world's leading credit reporting expert, shows that comprehensive reporting can reduce default rates, improve access to mainstream credit for under-served sections of the community and increase the availability of credit to small business.

That research included findings that comprehensive reporting in Japan reduced the probability of defaults for the mean loan by 34%. Similarly a move to comprehensive reporting in Hong Kong saw credit card write-off ratios decline from 13.6% to 3.76%.

The Dun & Bradstreet model endorsed by the ALRC rejects the extremes of both the existing Australian negative-only system and the full-file positive system that operates in the United States. This model allows the credit market to take an important step towards ensuring lending decisions are based on quality information without impinging on the privacy of consumers. Australian laws would continue to prohibit the use of credit reports for marketing purposes.

"We believe this model finds an appropriate balance between the extremes of the existing negative-only model and the full-file system of the United States," said Ms Christian.

"The current environment clearly demonstrates the need to ensure lending decisions are based on quality data. The ALRC recommendations are a critical step towards achieving this goal."

For Dun & Bradstreet the outcome is another step in a campaign that started in 2004.

"When D&B began this campaign there weren't many organisations that viewed reform as a priority. However with competition changing the credit reporting industry and stakeholders gaining awareness of overseas experience the benefits of reform began to be understood. We are very pleased the industry progressed to endorsing an agreed position," said Ms Christian

The Government will now enter a period of public consultation on the ALRC recommendations before reaching a final decision later in the year.

For further information regarding D&B's campaign for reform visit the D&B Learning Centre >>

For further information please contact:

Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926

About D&B

D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.

Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.

The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.

Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.

Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.