Dun and Bradstreet - Campaign for consumer credit report reform

Lending decisions are only as good as the information on which they are based

In 2004 D&B began a campaign to reform Australia's credit reporting system. For the previous twenty years Australia had suffered from a credit reporting system that was outdated, lacked innovation and poorly served Australian lenders and consumers.

Behind much of this were credit reporting laws which provided an incomplete picture of a borrowers true risk profile.

This 'negative' credit reporting system was increasingly unique around the world and was failing to respond to the evolution of the Australian consumer credit market. That market had a growing need for a credit reporting system that was innovative and could play a critical role in enhancing responsible lending practices in Australia.

Dun & Bradstreet's entrance into the consumer credit reporting market in 2004 brought a wave of competition, innovation and new thinking to the importance and role of credit reporting in Australia. Central to this was our campaign to introduce a comprehensive credit reporting system.

What is credit reporting and how does it work in Australia?

A credit report is used by credit providers to conduct credit checks whenever a consumer applies for credit. This may be in the form of a home loan, credit card, mobile phone or any of the many other types of credit products in Australia.

Currently Australia has what is referred to as a 'negative' credit reporting system. Under this system a credit report is only allowed to contain certain pieces of data such as identity details, a list of credit applications and data on negative events such as defaults and bankruptcies. Importantly while a credit report can record whether an application for credit has been made, it can not record whether that application was approved or rejected.

D&B believes this provides lenders with an incomplete picture of a borrowers' true financial position and could lead to lending decisions that are not in the best interests of both the consumer and lender.

Accordingly D&B called for Australia to move to a comprehensive credit reporting system.

What is comprehensive credit reporting?

A comprehensive credit reporting system (sometimes referred to as positive credit reporting) would allow credit reports to contain additional pieces of data. Under the D&B proposal a credit report would be allowed to contain four additional pieces of data when a credit application was approved. Those four data elements are:

Account type - e.g. home loan, credit card, persona loan
Lender
Credit limit
Date closed.

D&B believes including these additional data elements provides important new information that is critical to a lender when assessing future credit applications for a consumer.

This type of comprehensive credit report (positive credit report) would allow lenders to know not just if a consumer had previously defaulted but whether their existing credit obligations put them at risk of future default and / or whether a new credit facility is likely to cause undue financial stress.

What are the benefits of comprehensive credit reporting?

Comprehensive credit reporting (or positive credit reporting) has been extensively studied around the world. While different countries have different types of comprehensive credit reporting systems, the research shows that all have benefited from the inclusion of better quality data in credit reports.

The research shows that comprehensive credit reporting can:

Reduce default rates
Improve access to the mainstream credit system for under-served sections of the community - this includes women and new arrivals
Improve competition in the credit market which can have a positive impact on the price of credit
Enhance responsible lending practices.

How can I learn more about D&B's campaign for comprehensive credit reporting?

D&B has produced a number of reports and research papers on the benefits of comprehensive credit reporting. In addition it has led a number of discussions on this important reform in Australia and around the world.

Following are links to additional pieces of information:

To find out more contact Danielle Woods @ D&B on (02) 8270 2926 or woodsd@dnb.com.au