Changes to the credit reporting system could mean that people who pay their bills on time will be rewarded with cheaper interest rates on their loans. However, consumer groups warn the regime has too many holes in it, and that it could create more problems than it fixes.
From the article:
“We may see an influx of expensive priced-for-risk products, like credit cards charging up to 50% per annum for those deemed not to be good payers. These sort of toxic products exist in other countries like USA and the UK,” says Gerard Brody, the chief executive of CALC.
These sentiments were echoed by Financial Right Legal Centre, a community law centre in NSW that specialises in consumer credit, banking, debt recovery and insurance.
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The Australian Bankers Association (ABA), a lobby group actively representing 25 banks, including the big four, welcomed the announcement, before acknowledging that many questions regarding the policy beg for answers.
“While the benefits to those who have a good report are outlined in the new model, the impact for those who miss or delay a payment, either intentionally or unintentionally, is not clear at this stage,” says Anna Bligh, the chief executive of the ABA.
What do you think of the new credit reporting regime, due to be launched next year?
As noted in the article, the incoming credit system emulates that from the USA and UK. The central question is whether it will hurt the poor. Using the USA as context, it depends but in general, yes. Some simplistically presented comments -
As long as a person pays their bills on time they will get a decent credit ‘score’. One’s credit score categorises one for the best (or worst) interest rate offers for all sorts of loans and credit cards. Reality is that many financial institutions cater to those with mid-level scores because they, for example do not pay their credit cards in full every month, and pay credit card high interest, but are not risky.
If one is late with or misses payment(s) it becomes a negative making it harder to get credit, and when credit is offered it is at a higher interest tier reflecting the higher risk to the lender. Much tardiness or failure to pay at all and credit becomes near impossible except from the worst of the bottom feeder companies that will provide credit at very high costs, and some also foreclose/engage collection services immediately when the T&C are breached. The latter is illustrated by some used vehicle dealers who do their own financing and cater to those without access to bank/finance company loans; they sell a vehicle with strict payment conditions; miss one by a day and the car is repossessed with the customer often having no redress to recover it; the vehicle might be sold and resold multiple times to people on the margins before one pays it off and owns it.
People on low incomes who manage their finances well can be disadvantaged by equations that include income vs debt vs amount of credit available. The last is curious in that the equations assume all of the available credit will be accessed, so ability to repay is based on a debt level of all available credit whether used or not, with the presumed payments one is liable for based on that deemed maximum debt.
A perverse part of the equation can be that if one does what appears to be the right thing and, for example cancels unneeded credit cards, it can reduce your credit rating because now you have less credit available and any outstanding balance is a higher ratio of debt to available credit. The curious assumption is that as a consumer uses a higher percentage of available credit they are becoming increasingly financially stressed. Hence in the USA it is bad to cancel a credit card even if never used and unwanted.
The devil will be in the details as whatever comes could have the worst of the USA system with uniquely Australian twists, or it could be applied fairly but what are the odds?
I am a bit mixed about this one, as I can see advantages and disadvantages from both sides.
On one side, maybe we all need ro take more responsibility of our finances. If one rings the credit agency (to which the bill or monies is owed), usually new payments can be renegotiated.
If one has no intetest in theie financial affairs, and leaves everything to everyone else to sort out, then this will create difficulties for those who are dismissive of these obligations. Unfortunately some think debt will go away if ignored, but it n is better ti face fhe problem upfront and head on rather than try and ignore it.
I can also see that those who do rhe right thing honouring any credit agreement, should be rewarded…this currently exist with on time payment discounts such as rates, car registration, electricity or such like. It is possibly better to offer rewards to those who do the right thing by paying on time, than penalising those who don’t. Maybe this is the true intention of the changes…that those who fail to honour agreements are not given any concessions as they pose higher risk to the creditor?
In general it looks correct, but those at the margins often struggle to do the right thing despite their best intentions (or not), and will essentially be kicked in the guts. It will be difficult for them to recover so re the topic, it will hurt them.
The credit providers should prove their cost of doing business with the different groups.
If they can prove that it costs them up to 50% to provide credit to the high risk borrowers, I might be willing to listen, Equally, they should show the cost of doing business with low risk borrowers. They would need to justify why for example, we are paying such disproportionately high interest rates on credit cards?
On the face of it, I am inclined to think that the banks have just found a new way of gouging customers and want to import that practice to Australia.
Yet another indication that the banks have lost their moral compasses.
You know Phil (@PhilT) , on reflection I think you may be right.
I used to have a ‘rosy’ view of banks being an integral part of the community, and looking after their customers.
Now in hindsight, they were still trying to find ways to part us from our money from childhood, and maximize their profits. (Here I’m thinking about the little gray bank pass books and tin banks we had as kids.)
I am a paying member of a share advisory service. The principles are pretty well off
In today’s letter one wrote he applied for a new Amex card to replace one that was being withdrawn (as part of the new era in cards, fees, and rewards) by his bank. He clams a good income (probably a very good income) as well as substantial assets, but was knocked back by the computer forms. He then applied for another card where he had a face to face interview with card granted no worries.
In the new style credit reporting it might be the case where if you are declined for credit for any reason it will show on your credit report. Using the US as an example of what may come to us, the next provider can, may, and often will decline you or give you a lesser ‘deal’ just because someone else declined you. It is not just theoretical how it can affect people regardless of their circumstances.
The quality of motor oil you buy and purchases of domestic floor protection products could soon be used determine whether or not you’re a good bet for a mortgage or increased credit card limit.
That’s the very lateral take from ANZ’s head of retail risk, Jason Humphrey, who lifted the hood on how the institution is throwing masses of NVDIA DGX-1 compute power at AI and deep learning.
“deep learning” indeed. Screwing the customer has become more difficult - it’s time to let machines make getting away with it easier …
A bit ridiculous and meaningless. Could be read either way…
Someone buying cheap branded/unbranded motor oil means they like to save costs and money and low risk…also could mean that they can’t afford more expensive oil and has limited free money thus a high risk.
But analysed with lots of other data they have access to these will certainly profile people more definitively. The ability to read a person has become so finely tuned that only a small amount of information is required to make fairly precise calls about a person’s personality eg after 300 “likes” on Facebook a computer could asses the personality almost as well as a spouse or partner this is from an article on the Independent. Co website.
“The computer did better than a friend or roommate after analysing 70 likes and was better than a parent or sibling after assessing 150 likes. The machine could even predict personality almost as well as a husband, wife or partner after analysing 300 Facebook likes, the researchers found.”
