Changes to credit record reporting – A balancing act or big brother?

|

West Auckland LawyerFrom the 1st of April 2012 amendments to the Credit Reporting Privacy Code 2004 will allow lenders to find out whether you pay your bills on time or not.

Up until now, credit history reporting was negative in that it only reported late payments, defaults and bankruptcies.  These changes will allow credit providers to have a wider view of your credit history, including positive data, in order to make accessing credit easier, faster and, ultimately, cheaper.  Cheaper, because there is less risk to the lender if they have more information up front.

So, if you keep on top of your bills, you may be able to access credit at a cheaper interest rate.  This move has been welcomed by consumer groups because it should allow, and encourage, people to use mainstream credit providers rather than so called ‘loan sharks’, who can charge high interest rates to, often, desperate people unable to access credit anywhere else. 

It may also encourage people to pay down debt and make identity fraud harder.  And, it is predicted, that these changes should boost economic growth which - in these hard times - must be a positive.

Sounds good but there is always a catch! Credit reporting firms such as Dun & Bradstreet will be able to collect information about your bill payments from people like your utility providers and hire purchase providers, and on sell that information to lenders. 

That is fine if you pay your bills on time but what if you don’t, or can’t – perhaps, through no fault of your own?  Potentially, the diligent bill payer would pay lower interest rates, while those who struggle to keep up with their payments, would be subject to higher interest rates - creating a downward payment spiral. 

Your credit information may also be made available to:

1) prospective landlords;
2) prospective employers. (If the job involves significant financial risk);
3) prospective mortgage insurers;
4) debt collectors;
5) people involved in court proceedings; and
6) certain government agencies.  

Your consent is needed for scenarios 1 to 4 but, in practice, judgments will inevitably be made if you refuse.  In the case of the government, consent is not necessary at all.

Going forward, we should all take a look at our how we pay our bills.  Bill paying decisions may affect our ability to borrow and access cheaper interest rates.  In the future, our bill paying habits could also potentially affect our ability to rent a house or get the job we apply for.

Privacy Commissioner Marie Shroff admits “Credit reporting is an area that involves some fine balances.  We want to ensure people can get credit at a reasonable price when they need it, and also that lenders have enough information to be able to make sound, responsible lending decisions.” 

We will all soon find out if they have the balance right between safeguarding our fundamental right to privacy and our public interest in having a robust, efficient economy.           

To find out more go to www.privacy.org.nz

If you have any questions relating to changes to credit record reporting and the Credit Reporting Privacy Code 2004, please contact Carolyn Ranson, Smith & Partners Commercial Lawyer by phone on 837 6891 or email carolyn.ranson@smithpartners.co.nz