Comprehensive credit reporting is creating opportunities for unregulated sections of the financial services industry to increase their profits at the expense of consumers.
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Whereas relatively little data used to be held on credit reports, now many more details are being collected. Monthly payment histories on loans and credit cards can now be shown on credit reports, and any missed payments of more than 14 days are noted. It used to be only limited information, such as missed payments of more than 60 days and bankruptcies.
Lenders access the credit reports when someone applies for a loan. However, the advent of comprehensive reporting will likely aid the growth of the credit repair industry. These are the companies that go by the names of credit repairers, fixers and restorers, which promise, for an upfront fee, to make debts go away and expunge black marks on credit records, but most of these companies are unregulated. They are neither licensed nor supervised.
Consumers are missing out on important consumer protections. For example, financial services licence holders must be members of a dispute resolution scheme that is free to consumers.
A recent report by academics at the University of Melbourne on the credit repair industry called for the sector to be regulated. The report notes that these companies charge high upfront fees for services that consumers can do themselves or are available for free through financial counsellors and legal advice centres.
The change to comprehensive credit reporting will lead to more errors and black marks on credits reports. Consumer advocates fear that will drive more people into the hands of credit repairers.
"Credit repair is becoming a huge industry and consumer advocates have been lobbying for a long time to have the credit repair industry regulated," says the Financial Rights Legal Centre's principal solicitor, Katherine Lane.
The Consumer Action Law Centre's chief executive, Gerard Brody, is damning of credit repairers. Their business models are "inherently deceptive", he says.
"You cannot remove legitimate defaults from credit reports. Credit repairers leave people, through their marketing, with the impression that they can."
So what should consumers who run into debt problems do?
Consumers should "never, ever" go to one of the credit repair companies, Lane says. "We have very extensive financial counselling in Australia funded by governments, which is free to consumers, so there is no reason why consumers should not be seeking advice."
The first step is to contact the Credit & Debt Hotline, 1800 007 007, which will switch you to a counselling service in your state or territory.
If any listing on the report is inaccurate, there is a free process by which the consumer can go to the credit provider, such as a lender, to have the error fixed. Failing that, the consumer can get free access to the relevant complaint resolution scheme to which the credit provider must be a member.
As to falling behind on loan repayments, under financial hardship provisions, borrowers can have their debts renegotiated and repayments rescheduled, Lane says.
Credit reporting agencies are required to provide reports to consumers for free at least once a year. Lenders, mortgage brokers and credit repair companies are offering to obtain free credit reports on consumers' behalf.
Consumer groups say some lenders, mortgage brokers and credit repairers appear to be using the free reports to generate sales leads for their loans and credit repair services.
Credit reports can be useful for consumers to find out what is stopping them from obtaining credit. However, to obtain a credit report, a consumer's personal details, such as current residential address, has to be handed over to the credit reporting agency.
Those with a "pile of debt" need to get advice first, Lane says. It may not be in their best interests to get their credit reports, because they could be set upon by debt collectors.
