Lenders committed to CCR regardless of legislation approval

ANZ, Commonwealth Bank and Westpac will soon be signing the “Principles of Reciprocity and Data Exchange” (PRDE) agreement, which the Australian Retail Credit Association (ARCA) said has been designed in consultation with industry to facilitate the sharing of credit data among signatories by setting up a reciprocal data exchange.

The six principles, which were approved by the Australian Competition and Consumer Commission (ACCC), require that signatories:

• commit to the binding and enforceable system and structures developed by the industry that encourage the safe and secure exchange of credit information in the PRDE;
• ensure that the partial and comprehensive credit information is only exchanged between signatories to the PRDE;
• ensure that data meets a certain standard before it is exchanged, by requiring that shared data adheres to the Australian Credit Reporting Data Standard;
• agree to adopt transition rules within the specified timeline which will support early adoption of partial and comprehensive information exchange;
• be subject to monitoring, reporting and compliance requirements, for the purpose of encouraging participation in the exchange of credit information and data integrity; and
• accept the terms whereby the PRDE can be amended, as well as accept that a broad review of the PRDE is to be completed three years after it commences.

Speaking with Mortgage Business, ARCA chairman Mike Laing said that the remaining three of the big four banks are preparing to input their data into the PRDE by 30 September 2018, which was the government-imposed deadline for the major banks to provide 50 per cent of their CCR data to credit reporting bodies.

The National Consumer Credit Protection Amendment (Mandatory Comprehensive Credit Reporting) Bill 2018 is yet to receive Royal Assent, but the ARCA chairman said that many non-majors and fintechs have already jumped on board the CCR train, including Citibank, HSBC, Teachers Mutual Bank, RateSetter and MoneyPlace, among others.

While ME’s chief risk officer, Carlo Cataldo, recently commented that some of the big banks have been “reluctant to participate given the competitive advantages access to data provides”, Mr Laing said that the timing of ANZ, CBA and Westpac’s transition is not so much a sign of reluctance as it is a matter of prioritisation, given the many regulatory changes they are required to adapt to against the backdrop of an ongoing banking royal commission.

He added that, in fact, the banks are committed to the regime regardless of whether the bill passes Parliament this week.

“Within the major banks, they have numerous projects that they’re trying to get done and CCR is a significant project. There’s a lot of IT spend and process change, so making it mandatory really pushes it close to the top of the pile,” Mr Laing said.

“The majors were always going to do it; it’s just taken longer than it has taken others. That doesn’t reflect any lack of intention to do it; it’s just about prioritisation.”

The ARCA chairman further expressed his belief that the banks will exceed the 50 per cent obligation by the end of September, and will be ahead of schedule with submitting 100 per cent of their CCR data by the same date next year.

“[It will be] more than 50 per cent because most of them are putting all their credit card portfolios in first, and there’s a lot more credit cards than there are other products,” Mr Laing said.

“So, at the end of this month, 95 per cent of all accounts [will probably] be live in the system and being exchanged for credit reports.”

CCR a “fairer” system

According to the ARCA chairman, CCR is a “fairer” and mutually beneficial system for all parties.

Consumers, for example, will be able to prove positive financial behaviour, ultimately allowing for improved access to credit products and potentially better deals.

“Historically, the [credit reporting] system only had negative data in it… Credit reports were only about black marks about you. Now there’s going to be a lot of positive data in there,” Mr Laing said.

“People who have a good payment history will be able to prove to their lender or the [party with whom] they might be applying for a loan that they’ve got a very good payment history, [which] means they will get treated better and have a better chance at getting a loan.

“For most people, the credit report will actually be something that they can hold as their credit health report.”

He added that international studies have demonstrated the benefits of systems that take into account positive customer data, such as better access to loan products for consumers and easier risk assessment processes for lenders.

“For a lot of people, lenders don’t lend to them because they just can’t verify their actual payment history and they can’t verify what their total amount of debt is. Once lenders are able to verify that, studies overseas have demonstrated that a higher proportion of applications were actually being signed off,” the ARCA chairman said.

"[This is] notwithstanding the royal commission and other things that are forcing the lenders to perhaps put a bit of a dampener on the approval rates and taking them longer to approve [applications] because they’re having to check more.”

Mr Laing said that the aim is to have 24 months of a customer’s payment history available for signatories to exchange and evaluate.

Further, while mortgage data is not expected to be provided in the initial phase of the CCR coming into effect, the ARCA chairman said that mortgage brokers will still benefit from the data.

“Getting access to a credit report helps them understand the likelihood that a customer could get a loan from different lenders. They will better understand over time what types of lenders, as they already do now, would [approve applications from] a customer of [a certain] profile, who is the best potential lender or panel of lenders to recommend,” Mr Laing said.

“It makes their job easier because they would have access to independent verifiable resource.”

Super-backed bank ME recently expressed its intention to participate in the CCR regime “as soon as possible” as it tests its “data-sharing capability”.

In line with Mr Laing’s comments, ME’s Mr Cataldo said that CCR will make responsible lending obligations easier to comply with, increase competition between lenders and allow lenders to take more informed risks.

“CCR helps all banks, including ME, provide better service to market segments, which were previously unavailable through limited access to data. For example, ME will be able to lend with greater certainty, reducing the costs of bad loans over the long term as well as enable better compliance with responsible lending obligations,” the chief risk officer said.

[Related: Consultation launches on draft Consumer Data Right]