Proposed Privacy Act revision draws criticism

By Vanessa Tripodi

A proposal that would expand the amount of information that lenders can see about prospective borrowers is causing a lot of debate throughout Australia.

In October 2009 Cabinet Secretary Joe Ludwig announced the government's intention to bring the commonwealth's Privacy Act 1988 into the 21st century by allowing lenders access to information about borrowers' other loans and how responsible they are at paying their bills.

Currently, lenders have access to information regarding borrowers' credit applications over the last five years and whether they have defaulted -- but not whether they have been struggling to make those repayments or pay their bills. The proposed changes to the Privacy Act will give lenders this information, as well as details of the amounts of the loans already held by the potential borrowers.

The Australian Law Reform Commission believes that Australia's credit checking laws are among the most restrictive in the world, giving lenders only very limited information about the credit history of their potential borrowers. Consumer credit check group Veda Advantage has been lobbying the government to change those restrictions, citing its own research showing that one in six Australians has trouble repaying current debt. Ludwig has also agreed that current laws only allow lenders to see half the picture of a person's credit history and the proposed changes will allow for more responsible lending practices within Australian financial institutions.

However, some say revealing a person's payment history on their bills, credit cards and electricity will only create an expectation that is unrealistic for many Australians -- to pay all their bills before they are due every month. It will also make them targets of forceful selling of debt consolidation products, the Consumer Action Law Centre believes. CALC CEO Catriona Lowe  has said the proposed laws will only encourage lenders to offer potential borrowers debt finance products and high interest consolidation loans. Ms. Lowe has also pointed out that similar privacy and lending reforms in the U.S. have not reduced the power or prevalence of predatory lenders.

There is new legislation on responsible lending being prepared by Financial Services Minister Chris Bowen to be implemented early in 2011; the government is planning for these privacy and lending revisions to coincide with this legislation.

Article by Vanessa Tripodi

Published: October 30, 2009