Call For Changed Credit Reporting System To Help Alleviate Spiraling Debt Issues In Australia

Wednesday 21 April 2004 13:10 CET | News

Australians will be less likely to default on personal and housing debts if the current credit reporting system is replaced with a model that captures more comprehensive consumer credit histories, according to a major industry report released by the International Consumer & Credit Card Summit.

The ACIL Tasman Report, commissioned by MasterCard, reveals the current credit reporting system, by which an Australian lender can assess a person’s credit worthiness, is unnecessarily allowing some Australians to spiral into debt, while denying basic forms of credit to others who do not have a defined credit history. The Report reveals that if a more comprehensive reporting system were to be introduced the Australian economy could capture an additional $5.3 billion in productivity gains over the next decade. Australias current reporting system restricts the lender to access only the negative credit history of the potential borrower. The current system does not provide information vital to preventing unnecessary debt defaults, such as the borrowers current open lines of credit. This means the lender can only base their assessment on limited information which sometimes may lead to over leveraging. The Report concludes there are significant advantages to transitioning to a more comprehensive credit reporting system which would keep more relevant information about a borrowers credit worthiness. Using very conservative assumptions the ACIL Tasman Report concludes a comprehensive system would generate a one-off increase in capital productivity of up to 0.1 per cent, which would translate into economic benefits to the Australian economy of up to $5.3 billion, in net present value terms, over the next ten years. Australia stands at odds with the rest of the world by maintaining its current credit reporting regime. The sharing of comprehensive credit information now extends to more than 40 countries, including most countries in the OECD and the Asia-Pacific region. Earlier this year India became the most recent economy to transition to a more comprehensive credit reporting system, joining countries like the United States, United Kingdom, Singapore, Hong Kong and Canada. A recent World Bank report further substantiates the ACIL-Tasman Report, predicting that if a comprehensive credit reporting system were to be instituted in Australia then the economy would witness a decrease in credit defaults by between 25 and 63 per cent. This could be achieved while still protecting consumers’ privacy, as has been demonstrated in many markets around the world, most notably in the UK. According to the Australian Bureau of Statistics the annual consumer credit market in Australia is valued at around $202 billion and over the past decade the overall rate of growth in consumer credit has averaged more than 14 per cent per annum.

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Categories: Payments & Commerce | Payments General
Countries: World
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