The new credit reporting landscape

by 26 Feb 2019

Solicitor Joseph Trimarchi explains the tax implications of CCR

FROM July 2019, comprehensive credit reporting – or CCR – will be rolled out across the finance industry.

However, the initial rollout started on 1 July 2018, a fact that mostly went unnoticed because of the headlines made by the royal commission.

The broader impact of CCR has been well documented.

However, as the system is still in its infancy, the effects are yet to be measured and fully assessed.

A little-known fact about the new credit reporting system is that the Australian Tax Office is now capable of disclosing outstanding tax debts owed by self-employed individuals or corporations.

It should be noted that such reporting is limited to non-consumer credit.

This is an unprecedented move by the ATO, which argues that such listings enhance the transparency of the credit reporting system by making tax liability information readily available when determining creditworthiness.

Previously, a credit provider would only have become aware that a tax liability existed if the ATO had commenced proceedings and been awarded judgment, which would then have been recorded on a credit file.

The recent change will now see the ATO listing the payment history of those who enter into a payment arrangement with the tax office for outstanding tax liabilities.

The implication for brokers and their commercial clients is problematic as this could seriously affect creditworthiness, in the event that adverse information is recorded.

Further, as the ATO reporting occurs in commercial matters only, any challenge to this information would be difficult to mount, given that commercial matters are not afforded the same level of protection as matters involving consumer credit.

Finance professionals should make their clients aware that the ATO will now be reporting outstanding payments, and of the importance of adhering to the terms of any payment arrangements entered into. Many commentators are still stuck making comparisons between the new credit reporting system and the old, and looking for an answer as to which system is better.

In short, I believe both systems have their pros and cons, and the answer will crystallise as CCR gains traction.

Positive credit reporting, ie CCR, is designed to give credit providers greater insight into creditworthiness.

It also allows consumers the opportunity to ensure their use of credit gives them the best opportunity of being accepted for future credit if they maintain a good repayment history through the life of a loan.

The implication for brokers and their commercial clients is problematic, as this could seriously affect creditworthiness

Yet with an increase in the volume of information being captured on credit files comes a proportional increase in this information being recorded incorrectly.

As part of the services they provide, finance professionals should educate their clients as to the importance of maintaining a good payment history, which directly impacts on creditworthiness.

In recent times the two main credit reporting agencies, illion (formerly known as Dun & Bradstreet) and Equifax (formerly known as Veda), have been joined by a new kid on the block, Experian.

The introduction of a new credit reporting agency has made it more difficult for consumers to manage their creditworthiness.

It is difficult to know with any certainty which reporting agency a creditor will list with, and each creditor may list with one and not the other.

Accordingly, a default or other adverse listing may appear on any one of the three reporting agencies’ records.

Prior to submitting a loan application for a client, the finance professional must obtain a copy of all three of the client’s credit reports.

Failure to do so may lead to a doomed application from the outset.

Further, some credit providers are exploiting the system by listing information with one reporting agency and then some time later listing the same information with the other two agencies.

This is problematic as a removal of adverse information held with one credit reporting agency does not necessarily guarantee a removal from all three agencies.

The Australian credit reporting landscape in recent times has undergone significant change and has evolved into a system that is stringent and designed to catch out those who are not honouring their obligations under finance agreements.

But these people are not the problem.

The problem is that consumers with normally good creditworthiness have the potential of being punished for a vicissitude of life which, in some instances, is unforeseeable and unavoidable and brands them as less than creditworthy.

Finance professionals need to understand that their clients will have financial hardship situations arise from time to time, and they should therefore educate their clients on the best ways to avoid falling foul of their financial obligations, as this could have long-lasting effects on their creditworthiness.

 

 

Joseph Trimarchi

Solicitor,

Joseph Trimarchi & Associates