Comprehensive credit reporting is costly and inefficient, says major bank

by Julia Corderoy08 Apr 2015
A major bank says mandatory Comprehensive Credit Reporting (CCR) recommended in David Murray’s Financial Services Inquiry would be costly and inefficient.

The Final Report of Murray’s Financial Systems Inquiry recommends industry efforts to expand credit data sharing under the new voluntary CCR regime. However, if participation is inadequate over time, the Government should consider legislating mandatory participation.

According to Murray, this will give lenders access to an expanded range of information on borrowers through supporting efforts to expand credit data sharing between each other. The report argues that it will also ensure higher quality data, which will “lead to better credit decisions and improved credit conditions for borrowers.”

The new rules will allow credit providers to share individuals’ positive credit history data, such as loan repayment history as well as negative credit events, such as an individual’s history of defaults.

However, in Westpac’s submission to the Final FSI Report, the major bank says that mandatory CCR would impose additional costs to industry compared with the current model.

“For example, lenders under a mandatory approach would be required to provide all credit data for all portfolios by a specified date. This would remove the opportunity to evaluate areas of greatest benefit and to drive efficient investment in those portfolios where CCR will drive most improved decision making,” it stated.

“In contrast, a voluntary approach allows lenders to direct investment where most benefit will be realised.”

The major bank also argues that mandatory CCR would be inefficient and a waste of time.

“A mandatory approach could also lead to the development of inefficiencies in the market for the supply of comprehensive credit reporting services, as ‘early-mover’ suppliers are able to access the full suite of mandatory information from credit providers,” the submission argued.

“Many businesses are developing alternative means of gathering information to better understand customer preference and other characteristics relevant to credit decisions. This includes the use of social media, big data and other analytics. New lending models such as peer to peer lending will also be relevant to the credit data sharing market. A mandatory approach may be superseded by these developments in a relatively short time period.”