Wider industry support garnered for CCR
Responsible lending, open banking and widening the take up of comprehensive credit reporting are among the key priorities for the Australian Retail Credit Association in the year ahead.
Strengthening Australia’s credit risk ecosystem by focusing on availability and quality of data under the open banking and comprehensive credit system (CCR) regimes and addressing issues around responsible lending and open banking are among the key priorities for the Australian Retail Credit Association (ARCA).
“We will remain focused on supporting the industry’s transition to CCR through the industry rules for credit reporting known as the Principles of Reciprocity and Data Exchange (PRDE)” ARCA CEO Mike Laing said.
With the Australian Competition and Consumer Commission’s (ACCC) authorisation of these industry rules due to expire in 2020, ARCA will lead the re-authorisation process which will also incorporate updates to the PRDE following a recent independent review.
This will be one of the key priorities for ARCA in 2020.
Of course, those in the business of lending confront a myriad of changes in the year ahead including ASIC’s revised guidance on responsible lending, open banking – slated to come in in February – as well as increased competition from the entry of new players like the neobanks.
I suspect any new neobank that is focused on consumer lending will take up CCR. It effectively gives them the insights into consumer base they would not otherwise have,”
ACRA will also look to widen industry support for CCR from growing sectors such as the buy-now-pay-later (BNPL) market and emerging industries such as the neobanks.
To date around 85 per cent of consumer credit accounts have CCR data supplied to credit reporting bodies under the PRDE.
A broad range of credit providers already participate in CCR include the major banks, finance companies such as Latitude and Flexigroup, fintechs such as Moneyplace and Harmoney and many mutual banks including Greater Bank, MyState Bank, Newcastle Permanent, and Teachers Mutual.
Laing said fintechs were early supporters of CCR and the neobanks are now showing their support also.
“Our membership is diverse and includes fintechs and neobanks.
“We have also been speaking with neobanks and start-ups outside our member base. I suspect any new neobank that is focused on consumer lending will take up CCR.
“It effectively gives them the insights into consumer base they would not otherwise have,” Laing said.
Laing said there have been conversations with a number of BNPL providers around CCR. He sees value for these businesses to participate in CCR, noting that many providers offer more than just BNPL products and are already using CCR for products such as personal loans or credit cards.
“While most BNPL products don’t require a credit licence, many providers see the value in using CCR to help make more responsible lending decision” Laing said.
Here he notes that because providers using CCR have access to a consumer’s debt profile and account repayment history, they can make better decisions and avoid providing their BNPL services to consumers who might already struggling with their existing debts.
Laing would also like to see other industries beyond financial services participate in CCR.
“CCR does not have a narrow focus. We are keen to see other sectors involved including the telecommunications as well as the energy sectors,” he said.
Getting a greater breath of data sets will also be key, however, and that is part of a longer-term plan for the association.
“While we are moving to 90 per cent of accounts in the CCR system, the breadth of data allowed in Australia is very limited compared with other countries.
“We would like to see a widened set of data as well as other sectors taking part in CCR,” Laing said.
Committed to consumer education
For Laing it is about “more colour going into the system” that will give providers more granular information that will include the balance of the accounts and actual repayments made.
“That is not going to happen quickly but from a policy position we think it is important that the system continues to evolve by getting more sectors involved and the extra data fields.”
Responsible lending will also be a key priority for ARCA. The association will be working closely with its members once ASIC releases its updated guidance slated to be released before Christmas.
Indeed, the corporate regulatory provided an update at ARCA’s annual conference in October.
At the event, ASIC Commissioner Sean Hughes echoed Laing’s views that the regulator won’t be introducing new requirements, rather the focus will be on lenders doing better.
“What Commissioner Hughes was saying that there won’t be a fundamental change to the existing approach.
“Lenders need to consider the guidance when making their decisions about the degree of inquiry and verification required - but importantly Commissioner Hughes confirmed that the concept of scalability remained in ASIC’s guidance.”
Open banking will also have implications for responsible lending and ARCA will be working closely with the regulator involved in this framework – the ACCC.
“We feel that the way some rules are couched within open banking is not consistent with the needs of the lender.
“We will be working with the ACCC to try and create some variations of the rules that apply to responsible lending so that open banking can be used effectively” Laing said.
Until that happens, Laing doubted that open banking would replace existing screen scraping services which some regulators have indicated is their expectation.
Laing is enthusiastic around the potential for open banking.
Indeed, he sees that open data framework will complement the CCR framework. Consumer education will also remain a priority for ARCA.
The association has already embarked on a widescale education campaign through its CreditSmart initiative.
“We believe it is important that consumers understand and are empowered to take charge of their credit health.
In 2018 and 2019 CreditSmart focused on the changes that have happened in credit reporting and promoted the message that consumers can and should take ownership of their credit report.
We’ll continue to promote that message and to educate consumers more broadly around credit health and what type of information about a consumer is relevant to credit decisioning from a lender’s perspective,
“Consumers need to realise the importance of making their repayments on time and how that impacts their capacity to borrow.
“We see consumer education as a five-year program. 2019 has been our second year and we’ve seen improvement in consumer awareness already. ARCA and our members are very much committed to consumer education and the CreditSmart strategy.”