'Good' customers to get cheaper loans as banks fall into line

| 08.02,18. 03:43 PM |

'Good' customers to get cheaper loans as banks fall into line

Borrowers with good credit histories will be able to get cheaper loans after the government forced the big four banks to share more data on their customers' credit histories.

Treasurer Scott Morrison on Thursday introduced draft legislation mandating a system known as "comprehensive credit reporting"  (CCR) that will apply to Commonwealth Bank, Westpac, ANZ Bank and National Australia Bank from July.

Under the policy, which has been voluntary in recent years, and dogged by low rates of industry participation, banks will be required to hand over more detailed credit histories on their customers to credit bureaux.

Banks have previously only provided "negative" data for cutomers' credit reports, such as whether the borrower has defaulted. The new regime will require banks to also provide "positive" credit information, such as how frequently they have paid their bills on time.

Mr Morrison said forcing banks to share this more detailed information will be a "game-changer," as it will allow smaller competitors to offer sharper interest rates, because they will have a better idea of how risky prospective borrowers are.

"Customers with good credit histories will be able to obtain lower rates, and be better placed to shop around because their credit history will now become available to all lenders," Mr Morrison said in a statement.

"Others, whose previous credit histories only included default rates, will also get a better chance to demonstrate their creditworthiness because there will be more credit information available on their reliability.

"The new credit reporting rules will help open up the lending market to competition by allowing new lenders entering the market to better assess credit risk, meet responsible lending obligations and at the same time reduce exposure to defaults."

The major banks have already volunteered to commit their data, but under the draft laws they will face penalties of $2.1 million if they do not comply. The banks will  need to hand over half of their CCR data by July this year, and 100 per cent of it by the middle of 2019.

The major banks have lobbied for the regime to also apply to their smaller rivals, but the new laws will initially only apply to the big four.

Mr Morrison said there would be "strong commercial incentives" for smaller lenders to also participate in the CCR regime, and the bill would include the power to require other lenders to provide data in the future if needed.

Comprehensive credit reporting has been backed by bodies including the Productivity Commission and Reserve Bank as one way of injecting greater competition into financial services.

However, consumer groups have raised concerns that the new regime could result in banks forcing lower-income customers to pay more for loans.


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