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									Your Ref:                                                                                         Contact:      Loretta Kreet
Our Ref:        LK :                                                                              Telephone: (07) 3238 3015
Date:           15 November 2002                                                                  Facsimile:    (07) 3238 3400
                                                                                                  Email: lkreet@legalaid.qld.gov.au



 Office of the Federal Privacy Commissioner
 GPO Box 5218
 SYDNEY NSW 1042



         CONSULTATION ON CREDIT REPORTING DETERMINATION 2002 NO. 1



 We refer to the above.

 Since its establishment the Consumer Protection Unit at Legal Aid has received many
 complaints from consumers concerning matters regulated by the Privacy Act (Cth) („the
 Privacy Act‟) and welcomes the opportunity to make submissions on the review of the
 above determination.

 The Consumer Protection Unit specialises in consumer injustices including disputes
 with credit providers and insurers. In that capacity it provides direct advice to over 600
 Queenslanders each year and undertakes follow up case work. Casework is
 undertaken on behalf of consumers where the matter is in the public interest or to
 highlight some of the deficiencies that may, for example, exist within credit reporting.

 The unit also supports to Legal Aid‟s general advice solicitors and call centre in relation
 to Consumer Protection matters.

 In recent years this unit has seen an explosion of complaints in relation to credit
 reporting. In particular, complaints relate to those classes of credit providers who have
 access to credit reporting as a consequence of the determination under section 11B
 (1)(b)(v)(B) of the Privacy Act. In addition fringe lenders have also provided many
 examples of non compliance with requirements of the legislation.

 In 1989 when the Privacy Amendment Bill was first introduced to parliament, the
 government defined the principal purpose of the proposed amendment to the Privacy
 Act as a bill to protect the privacy of individuals in relation to their consumer credit
 records.

 That was the primary purpose for the regulation of credit reporting. We submit that over
 the years the broad definition of “credit provider” contained in Determination 1 has
 resulted in the erosion of the principle of protecting the privacy of individuals.



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ACCESS TO CREDIT REPORTING SYSTEMS


When the Privacy Amendment Bill was introduced to the Senate in May 1989 the
primary driver for the amendment revolved around the need to protect the privacy of
individuals.

Credit reporting was seen as a most intrusive agency and CRAA had indicated that they
planned to introduce a positive reporting regime that would have monthly accounts of
individuals downloaded to a centralised body as a means of adding to the then current
information held by the credit reporting agency.

At the same time concerns about the use of the credit reporting concentrated around its
use when assessing: insurance proposals; the possibility of insurance fraud; the
suitability of prospective tenants; and occupational licensing amongst other things.

The government‟s move to regulate credit reporting also arose due to the community
concern about the intrusive nature of credit reporting. Credit Reporting was noted as
the number one privacy concern of individuals according to a survey undertaken prior to
the introduction of the legislation to the Senate.

There is no evidence to support a contention that Australians are any less concerned
about credit reporting and the effect on their privacy than was the case in the 1980‟s.

Given the proliferation of entities having access to credit reporting in the last 10 years,
the very public fiasco over the demise of One Tel and the subsequent abuse of the
credit reporting system it is much more likely that concerns with regards to credit
reporting are increasing rather than declining.

Indeed the latest amendment to the Privacy Act in 2000 indicates that Australians
continue to have a great deal of concern about the protection of their privacy.

Before the amending legislation took affect in 1991, members of CRAA included real
estate agents, insurance companies, private investigators and government
departments. Senator Graham Richardson in his second reading speech in May 1989
referred particularly to those entities and maintained that those entities would not have
access to credit reporting. We note in this respect that utilities at this time were
government departments and were specifically mentioned as being excluded in Senator
Calvert‟s speech of 2 November 1989.

The government wanted to ensure that that access to credit reporting was very
restricted. Whilst there was 4800 members of CRAA in 1989, and the government was
aware that with the amending legislation the membership of CRAA would decrease by
90% (according to CRAA‟s own figure or to 480 members) the government did not
believe that the decrease in eligible membership should effect its decision to restrict
access to credit reporting.

The aim of the legislation sought to balance the fundamental right to privacy by
individuals and the rights of credit providers to protect their commercial interests. In
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addition it sought to ensure that borrowers experiencing difficulties paying were not
permanently excluded from obtaining credit.

1.1 Should access (ie: The range of classes of business) to the credit reporting
    system be changed by making use of the Commissioner’s powers under the
    Act? What evidence can you provide to support your position?

Access to credit reporting should be tightened to ensure compliance with the original
intention of parliament as the current definition under Determination 1 is too broad

Legislation intended that the class of credit providers should be restricted. Even
senators opposing the 1989 amendment bill did so on the basis that the entities
obtaining access, were on the whole major corporations, and department stores and not
proliferation of small entities.

Over time the commercial interests of credit providers appear to have taken precedence
over the rights of the individual to privacy. It‟s important that credit reporting reflect a
balance between the right of individuals to privacy and the commercial interest of credit
providers. That balance is not achieved in the current climate where personal
information including the credit history of individuals is available to potentially a large
number of entities. If we were to assess the number of corporations and by extension
their employees and agents potentially able to access credit reporting under the current
definition the numbers are so great it makes a mockery of the principle of the protection
of the privacy of individuals.

Generally speaking the community remains concerned with privacy of credit reports. In
resolving consumer‟s complaints with financiers, the most common clause in settlement
agreements pertains to the amendment or deletion of adverse listings .

In many cases, consumers enter into high interest and high cost loans to establish
credit records often causing hardship. Consumers want those records to be accurate
and believe that those records are only available to financiers such as banks, building
societies, credit unions and finance companies and not video stores, dentists and
lawyers.

Its interesting to note that the Credit Reporting Advice Summaries exclude insurance
companies on basis that Parliament when introducing the amending legislation
specifically excluded them. However utilities were also specifically excluded yet they
are allowed access to credit reporting. We note here that the government clearly
intended to exclude government departments from access to credit reporting and in
1989 all utilities were contained within government departments. We submit that the
intention of government was to exclude all such entities from credit reporting and the
ability to access credit reporting should not change simply because the provision of
services is no longer provided by government.

Types of entities who now seemingly have access to credit reporting according to the
Federal Privacy Commissioner‟s own advice summaries include:

       video stores;
       car rental companies;
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       debt collectors;
       doctors and hospitals; and
       Florists.

By analogy plumbers, lawyers and local repairman may obtain access

Credit reporting is a very powerful tool in the hands of unscrupulous credit providers.

Access should be tightened given the ease in listing defaults. Credit providers are not
required to produce any evidence to the credit reporting agency at the time of listing
that:

       a contract exists;
       a debt continues to exist;
       the debt was overdue for at least 60 days;
       the amount claimed is accurate
       the individual is guilty of a serious credit infringement. ( We note the systematic
        use of “clearouts” by credit providers identified previously to the Federal Privacy
        Commissioner simply where an individual is not making payments on an alleged
        debt)

Furthermore, the use of “fuzzy matching” to amend credit reports where individual may
not be the person to which the information relates increases the potential for errors.

Given that the system is so slow in deleting or amending reports ( see case study 16)
particularly when liability is disputed (see case studies 1-13,15,16 all involved disputed
liabilities), it is imperative that access to credit reporting is restricted to lenders who
legitimately require access where the provision of credit is a core function of its
business and not ancillary to it.

The Federal Privacy Commissioner has previously indicated that he will not investigate
complaints where liability is disputed however given the requirement that listing is
based on the individual‟s default which must necessarily require an investigation into
the individual‟s liability for the debt.

The Federal Privacy Commissioner cannot simply rely on the production of an account
by the credit provider as proof that a debt exists. If the Federal Privacy Commissioner
is not inclined to investigate even fundamental questions of liability, it shifts the onus of
proof to the individual rather than the credit provider. In any legal proceedings the onus
of proving the existence of the debt rests with the credit provider. For that reason,
access should be severely limited given the difficulty in removing a disputed listing and
the serious consequences for obtaining credit if a default listing exists. We do not see
that noting the listing as “disputed” assists individuals when attempting to access credit,
in particular bank credit for housing purposes.
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1.2 What could be adverse or positive effects of changing access to the credit
    reporting system?

In some respects the answer to this question is canvassed above. Given the vast
numbers of businesses who potentially could access credit reporting and given the
problems inherent in the system currently, restricting access to credit reporting is clearly
in the public interest.

We submit that the community would be outraged if it knew the number of entities who
could obtain access to credit reporting

When government moved to restrict access to credit reporting in 1989, business argued
that restricting access to credit reporting would lead to increased business costs,
insurance premiums and interest rates and that business would make subjective
judgments rather than objective judgments about lending decisions. There is no
evidence to our knowledge that the consequences foreshadowed occurred as a result
of the credit reporting amendments to the Act.

We submit that restricting access to credit reporting would ensure that individuals would
regain confidence in the credit reporting system, increase the rights of individuals to
privacy and ensure that consumers are not denied credit on the basis of: a listing by
questionable “credit providers” and or; for small amounts and or where liability is
disputed.


1.3 How may businesses retain access to the credit reporting system, yet
    exercise that access in a manner that meets the obligations of the Act and
    Code of Conduct?

We do not support the current raft of businesses retaining access to the credit reporting
system. We are concerned about how many more potential “credit providers” in the
community who would use credit reporting if they were aware that they could access it.
Reference is made to the thousands of tradespeople who potentially could use credit
reporting if they provide credit for more than seven days (including the mechanic,
plumber, electrician and the odd jobs man if they operate under a company entity). The
many small retail businesses that would have similar access to credit reporting if they
allow terms of more than seven days credit. In addition professionals could also have
access to the system including dentists, lawyers, doctors and physical therapists.

Whilst many businesses may actually access the credit reporting system it is hard to
gauge whether there is compliance with the system.

An individual complaining about credit reporting relies on consumers having knowledge
of the credit reporting agency, knowing how to access their individual report, accessing
their individual credit report and making a complaint if unauthorised access or incorrect
details are contained in the report.

In most cases the first time individuals may seek to access their credit reports is:

1. when credit is refuse on the grounds of an adverse credit report; and or
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2. where the individual is threatened with a default listing.

Even where an unauthorised enquiry is made individuals may not complain because
there is no incentive to make such a complaint given that the damage has already
occurred and as Federal Privacy Commissioner has not to our knowledge ever ordered
the payment of compensation in such circumstances.

Similarly the Federal Privacy Commissioner does not appear to encourage consumers
to seek compensation for breaches particularly where no ostensible damage has
occurred (i.e. an unauthorised enquiry).

In our experience the Federal Privacy Commissioner does not appear to impose any
sanctions in respect of credit providers who fail to comply with requests for information
(see case study 16). In that example the Federal Privacy Commissioner wrote to the
company a number times without a response and except for removing the listing
against the individual after six months did not impose any sanctions on the credit
provider.

Consequently resourcing for the Federal Privacy Commissioner needs boosting,
sanctions against credit providers need strengthening, the onus of proof in terms of
compliance needs to rest with the credit provider and sufficient evidence to substantiate
a default listing should be produced before the listing is made. A statement of an
account should not be sufficient for those purposes.

Given the length of time taken to remove disputed default listings, the urgency often
associated with the request and many individual‟s concern that an adverse credit report
besmirches their character, when an individual disputes a listing and provides
preliminary information about the grounds for that objection, the listing should
immediately be removed and then the credit provider should be given the opportunity to
produce evidence to prove that the listing was validly made.

In regards to sanctions, even were sanctions increased there must be a willingness to
impose those sanctions.

As in case study 16, if a credit provider fails to respond to Federal Privacy
Commissioner then, denying future access to credit reporting and imposing a heavy fine
may have produced a response from credit provider.

When systemic errors, are identified and not dealt with when brought to the credit
provider‟s attention then mandatory penalties and mandatory exclusion from credit
reporting might be imposed to encourage compliance Systemic issues do not
necessarily require a high volume of complaints. One complaint can identify a systemic
issue. Listing “clearouts “ where clients are not paying may reflect a policy by the credit
provider and therefore should be tackled on the basis that the issue is systemic even if
only one complaint is received.

In fact, we note that the consumer movement has raised the issue of the indiscriminate
use of “clearouts” by a number of credit providers. This practice continues despite
community concern.
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To ensure compliance, listings should be randomly audited for their accuracy.

IS NON-COMPLIANCE WITH CREDIT REPORTING REQUIREMENTS
SYSTEMIC IN CERTAIN INDUSTRIES?

2.1 In your experience of the consumer credit reporting system, what privacy
    compliance issues have arisen? What evidence can you provide to support
    your position?

Industry using credit reporting may argue that only a tiny proportion of complaints about
credit reporting are ever actioned by the credit reporting agency or the Federal Privacy
commissioner and widespread problems with credit reporting do not exist.

Complaints received by our organisation are only representative of a tiny number of
actual complaints that may well exist in the community.

Whilst many businesses may actually access the credit reporting system it is hard to
gauge whether there is compliance.

An individual complaining about credit reporting relies on consumers having knowledge
of the credit reporting agency, knowing how to access their individual report, accessing
their individual credit report and making a complaint if unauthorised access or incorrect
details contained in the report.

In most cases the first time individuals may seek to access their credit reports is:

3. when credit is refuse on the grounds of an adverse credit report; and or
4. where the individual is threatened with a default listing.

The single biggest issue that has arisen over the past few years is either the threat of
default listing or listing an individual as a means of forcing individuals to make
payments on accounts where there is a dispute as to liability.

Whilst credit reporting was originally intended to assist in the collection of debts
particularly in relation to location of alleged debtors it was not the intention of parliament
to replace legal action by credit providers seeking to enforce debts with credit reporting.

This practice appears most prevalent in respect of those creditors who fall within the
definition contained in Determination 1.

Some other issues relate to failure to advise clients of intention to report, failure to
obtain written permission to obtain a credit report, failure to provide proof of a debt‟s
existence, reporting defaults when credit provider and borrower has agreed to vary the
contract within the 60 day default period, listing “clearouts” when individuals have
provided details of where they live and how to contact them, re-listing or threatening to
re-list when assignee acquires the rights under a contract, providing details contained in
credit reports to unauthorised third parties and incorrect information contained in credit
report sometimes as a result of “fuzzy matching”.
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2.2 Do you think these issues arise generally or in relation to particular
    industries/sectors? What evidence can you provide to support you position?

There are some issues that arise generally and can be divided into two categories,
those who have obtained access to credit reporting pursuant to determination one and
those who haven‟t.

In relation to Determination one class of credit providers many issues in relation to
compliance generally and the use of credit reporting as an enforcement tool specifically.
In addition the general community would not support the notion that the plethora of
entities potentially able to access credit reporting should have the ability to do so

The use of credit reporting as a means of exacting payment for a disputed debt is rife
and reflected by the case studies attached. This leads to individuals paying alleged
overdue accounts as a means of avoiding the serious consequences of a default listing
on their ability to obtain credit when they believe they do not have any liability for the
amount claimed. This is particularly so when the amount claimed is a small
amount(less than $500.00).

Where companies are insolvent, individuals have no access to alternative dispute
resolution schemes or the courts to prove that they do not owe the money, yet the
corporations have no intention of commencing legal action to recover the debt, yet use
credit reporting to put pressure on consumers to pay.

Even where corporations are solvent, corporations do not appear to have any intention
of taking legal action for small debts. Individuals to protect themselves against an
adverse must take legal action to prove that a debt is not theirs or pay the amount
claimed. Taking legal action is very costly and time consuming shifts the onus of proof
to the individual and both avenues are inherently unfair, particularly given that the
corporation does not have to provide any evidence of the legitimacy of its proposed
default listing before it‟s made.

Other issues in relation to this class of credit provide include: the failure to obtain written
consent before accessing credit reporting (particularly so with mobile phone contracts);
failure to advise individuals of a proposed listing; listing of small debts; listing amounts
that include enforcement expenses and listing where liability is already disputed.

Where the provision of credit is a core business function complaints generally relate to
third tier lenders, fringe lenders and assignees or agents of major lenders corporations.

Issues in relation to this class of credit provide include: lack of documentary evidence to
support existence of a debt: failure to notify of an intention to list a default;
indiscriminate use of clearouts; and misunderstanding of the term “In default for more
than sixty days”.

SHOULD A MINIMUM AMOUNT BE SET FOR DEFAULT LISTINGS?

The ability to list small debts has had a devastating effect on individuals and their ability
to obtain credit. Case Study 4 is a good example of how a relatively small debt,
overlooked for payment, resulted in the individual failing to obtain finance. The
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individual had previously obtained loans and repaid them early but because of the
default listing could not obtain future finance.

3.1 What are the implications of the listing of relatively small default payments for
    individuals’ credit standing? What evidence can you provide to support your
    position, particularly whether the problems is isolated or widespread?

Consumers may lose the right to access future credit (see case study 4 and 12). Case
Study 12 appears to be a systemic response to the collection of debt already years old
at the time collection of debts is commenced.

Consumers are forced to take expensive time consuming legal action to prove that they
have no liability for the debt.

In some cases, even legal action is not possible if the debt arose in another state or if
the corporation is insolvent.

Our experience is that credit providers do not intend taking legal action to enforce these
small debts. In all the case studies, where small debts were involved, we are unaware
of any credit provider taking legal action to enforce the small debts subsequent to the
threat to list or the actual listing.

If industry disputes this contention, we request any evidence to support the view that
legal action is commenced in a majority of cases.

3.2 What is the value to credit providers of listing relatively small default
    payments? What evidence can you provide to support you position,
    particularly whether the problem is isolated or widespread?

Credit reporting system primary use was to protect the commercial interest for lenders
when assessing an application for credit. Whilst it could also be used to assist in the
collection of finding the debtor and thus assist in the collection of a debt, the function of
credit reporting should not be used as a threat to force individuals to pay. Please refer
to the numerous examples attached to this submission in industry‟s use of credit
reporting to force repayment of disputed debts.

In case study 8 it is clear that individual had a genuine dispute with the company, was
unable to resolve the complaint satisfactorily and refused to pay due to the lack of
response. The threat of credit reporting, a relative cheap and easy option for the
creditor meant that they were able to list her for not only the debt but substantial
collection costs to which they may or may not have been entitled.

Additionally, please refer to case study 12. The inclusion of a newspaper article
appears to be a common tool in the collection of debts. The newspaper article claims
that an individual may not obtain housing finance due to a rental video debt. Such a
practice to enforce the collection of an alleged debt raised more than three years
previously is particularly alarming.

The argument justifying listing of small debts on the ground that a relatively small debt
to a large corporation maybe a large debt to a small corporation does not have merit.
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The effect of a disputed listing on a consumer can be catastrophic and the cost to the
individual of arguing that a listing for a small debt was incorrectly raised, may force
them to pay a debt that they dispute. A small debt may also be a relatively large
amount to the individual.

If credit providers argue that they should have access to the system as they want to
assess the credit risk of the applicant even for small amounts, then the credit reporting
agency , should provide information as to what percentage of credit providers who listed
small debts (less than $500.00) made credit enquiries prior to the provision of that
credit.

It‟s clear that other lenders have refused credit on the basis of small overdue debts
listed by a telco.

3.3 If a minimum listing amount, including in the case of hire, rental or leasing
    arrangements, were to be set in any future Determination, what should this be
    and why?

Any amount of less than $500.00 (CPI indexed) should be excluded from listing as we
are unaware of any credit providers (except payday lenders) who lend lesser amounts.

When we refer to credit providers we include banks building societies, credit unions and
finance companies that provide loans for which a charge for the provision of credit is
made.

Those lenders generally call up the balance of the loan prior to listing with the credit
reporting agency. Therefore these lenders would not be significantly prejudiced and in
any event should be weighed against the public benefit in having a minimum default
amount set due to the current abuses in the system.

Payday lenders lend lesser amounts but have been the subject of much criticism in the
past due to their dubious lending and collection practices. It may not be in the public
interest to allow listing of small amounts for those lenders given the criticism levelled at
the industry.

In addition many payday lenders advertise that they will provide credit regardless of the
credit history of the individual.

An amount of $500.00 would make it commercially viable for consumers to take
independent action if they dispute the listing. We also submit that credit providers might
take action where the alleged debt outstanding is more than $500.00

Individuals may also be more inclined to retain documentation relating to a substantial
credit commitment. In case study 12, individuals would generally not retain records of a
rental occurring three years ago and be in a opposition to prove that the money was not
owing, yet as the system stands the video rental company could default list her leaving
her in the position of having to pay a debt that she is unable to prove is not hers
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IS THE 7-DAY CREDIT TERM THE APPROPRIATE BENCHMARK?

4.1 Is a 7-day repayment term sufficient to justify a transaction being credit? What
    evidence can you provide to support your position, particularly whether any
    issues associated with the 7-day term are isolated or widespread.

       4.1.1 If the minimum repayment term for a transaction to qualify as a
credit              transaction were varied from 7-days, what should the new
term be and         why?

4.2 Is a 7-day hire, rental or leasing period sufficient to justify that arrangement
    being credit? What evidence can you provide to support your position,
    particularly whether any issues associated with the 7-day term are isolated or
    widespread?

      4.2.1 If the minimum hire, rental or leasing period for such an arrangement
to qualify as credit were varied from 7-days, what should the new term be?

The 7 day repayment term is not sufficient for the purposes of obtaining access to credit
reporting. We have previously canvassed the undesirability of having large numbers of
entities potentially having access to credit reporting.

We do not think that increasing the minimum repayment term would necessarily assist
in restricting access, as most entities currently having access provide credit for longer
periods than say 14 days.

Conclusion
We are greatly concerned that the definition of credit providers is too broad. Our
concern is exacerbated by the relative ease with which credit providers can obtain
default listings and the potentially traumatic and expensive consequences that may
ensue to individuals.

Access to credit reporting should be restricted to businesses whos e core function is to
provide credit.

Furthermore, it‟s imperative that minimum amounts for default listings are implemented
as a matter of urgency given the many examples of how credit providers are abusing
credit reporting to enforce the repayment of disputed debts.

Catherine Uhr and Loretta Kreet would welcome the opportunity to meet with you and
discuss this matter further. They are available on 07 3238 3015.

Yours faithfully,
LEGAL AID QUEENSLAND



per
Loretta Kreet, Solicitor, Consumer Protection Unit.

								
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