Your Ref: Contact: Loretta Kreet Our Ref: LK : Telephone: (07) 3238 3015 Date: 15 November 2002 Facsimile: (07) 3238 3400 Email: email@example.com 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. 4 4 He r s c h e l S t r e e t B r i s b a n e Q l d 4 0 0 0 GPO Bo x 2 4 4 9 B ri s ba ne Q l d 4 0 0 1 Te le p ho ne 1 3 0 0 6 5 1 1 8 8 Fax (07 ) 3238 3014 DX 1 5 0 B RI SB ANE D OW NT OW N w ww. le ga la i d. q l d. go v . a u AB N : 69 062 423 924 -2- Privacy Act Review 15 November 2002 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 -3- Privacy Act Review 15 November 2002 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; -4- Privacy Act Review 15 November 2002 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. -5- Privacy Act Review 15 November 2002 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 -6- Privacy Act Review 15 November 2002 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. -7- Privacy Act Review 15 November 2002 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”. -8- Privacy Act Review 15 November 2002 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 -9- Privacy Act Review 15 November 2002 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. - 10 - Privacy Act Review 15 November 2002 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 - 11 - Privacy Act Review 15 November 2002 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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