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Comprehensive credit reporting 'key to responsible lending'

POP

Analysis by Veda, the leading provider of credit information and analytics in Australasia, has found that lenders participating in comprehensive credit reporting (CCR) are reporting an increase in approval rates of between 10-20 per cent for new-to-lender applicants.

Credit files with CCR data offer much greater insights into a person’s financial capability - helping consumers to demonstrate credit worthiness, and, lenders to better see a borrower’s range of credit commitments.

The additional insights from CCR show the positives in consumers’ credit histories and also reveal potential negatives. 33 per cent of CCR credit files in New Zealand showed missed repayments in the past 24 months, and major lenders with access to CCR data held by Veda are reporting rates of undisclosed debt as high as 20-25%. For lenders striving to meet their obligation under the Responsible Lending Code, such insights are fundamental to making balanced lending decisions for both new and existing customers.

For lenders, CCR may reduce reliance on the limited insights offered by traditional, negative reporting that can expose them to a number of potential risks, including applicants who may disguise their financial circumstances or full financial history to increase their chances of being approved for credit.

Although these insights are vitally important to lenders wanting to make more informed, responsible credit decisions, the information is only accessible to organisations participating in CCR.

Under CCR, positive information such as account type i.e. credit card, account limit and monthly repayment history is recorded on an individual’s credit history, alongside any negative information like payment defaults, bankruptcies or credit applications. For transparency, lenders are obliged to provide notice that they intend to participate in CCR before supplying positive data.

CCR also provides an important opportunity for consumers. An individual who consistently pays all of their bills on time, including credit card, personal loan and mortgage repayments, may be able to improve their credit profile faster after an adverse financial event such as a credit default. This could mean access to credit in the future at a more affordable price.

Veda estimates that half of all retail credit accounts incorporate CCR data, with all major lenders either currently supplying or committed to supplying CCR data in the near future.

Carol Chris, Managing Director, Veda New Zealand, said the benefit of CCR data to lenders could not be overstated.

"No matter how thorough a credit provider is in assessing the credit worthiness of customers, the scope of the information available to them largely dictates how robust their assessment of an applicant’s ability to service a lending facility is. By harnessing CCR, lenders can be more confident in their decisions and will be better able to conform to responsible lending principles.

"CCR offers lenders an industry-wide view of an individual’s credit commitments, without which it is difficult to know if an applicant has disclosed all their lending relationships. In fact, recent evidence from credit providers suggests there are many cases where the full extent of debt is not disclosed for whatever reason," Ms Chris said.

"Measurable value is now being delivered to CCR participants in New Zealand. Since we reached critical mass in March 2014, Veda’s positive bureau score, which is New Zealand’s only positive score based on local data, has driven an increase in the approval rates for new-to-organisation credit applicants of between 10 and 20 per cent for some customers participating in CCR," Ms Chris added.

In Australia, awareness of CCR’s correlation to responsible lending has recently been bolstered by the corporate regulator, the Australian Securities and Investment Commission’s (ASIC), public support of the CCR model.

"In a recent submission on the CCR Principles of Reciprocity and Data Exchange

(PRDE), ASIC specifically acknowledged the role that an effective credit reporting system has in assisting a licensed credit provider to meet its responsible lending obligations," Ms Chris said.

The New Zealand CCR data set currently consists of more than six million customer records and 100 million repayment history records. Market leader Veda holds data on more than 97.5% of New Zealand’s credit active population.

Top CCR insights for responsible lenders

Analysis of Veda’s New Zealand CCR data to date has found:

- 33% of credit files that contain CCR data have at least one payment status in arrears

- 30% of CCR credit files have multiple lending relationships

- Approximately 20-25% of credit applicants, when assessed with CCR data, are found to have some form of undisclosed debt