Cracking the Code: an insight into some of the key features of the Credit Reporting Code - Consumer Credit

Key Points:

While the Credit Reporting Code of Conduct is still in draft form, credit providers should start considering now its impact on their privacy reform implementation plans.

The Australian Retail Credit Association (ARCA) released a draft of the new Credit Reporting Code of Conduct (the draft CR Code) on 3 April 2013, completing the privacy regime set out in Pt IIIA of the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) (the Amending Act), which was passed by Federal Parliament in November last year. The draft CR Code will ultimately replace the existing Credit Reporting Code of Conduct (the Current Code), which has operated since 1996.

According to ARCA, the draft CR Code has been designed to, among other things, make credit reporting work from a practical perspective and assist consumers in understanding the credit reporting system, as well as address industry uncertainty as to how to interpret Pt IIIA of the Amending Act.

Credit providers and others regulated by the draft CR Code were given a short period of time to identify the impact it will have on them and make any necessary submissions to ARCA (the public consultation period closed on 5 May). A number of submissions received have been critical of the CR Code, saying that it does not meet its stated objectives and, in some areas, is not aligned with the legislation it is supposed to support. What is also evident from the submissions is the wide ranging and sometimes competing issues ARCA faced in developing the Code, particularly the differences in approach by some consumer advocates and industry stakeholders. It is therefore not surprising that in some of ARCA's opening preamble to the CR Code, it has taken what it considers a "balanced" approach and acknowledges that stakeholders "are likely to have some objections to aspects of the draft".¹

If the draft CR Code is accepted and registered by the Office of the Australian Information Commissioner (OAIC), it will bind credit providers, credit reporting bodies, and other specified industry participants such as mortgage insurers and trade insurers.

Key features and impacts for credit providers

The draft CR Code seeks to provide further details concerning key obligations set out in the Amending Act. While some of the draft CR Code replicates the Current Code, some aspects of the draft CR Code will be new to credit providers and credit reporting bodies and will require adjustment to existing privacy systems and controls.

The following is a summary of some of the key features and impacts for credit providers under the draft CR Code.

Additional disclosures to be made by credit providers when collecting personal information from an individual that they are likely to disclose to a credit reporting body

If a credit provider collects certain information from an individual that the credit provider is likely to disclose to a credit reporting body, the credit provider must notify the individual of the name and contact details of the credit reporting body² and other matters specified in cl 4.1 of the draft CR Code. Alternatively, rather than notifying the individual themselves, the credit provider must otherwise ensure that the individual is "aware" of the matters specified — for example, by arranging for a third party to notify the individual.

The matters the individual must be made aware of include:

how the information will be held by the credit provider;
to whom the credit provider may disclose the information and the purposes for which it may be used;
how the individual may obtain either the credit provider's or the credit reporting body's policy about the management of credit reporting data;
the individual's right to access the information from the credit provider, request correction of the information, or make a complaint to the credit provider;
the individual's right to inform credit reporting bodies that they do not want their credit reporting information to be used for the purposes of pre-screening of direct marketing by a credit provider, and how this right may be exercised; and
the individual's right to request the credit reporting body not to use or disclose credit reporting information about the individual, if the individual believes on reasonable grounds that the individual has been or is likely to be the victim of fraud.

Clause 4.1 has been particularly criticised in submissions to ARCA for lack of clarity. In its submission, ANZ expressed the view that cl 4.1(a) is not sufficiently clear about what is required by way of explanation to an individual regarding how information will be held —for example, whether the credit provider will meet this obligation by notifying the individual that their personal information is held on a server.³

Safe harbour for credit provider disclosures to be made on a credit provider's website if certain conditions are satisfied

Clause 4.2 of the CR Code provides a "safe harbour" for credit provider disclosures required to be made under section 21C(1)(a) of the Privacy Act 1988 (Cth) and para 4.1 of the CR Code to be published on the credit provider's website, if certain conditions are satisfied. The website notice must include a clearly expressed statement of the notifiable matters, and may take the form of a special purpose statement solely for the purpose of information collection. Alternatively, the credit provider could utilise its credit reporting data management policy required by section 21B of the Privacy Act as a vehicle for making the disclosure. Credit providers must also notify the individual before the time of collection of the personal information:

that the credit provider's website includes information about credit reporting, including the credit reporting bodies to which the credit provider is likely to disclose the individual's credit information; and
how to access that information on the credit provider's website.

Restrictions on a credit provider reporting default information to a credit reporting body in certain circumstances where the defaulting individual has made a financial hardship assistance request to the credit provider

Clause 9.1 of the CR Code imposes restrictions on a credit provider reporting default information to a credit reporting body where the defaulting individual has made a financial hardship assistance request to the credit provider, and the individual has either:

not yet decided whether to allow the request; or
not given the individual 14 days to respond to a refusal of the request (the 14-day period aligns with the National Credit Code prohibition on enforcement proceedings being instituted until 14 days after a consumer credit provider refuses a hardship variation request).

This new obligation has been welcomed by the Energy and Water Ombudsman NSW in its submission to ARCA, as it ensures that customers in financial hardship are not credit listed while they negotiate a more affordable payment arrangement with their energy retailer (provided the amount has been overdue for 60 days or more).⁴

Clauses 9.2 provides further guidance on the circumstances in which default information about an individual can be provided to a credit reporting body, including:

the credit provider gives the individual a section 6Q notice, which states that the default information will be given if the amount remains overdue for 60 days or more;
where there is an acceleration clause, the terms of the section 6Q notice will need to explain the effect of this clause and that the default information provided to the credit reporting body may include the amount accelerated; and
any other requirements prescribed by the Amending Act and the CR Code.

A specific concern identified in the guidance provided around default listings by consumer advocates has been the lack of a timeframe specified for the outstanding payment to remain listed.⁵ It has been suggested that this should be restricted to the relevant statutory limitation periods that would apply in the circumstances. It has also been submitted that a time period should be specified in which the notice is provided prior to the listing, rather than leaving this open to being a "reasonable period".⁶

Further, while some consumer advocates have called for further detailed guidance for the CR Code clauses relating to the listing of default information and the section 6Q notice,⁷ other stakeholders have observed that the clauses are too complex and could be further simplified.⁸

Details of what a credit provider must include in a notice of refusal of credit

Under cl 17.3 of the CR Code, a credit provider must provide a written notice of refusal to provide credit to an individual, where the credit provider obtains credit reporting information about the individual from a credit reporting body and refuses a consumer credit application within 90 days of receiving that information. The written notice must be provided either at the time the credit provider notifies the individual of the refusal of the decision, or within 10 business days of that date. The aim of the written notice is to educate individuals about the credit reporting process so that they become aware of the importance of monitoring their credit reporting information. To help achieve this purpose, the written notice must meet certain requirements under section 21P(2) of the Privacy Act and cl 17.3 of the CR Code — that is, it must:

state that the application has been refused;
state that the refusal is based wholly or partly on "credit eligibility information" about the individual;
set out the name and contact details of the credit reporting body that disclosed the relevant credit reporting information to the provider;
explain the individual's right to access their credit reporting information without charge during the 90 days following the date of the credit provider's notice of refusal, and how to request the relevant credit reporting body to provide access to that information;
state that it is important for individuals to be proactive in checking the accuracy of credit reporting information that credit reporting bodies hold;
provide generic information about factors that are often taken into account when refusing credit, such as the adequacy of the applicant's income or the extent of their indebtedness (as opposed to the specific factors that led to the particular decision); and
refer to the credit provider's credit eligibility information access and correction processes and its complaints process.

Key definitions

The Amending Act introduces extensive definitions under the new credit reporting reforms.

Some of the key definitions under the Amending Act are centred around the various categories of credit information. The draft CR Code explains in further detail what is meant by some categories of credit information.

Consumer credit liability information

Clarification is provided under cl 6.2(a) of the draft CR Code regarding what is meant by the phrase "day the consumer credit is entered into". This is defined as being the day that, under the terms and conditions of the contract, the credit is made available to the individual. Clearly, the relevant date would differ for each credit contract, depending on its terms. Examples provided by ARCA include the date the debtor delivers their signed acceptance of the lender's offer, the date the lender issues a credit card, and so on.

Further details are also provided as to what would be considered to be "the maximum amount of credit available" in different types of credit arrangements. ⁹ Notably, where payment obligations include principal payments, the maximum amount of credit means the amount as at the date the credit is entered into. In other words, reporting of the maximum amount will not need to be altered due to principal payments on the credit. However, it should be noted that ARCA does consider that any increases in the amount of credit should be updated with the credit reporting body. Clarification of this phrase in cl 6.2(b) was supported in the joint submission prepared by, among others, the Consumer Credit Legal Centre and the Australian Privacy Foundation. According to the submission, there was previously a risk that lenders could report the maximum amount of credit in a way that provided too much detailed information. It appears that they are comfortable that this is now dealt with in the further guidance provided under cl 6.2 of the CR Code.¹⁰

"The day credit is terminated or otherwise ceases to be in force"¹¹ is defined to include payment by the individual of the credit or another amount agreed with the credit provider, or termination of the relevant credit contract.

Where the type of credit is disclosed to a credit reporting body, the credit provider must disclose all categories of information under the consumer credit liability information definition (to the extent that it is reasonably available).¹² However, if the type of credit is not disclosed, this information is not required. In considering this definition, credit providers will need to identify what categories of information may not be reasonably available for certain types of credit. ARCA provides the example of credit that is disclosed a long time after it is entered into, and the date the credit was entered into may be a category of information that may not be reasonably available.

Repayment history information

Credit providers must wait five days ("business days" are not specified in this context) before disclosing to a credit reporting body that a debtor is in arrears.¹³ Further, credit reporting bodies will be required to note on their records where a credit provider ceases providing repayment history information to them.¹⁴ In general terms, one industry submission raised that cl 8 of the CR Code appears to be predicated on the basis of monthly repayments, which does not reflect other cycles such as weekly and fortnightly payments.¹⁵ Similarly, strong concerns were raised by consumer advocates in this context that the five-day "grace period" would be insufficient.¹⁶

Default information

The draft CR Code clarifies that default information cannot be disclosed where a borrower has made a financial hardship application (even where the credit provider has not made a decision on the application, or had refused the application and has not allowed a reasonable period to pass after the refusal).¹⁷ The draft CR Code also extends the requirement to provide notice to the debtor that the default information will be disclosed so that it captures any other credit providers that may not be bound by the National Consumer Code.

Payment information

Payment information is defined further to clarify that this information relates to payments of "cleared funds" on the full amount of the overdue payment or "cleared funds" of part payment where this has been agreed, where the payment has been waived or the consumer credit terminated.¹⁸ A credit provider will be required to notify the credit reporting body within five business days if an individual asks for the credit provider to urgently disclose payment information.¹⁹ In its submission to ARCA, the Australian Finance Conference stated that it does not support the inclusion of a mandatory set timeframe in relation to the concept of "reasonable period", because what is reasonable will always depend on the circumstances.²⁰

Further clarity is also provided in the draft CR Code with respect to the following defined terms.

New arrangement information — when disclosing new arrangement information to a credit reporting body, the credit provider must make it clear which category applies (ie, a variation to the original contract or a new contract).
Serious credit infringement — establishes the evidentiary grounds that need to be established for a credit provider to report a serious credit infringement on the basis of fraud. The CR Code also sets out specific steps that the credit provider should take in circumstances where the serious credit infringement relates to noncompliance with the consumer credit contract, in order to take reasonable steps to make contact with the individual.²¹

Practical implications

There are a number of practical implications that arise as a result of the draft CR Code. Some of the key implications we have identified from an implementation perspective are as follows.

The Industry Code is only part of the puzzle. Credit providers will need to consider this code in the context of the Amending Act, industry codes and standards, and other yet-to-be-published guidance. Although these separate instruments are intended to supplement each other and operate together, there is no doubt that the biggest challenge will be for credit providers to ensure that the new requirements are implemented in an efficient and effective manner.
Credit providers will especially need to consider the impact of the draft CR Code with respect to existing contractual arrangements with credit reporting bodies. In particular, credit providers should have regard to the impact of cl 2.2 of the draft CR Code, which states that where a credit provider has an existing agreement in place and has disclosed consumer credit liability information and/or default information, it cannot terminate this agreement until the end of the retention period for that information. The explanatory notes for this clause acknowledge that while the agreement cannot be terminated, it does not prevent commercial terms of the agreement to be varied. Contracts with credit reporting bodies should be reviewed to ensure that this can occur under the relevant contractual terms.
A number of concerns were raised in industry submissions concerning cl 23 and the potentially cumbersome and impractical record-keeping requirements. Further, there appeared to be differing views as to whether the requirement to retain information resulted in a need to "create" new records and a wish for this to be clarified.²² Depending on the outcome, credit providers may need to form a "house view" on their interpretation of the final drafting of the CR Code and consider the impact on record-keeping systems and processes.

Conclusion

The public consultation period on the draft CR Code is now closed. It remains to be seen to what extent the extensive submissions will be adopted in any further revisions of the Code by ARCA. Given the disparate views that are put forward by various stakeholders, it appears to be possible that many of these submissions will not be adopted in light of the more "balanced" approach ARCA is seeking to adopt.

It is expected that the final draft CR Code will be lodged with the OAIC on 1 July 2013, with detailed explanatory notes to be released on 15 July 2013. Both the CR Code and the explanatory notes will be submitted to the OAIC for approval.

The Industry Code and other business-to-business standards are still being finalised and will be voluntary for those credit providers who wish to subscribe (primarily if a credit provider is wanting to access "positive reporting" information, it is expected to subscribe to the Industry Code). Further information on the Industry Code is provided in section 5 of the Consultation Draft to the CR Code or can be obtained via ARCA.

While the CR Code is still in draft form, given that the final draft and associated guidance will not be available until later this year, credit providers should start considering the impact of the CR Code on their privacy reform implementation plans. They should consider what adjustments to these plans may be necessary in order to incorporate any additional actions required under the Code.

Footnotes

¹Draft CR Code, section 3.1, p 6.

²Section 21C(1) of the Privacy Act 1988 (Cth) (incorporating the Amending Act).

³ANZ, submission on the Draft Credit Reporting Code of Conduct, 8 May 2013.

⁴Energy and Water Ombudsman NSW, submission on the Draft Credit Reporting Code of Conduct, 10 May 2013.

⁵Energy and Water Ombudsman NSW, submission on the Draft Credit Reporting Code of Conduct, 10 May 2013; Joint Consumer Submission, May 2013, p 6.

⁶Joint Consumer Submission, May 2013, p 11.

⁷Energy and Water Ombudsman NSW, submission on the Draft Credit Reporting Code of Conduct, 10 May 2013.

⁸ANZ, submission on the Draft Credit Reporting Code of Conduct, 8 May 2013.

⁹Draft CR Code, cl 6.2(b).

¹⁰Joint Consumer Submission, May 2013, p 21. [back]

¹¹ Draft CR Code, cl 6.2(c).

¹² Draft CR Code, cl 6.3.

¹³ Draft CR Code, cl 8.1.

¹⁴ Draft CR Code, cl 8.2.

¹⁵ ANZ Submission on the Draft Credit Reporting Code of Conduct, 8 May 2013, p 3. [

¹⁶ Joint Consumer Submission, May 2013, p 22.

¹⁷ Draft CR Code, cl 9.1.

¹⁸ Draft CR Code, cl 10.1.

¹⁹ Draft CR Code, cl 10.2. ]

²⁰ Australian Finance Conference, 13 May 2013, p 28.

²¹ Draft CR Code, cl 13.1(c).

²² See the submission from Australian Finance Conference, 13 May 2013, p 47, as opposed to the submission from ANZ, 8 May 2013. The ANZ submission seems to be operating on the basis that a record would need to be created for each credit reporting disclosure under the current drafting of the draft CR Code.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

Australia: Cracking the Code: an insight into some of the key features of the Credit Reporting Code