By Emma Geraghty

New Zealand's Privacy Commission is set to debate a move likely to be recommended within weeks in Australia towards a 'comprehensive' credit reporting regime that would see banks and card providers capture more data about consumers' credit habits.

This move towards a more 'positive' reporting regime used in most other countries, including the United States, allows lenders to better target credit cards at those who have demonstrated they are a good risk. New Zealand's current 'negative' reporting regime records only credit failures (including defaults or rejected applications) rather than successes (such as paying bills on time and receiving salaries). New Zealand, France and Australia are the only OECD countries who still use 'negative' reporting.

Some bankers and credit card providers argue a more comprehensive system makes it easier to provide credit to those who can pay and makes it easier for banks to more accurately price and market credit cards.

However, the move could prove controversial. Some have accused US lenders of using these more detailed credit histories to push card deals repeatedly and directly at those who can still afford it, increasing the total amounts borrowed using such cards in a predatory way.

Americans had, on average, around 5.4 cards per consumer and 7 cards per household at the end of 2008, industry statistics show. American credit card holders owed almost US$1 trillion or US$10,679 per card holder at the end of 2008, which equals 7% of GDP. Meanwhile, New Zealand card holders currently owe NZ$5.3 billion or 3% of GDP, Reserve Bank figures show.

The Office of the Privacy Commissioner told Interest .co.nz it was looking at reforming of New Zealand's 2004 credit reporting code and could move from "negative" credit reporting to a "positive/comprehensive" system, in line with any similar moves in Australia.

A draft of new Australian legislation on credit reporting is expected to be released in the next few weeks, which New Zealand's Privacy Commissioner is watching closely.

New Zealand Assistant Privacy Commissioner Katrine Evans said comprehensive or positive credit reporting was being reviewed, but no direction was favored yet. The Commission was waiting to see what the Australian proposals were in order to get a Trans-Tasman alignment on the types of positive information to be listed, she said.

At the end of last year the New Zealand Privacy Commission convened a group of industry players to identify issues for consideration. A lot supported extending the amount of information held on credit reports, with less agreement about which additional categories should be permitted, Evans said.

New 'positive' credit information could include types of credit accounts, amounts approved, the lending institution and the number of repayment cycles missed over the previous two years.

"We will be putting the proposed amendments to the Code out for extensive public consultation later this year, hopefully in the next few months, depending on when the Australian proposals come out," Evans said.

Kiwibank positive

KiwiBank Chief Executive Sam Knowles said he supported New Zealand switching to comprehensive credit reporting as it reduced the risk for its lending if the bank was able to review the borrower's credit history.

"It would be good for us commercially, giving us a competitive advantage, but also good for society," Knowles told Interest.co.nz. "Many people do turn their lives around and you just don't know that. You can scroll through their bank statements, but that's not normally as good as their records," he said.

Migrants would also be able to establish a good credit sooner, he added.

"We don't give people benefit of the doubt. Certain groups are discriminated against with credit relative to what their true position with credit is. Without seeing their credit rating, it inhibits the market from working to get them credit as we do not have evidence."

Under America's positive credit reporting system, every card holder has what has become known as a 'FICO' score, which is named after the 'Fair Isaac Risk Model' used by many credit reporting firms such as Experian and Equifax. Many Americans know their own FICO scores, which determine how much credit they can get and at what interest rate.

Australian progress

In October 2009 the first stage of the Australian government's official response to the recommendations of the Australian Law Reform Commission's (ALRC)  review of Australian privacy laws was that it would implement 197 of the 295 recommendations.

Then ALRC President David Weisbrot said in 2007 lending for some people on low incomes may be encouraged if reporting agencies were able to gather a wider range of information.

This could include information about current credit accounts, the dates those accounts were opened and closed, and the credit limits of each. Weisbrot said then that this fell short of a much wider expansion sought by some credit reporting agencies and credit providers, but the ALRC wanted to balance these market considerations with the protection of privacy.

Avoiding loan sharks

New Zealand Federation of Family Budgeting Chief Executive Raywen Fox, who was part of the reference group bought together by the Privacy Commission, said lenders may make better decisions with more comprehensive information.

"People are being denied credit because they can't prove they are a good credit risk, and if they get denied they have to go to harder lenders or loan sharks," Fox said. "There is a push for responsible lending and lenders would be able to make more responsible lending decisions if they had better information," she said.

Identity fraud

Consumer advocates for comprehensive credit reporting said the move could prevent identity fraud, for example, where people take out multiple loans under different names.

Veda Advantage said that if New Zealand were to move to a "positive" credit reporting, it would widen the availability of people being able to access personal loans and mortgages based on risk assessment.

The current "negative" reporting available to financial suppliers discloses information about a person's financial history in terms of where they have defaulted in payments or been declared bankrupt, which stays on file for up to 7 years.

A person may have been declared bankrupt or defaulted on payments 7 years ago, but since then had a secure job and income, but because the "negative" credit rating only shows the bankruptcy or default payments, banks would likely raise the floating or fixed rate of a mortgage to cover the risk, Veda Advantage said.

Some risk though

Creditworks, which provides positive credit reporting information on small businesses in construction and other sectors, favours a shift to positive reporting, but warns it must be done carefully to avoid credit drying up in a hurry.

"You don’t know who is naked until the tide goes out," said Creditworks Managing Director Ronnie Tan. "If New Zealand decides to introduce a fully transparent consumer positive data credit reporting regime, like the overseas model, then the effect may be similar to that of a tsunami as potentially credit will dry up in an already tight market," he said.

Tan said all providers of credit, not just finance companies, banks and credit card firms, should provide information.

"The affect on businesses from using a commercial positive data reporting system is like removing a blindfold. Businesses no longer provide credit blindly and are able to quickly identify those with a good history versus the cowboys sneaking around under the radar," he said.