Comprehensive credit reporting offers brokers plenty of advantages, but a broker’s job will remain the same, says AFG CEO David Bailey
Comprehensive credit reporting offers brokers plenty of advantages, but a broker’s job will remain the same, says AFG CEO David Bailey
The open Banking/Comprehensive Credit Reporting (CCR) regime has arrived – and if you are one of the big four you might say it has arrived with a bang. Its planned implementation is another example of the government staying true to its promise that “if you don’t jump, you will be pushed”.
There has been much discussion about similar arrangements in other countries around the world, which suggests that the government will assess what works and what doesn’t in those markets. Hopefully it will also assess how relevant the comparison is to the Australian market.
There must of course be appropriate precautions taken in terms of access and privacy considerations, and this is sure to be high on the agenda of lenders and regulators as they examine the logistics of the rollout.
Uniformity will certainly help provide lenders with better information. The next step will likely be a link through to government entities such as the ATO and the Department of Social Services. This will provide a clear picture of a consumer’s background and should result in better validation of data to support lending.
Under the new regime lenders will have the capacity to more accurately price credit relative to the risk profile of the borrower. Smaller lenders will be able to get a better picture of a borrower’s background, and this may open doors for some.
On the downside, there is the risk of a more regimented lending outcome, which isn’t necessarily a good thing. Ideally it will lead to more product innovation by lenders as they tailor products to suit individuals.
At the individual level, an informed consumer is an empowered consumer. The government and all entities involved in lending need to ensure consumers are aware that this regime exists and the impact that a negative credit history can have on their ability to borrow.
The role of a mortgage broker has always been to help improve the financial literacy of their clients. The new regime won’t change that fact.
An increasingly challenging lending environment means the role of a broker is even more important for consumers. In April 2015 more than 1,450 individual products were available for comparison through AFG’s software. That number now sits at more than 3,400. The changing nature of lenders’ appetites makes it very difficult for a consumer to be across all options. The opportunity exists for brokers to highlight the fact that shopping around for credit, resulting in multiple credit enquiries, will negatively impact on a client’s credit score.
The fact that a credit-impaired consumer will be equipped with enough information to be able to make an informed plan to repair their credit history can only be a good thing. Simple strategies like paying bills on time and closing any credit cards that are not needed can be employed if a consumer knows this needs to be done.
CCR should also make it easier for a consumer to show they have recovered after a default. Another positive outcome will be that credit scores will not be significantly impacted by a single event such as a missed payment. A pattern of missed payments will need to be evident to negatively impact an individual’s credit rating.
The ability of a lender to truly price for risk should deliver positive results, as a lender will have more data to assess a consumer’s ability to repay a loan. This will be a good thing for the economy and a good thing for those with a positive financial record. Those at the other end of the financial spectrum will, however, likely pay more. Is this better for those individuals than not being able to access credit at all? Time, and the data, will tell.
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Uniformity will certainly help provide lenders with better information. The next step will likely be a link through to government entities such as the ATO and the Department of Social Services. This will provide a clear picture of a consumer’s background and should result in better validation of data to support lending.
Under the new regime lenders will have the capacity to more accurately price credit relative to the risk profile of the borrower. Smaller lenders will be able to get a better picture of a borrower’s background, and this may open doors for some.
On the downside, there is the risk of a more regimented lending outcome, which isn’t necessarily a good thing. Ideally it will lead to more product innovation by lenders as they tailor products to suit individuals.
At the individual level, an informed consumer is an empowered consumer. The government and all entities involved in lending need to ensure consumers are aware that this regime exists and the impact that a negative credit history can have on their ability to borrow.
The role of a mortgage broker has always been to help improve the financial literacy of their clients. The new regime won’t change that fact.
The government and all entities involved in lending need to ensure consumers are aware that this regime exists
A comprehensive view of a client’s financial situation and patterns of behaviour is key to responsible lending, and something that mortgage brokers strive to achieve every day. It’s not in anyone’s best interest – whether client, lender or broker – for a client to be placed in an unaffordable mortgage.An increasingly challenging lending environment means the role of a broker is even more important for consumers. In April 2015 more than 1,450 individual products were available for comparison through AFG’s software. That number now sits at more than 3,400. The changing nature of lenders’ appetites makes it very difficult for a consumer to be across all options. The opportunity exists for brokers to highlight the fact that shopping around for credit, resulting in multiple credit enquiries, will negatively impact on a client’s credit score.
The fact that a credit-impaired consumer will be equipped with enough information to be able to make an informed plan to repair their credit history can only be a good thing. Simple strategies like paying bills on time and closing any credit cards that are not needed can be employed if a consumer knows this needs to be done.
CCR should also make it easier for a consumer to show they have recovered after a default. Another positive outcome will be that credit scores will not be significantly impacted by a single event such as a missed payment. A pattern of missed payments will need to be evident to negatively impact an individual’s credit rating.
The ability of a lender to truly price for risk should deliver positive results, as a lender will have more data to assess a consumer’s ability to repay a loan. This will be a good thing for the economy and a good thing for those with a positive financial record. Those at the other end of the financial spectrum will, however, likely pay more. Is this better for those individuals than not being able to access credit at all? Time, and the data, will tell.
David Bailey is CEO of the aggregator AFG. He has been with AFG since 2004 and is a chartered accountant and a member of the Financial Services Institute of Australia.
