The Office of the Australian Information Commissioner (OAIC) has today published guidance on its website about how lenders should treat Repayment History Information (RHI) for customers that are experiencing financial hardship. RHI is information about whether repayments on loans and credit cards are made on time. Proposed laws will make it mandatory for large banks to report RHI to credit reporting bodies from 1 July 2018, affecting the credit worthiness of nearly every person in Australia.
Consumer groups including the Financial Rights Legal Centre, the Consumer Action Law Centre and Financial Counselling Australia believe the OAIC guidance is misleading and disagree with its legal interpretation. They are also very disappointed that new Acting Commissioner’s (Angelene Falk) first act seems to lack any concern for fair treatment of people experiencing financial difficulty.
“With the Royal Commission taking place, this is an important time of reckoning for financial service providers and regulators,” said Karen Cox, Coordinator Financial Rights Legal Centre. “This is why it is even more alarming that the new Acting Privacy Commissioner has issued Guidance today that consumer groups have warned will lead to inaccurate, inconsistent and harmful outcomes for people suffering financial hardship.”
The Guidance is an interpretation of when a customer’s payment is “due and payable” under section 6(v)(1) of the Privacy Act. The definition of “due and payable” is important because whether or not a customer’s credit report lists late payments hinges on whether he or she has missed a payment that is “due and payable.”
The Guidance takes an incomplete approach to interpreting this phrase by stating that it “means the credit provider has a legal entitlement to maintain an action for recovery against a consumer in respect of a missed monthly payment.” The Guidance goes on to say that when customers seek help from their bank because they are in financial hardship, and the bank agrees to a repayment arrangement, the lender can still list payments as being made late.
“The problem with this interpretation is it does not take into account the National Consumer Credit Protection Act 2009 (Credit Act). In determining whether repayments can be listed as late on credit reports, we have to consider the interaction between the Privacy Act and the Credit Act. By interpreting the Privacy Act in a vacuum, the Commissioner has created a harmful and misleading loophole that banks will be able to use to promise consumers they don’t have to make a payment on time over the phone, but still report them as missing a payment in their credit report.”
“What’s more, without taking the Credit Act into account, the Commissioner’s interpretation of the meaning of “due and payable” is simply wrong. When you tell a bank that you are in financial hardship, they are prevented from taking enforcement action (s.89A of the Credit Act). That means that until the bank refuses your request for an arrangement (and gives you reasons why they are refusing), the payment could not possibly be “due and payable”, said Ms Cox.
“The test of whether a bank could maintain enforcement action is necessarily affected by the Credit Act. In the vast majority of circumstances, once a customer has told their lender that they are unable to make a payment, RHI cannot be listed as delinquent.”
“Reporting of customer payments as late when they have sought assistance from their bank is harsh and unfair. It is contrary to basic contract law and the spirit of the credit reporting regime. It is even worse if this reporting is inconsistent between lenders, making consumer understanding of credit reports very difficult.
The consumer groups consider that this Guidance will undermine the hardship provisions of the Credit Act. Those financial hardship provisions are a key consumer protection for customers in financial difficulty in Australia. It is a key public policy repeatedly endorsed by Government.
Our detailed response to the Commissioner’s Guidance dates back to May 2017 when we first read the Commissioner’s interpretation of the meaning of “due and payable” and can be read here.