Dominic Cantone
dominic.cantone@oracleis.com.au
Recent changes to credit reporting have seen hardship arrangements reported on consumers’ credit files.
In Australia, the credit reporting system is governed by the Privacy Act 1988 (“Privacy Act”) and the Privacy (Credit Reporting) Code 2014 (“CR Code”). Credit reporting in Australia has undergone significant change with the introduction of comprehensive credit reporting and further changes have recently come into effect.
From 1 July 2022, financial hardship information is now reported on consumers’ credit files, following amendments made to the Privacy Act relating to financial hardship reporting and access to credit information under the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Act 2021.
Hardship arrangements are now marked with ‘flags’ alongside the reporting of Repayment History Information (“RHI”), which signifies that a consumer has entered into a temporary financial hardship arrangement, or a variation financial hardship arrangement. Previously, if a consumer entered into a hardship arrangement, this would generally be reflected with an ‘R’ for ‘payment not reported’.
A further recent change is that hardship flags reported with RHI will stay on a consumer’s credit report for 12 months from the end of the arrangement, when prior to this all RHI would remain on a consumer’s credit file for 2 years.
- Temporary hardship arrangement:
These arrangements are now marked with an ‘A’ and apply to short-term relief or a deferral of obligations under a credit contract, that are less than 1 month from the time the hardship notice was given. In these circumstances, the ‘A’ will be reported for every month that the hardship arrangement is in place. In the event that an arrangement has been entered into for reduced payments, a ‘1’ will be reported for that missed payment, with no 14-day grace period prior to the reporting of adverse RHI as was the former allowance for late payments.
- Variation hardship arrangement:
These arrangements will be marked with a ‘V’ and apply to a contract variation for financial hardship, otherwise known as a long-term hardship arrangement.
Additional considerations
Utilities companies are currently unable to report RHI, however, are able to report defaults on a credit file.
It should also be noted that credit reporting bodies are not allowed to use the hardship indicators in their calculation of credit scores. As such, a credit score will not go down in the event of a hardship arrangement.
Furthermore, any financial hardship arrangements entered into prior to 1 July 2022 will not be reported.
With Australia’s current economic landscape, it is likely that we will see a rise in consumers who need to make use of hardship arrangements. Namely, in accordance with new data published by NAB, around one in ten Australians have deliberately missed a mortgage repayment or had to cut back mortgage repayments in response to the increased pressures of rate rises and cost of living expenses.
