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Steve Johnson - Financial Institutions and Management Advisory - Lessons that can be learnt from overseas markets such as the US and UK in the use of comprehensive credit reporting
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Steve Johnson - Financial Institutions and Management Advisory - Lessons that can be learnt from overseas markets such as the US and UK in the use of comprehensive credit reporting

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Steve Johnson delivered the presentation at 2014 Privacy Reform in Credit Reporting Forum. …

Steve Johnson delivered the presentation at 2014 Privacy Reform in Credit Reporting Forum.

From reviewing the journey toward day one compliance readiness to longer term transitional issues, the inaugural Privacy Reform in Credit Reporting Forum assessed all the critical factors industry professionals will want to know regarding the impact of privacy reform on credit reporting.

For more information about the event, please visit: http://www.informa.com.au/privacycredit14

Published in: Business, Economy & Finance

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  • 1. F.I.M.A. “Benefit from Our Experience” Financial Institutions & Management Advisory Pty Ltd Normanby House, Suite 108, 430 Little Collins Street, Melbourne, VIC, 3000 Telephone: +61 3 9614 5000, Facsimile: +61 3 9614 0734, Email: info@fima.com.au Credit Reporting - Lessons from UK and US markets May 2014
  • 2. F.I.M.A. Comprehensive Credit Reporting Credit Assessment and Decision 2 Credit Enquiries Court Judgements Credit Defaults Lender internal information Application Form Pre CCR
  • 3. F.I.M.A. Comprehensive Credit Reporting Credit Assessment and Decision 3 Post CCR Credit Enquiries Court Judgements Credit Defaults Lender internal information Application Form Credit Limit of Account Type of Credit Date Account Closed Repayment History Date Account Opened
  • 4. F.I.M.A. Comprehensive Credit Reporting Credit Assessment and Decision 4 M24 M23 M22 M21 M20 M19 M18 M17 M16 M15 M14 M13 M12 M11 M10 M9 M8 M7 M6 M5 M4 M3 M2 M1 Limit Bank A Mortgage l l l l l l l l l l l l l l l l l l l l l l l l 400,000$ Bank B Credit Card l l l l l l l l l l l l l l l l l l l l l l l l 25,000$ Lender C Loan l l l l l l l l l l l l l l l l 40,000$ Lender D Credit Card l l l l l l l l l l l l 25,000$ 465,000$ Credit Enquiries Court Judgements Credit Defaults Lender internal information Application Form Credit Limit of Account Type of Credit Date Account Closed Repayment History Date Account Opened
  • 5. F.I.M.A. Impact on types of consumers 5 Lazy Payers Late payments will adversely impact their credit score, may impact their ability to get credit and their price.
  • 6. F.I.M.A. Impact on types of consumers 6 Lazy Payers Over-indebted Multiple debts will now be known to all lenders – access to credit will dry up leading them to bankruptcy or loan sharks. Late payments will adversely impact their credit score, may impact their ability to get credit and their price.
  • 7. F.I.M.A. Impact on types of consumers 7 Lazy Payers Over-indebted Borderline Multiple debts will now be known to all lenders – access to credit will dry up leading them to bankruptcy or loan sharks. Will now be shown as a good risk – may show only a small surplus but proven to always pay on time. Late payments will adversely impact their credit score, may impact their ability to get credit and their price.
  • 8. F.I.M.A. Impact on types of consumers 8 Lazy Payers Over-indebted Borderline Unexpected Event Multiple debts will now be known to all lenders – access to credit will dry up leading them to bankruptcy or loan sharks. Now has the opportunity to redeem their credit record if an unexpected event has adversely impacted their credit report. Will now be shown as a good risk – may show only a small surplus but proven to always pay on time. Late payments will adversely impact their credit score, may impact their ability to get credit and their price.
  • 9. F.I.M.A. FICO Score 9 Characteristic Rationale Weighting Payment history late payments hurt, on time is good 35% Credit utilisation ratio of balances to total credit, low utilisation generally low risk 30% Length of history older accounts show experience – lower risk 15% Types of credit Mortgage, Credit Card, Car Finance 10% Credit Enquiries Enquiries stay on report for 2 years. More inquiries can hurt score, less can improve. 10%
  • 10. F.I.M.A. S&P/Case-Shiller Home Price Index Phoenix - AZ Los Angeles San Diego San Francisco Denver Washington Miami Tampa - FL Atlanta - GA Chicago Boston Detroit - MI Minneapolis - MN Charlotte - NC Las Vegas New York Cleveland - OH Portland - OR Dallas - TX Seattle - WA Composite USA pre GFC 10 Good FICO + House =  No Income, No Job, No Assets ≠ 
  • 11. F.I.M.A. IndyMac Bank 11 “no sub-prime” Sen. Charles Schumer
  • 12. F.I.M.A. UK experience Unsecured Loan Portfolio in early 2000’s 12 Loss Volume New acquisition strategy implemented based on negative reporting Large number of other lenders had migrated to positive reporting
  • 13. F.I.M.A. Reliance on credit scores Australia is different - timing 13 Reliance on credit scores Crisis Crisis Reliance on credit scores US UK AUS 1990 1995 2000 2005 2010 2015 Enhanced Consumer Protection Regulations Positive Reporting CFPB Established FCA Established ASIC existing
  • 14. F.I.M.A. Australia is different - scope Australia US UK Payment History  ACL only   Credit Limit (maximum exposure)    Credit Balance (utilisation)    Type of Credit    Date Open/Close (Age of loan)    Direct marketing    14
  • 15. F.I.M.A. Potential consequences in Australia Lenders access to previously undisclosed credit history of borrowers… How many over-indebted borrowers are vulnerable to changes likely to be imposed by positive reporting? 15 Source: Veda Pilot Study