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Economy Set for a Boost of up to $5.3 Billion
MasterCard Proposes Overhaul of Australia's Credit Reporting System
Sydney, 15 May 2007 - According to MasterCard Worldwide, Australia's economy would receive a boost of up to $5.3 billion should comprehensive credit reporting be introduced. The figures are based on research outlined in MasterCard's submission to the Law Reform Commission (ALRC), for the Commission's review of Australia's privacy laws. Research conducted by ACIL Tasman shows that if comprehensive reporting is introduced in Australia, the economy would experience a boost of up to $5.3 billion over 10 years. The comprehensive system proposed by MasterCard would equip lenders with improved information about applicants' identity, income, existing credit, outstanding debt and payment history. It is designed to provide lenders with more information to protect individuals from over-indebtedness and improve credit quality in Australia. "Of all developed economies, only France, New Zealand and Australia retain a purely negative credit reporting system. It's time for Australia to come out of the credit dark ages," says Leigh Clapham, executive vice president, Australasia. Previous reviews of the credit reporting system have rejected comprehensive credit information, claiming there is insufficient evidence of the economic benefit, yet according to Clapham the real-life examples speak from themselves. "When Hong Kong introduced a comprehensive system in 2003, bad debt percentages dramatically decreased within a year, with a substantial 27 per cent decrease in individual material defaults and a 64 per cent reduction in credit account write-offs," says Clapham. "Research as far back as 20001, conducted across 43 countries and almost all OECD nations, estimated that credit risk can be reduced by up to half through positive comprehensive credit reporting," he added, "It's a wonder why, even with this undisputed evidence, Australia is yet to introduce and reap the rewards of a tried and tested system." The reality is that comprehensive credit reporting will make credit more affordable for lower socio-economic groups at the same time protecting vulnerable consumers from over-indebtedness or exploitation by unscrupulous lenders. According to Clapham, comprehensive credit reporting is not about increasing the amount of credit available in Australia but improving the quality of credit in the economy. "While we can't predict that credit system reforms will increase or decrease the total amount of credit available to consumers, we are confident that the quality of credit in our economy will be substantially higher which means reduced losses and more competitive pricing," he adds. Having more accurate information will also lead to greater competition and fairness in the industry which, according to Clapham, will benefit both lenders and customers. "New lenders will be able to enter the market with access to sufficient credit information to make responsible lending decisions," says Clapham. "Changing the system will remove any excuse of 'ignorance' that at the moment a lender might use in defence of over-extending a customer." Some groups have previously opposed comprehensive credit reporting, claiming too many errors exist in the system as it is, and that increasing the information available would simply increase the number of errors. Yet international evidence suggests the opposite, says Clapham. "Overseas examples show that inaccuracies are 'washed out' by the more regular update of an individual's record. We understand that the bulk of reporting errors relate to spelling mistakes in a person's name or address. With the introduction of more sophisticated screening software, as will be required for comprehensive credit reporting, such errors will be dramatically reduced," he says. Security and privacy have also been raised as concerns that go hand-in-hand with the storing and sharing of personal credit records. This is why MasterCard is supportive of maintaining the currently strict privacy regulations which restrict access to the data, to protect customers' interests. MasterCard's credit reporting reform proposals flow from a desire to ensure consumers borrow, and lenders lend, responsibly. Clapham says Australia simply can't afford another knee-jerk, misguided rejection of a comprehensive credit reporting system that could save billions. "It is in no one's interest to see consumers extended credit that they simply can’t repay. It harms the individual and the credit provider; and high default rates and unsustainable levels of consumer credit negatively impact the wider economy," says Clapham. The ALRC's discussion paper is due to be published mid-2007, followed by a full review early next year. View a copy of MasterCard's full submission to the ALRC. MasterCard's submission at a glance:
### About MasterCard Worldwide
MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 16 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard Worldwide serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercardworldwide.com.
### Contacts:
Melissa Devine, 02 9818 0950, mdevine@ppr.com.au
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