Banks forced to hand over details of best customers to boost competition

BANKS will be forced to hand over the credit history of their best customers under new laws that aim to create a bidding war – and lower interest rates.

Treasurer Scott Morrison will today reveal the plan in the latest attack on the Big Four, which have failed to pass on all interest rate cuts to households.

• Don’t worry about interest rates
• Home buyers hanging by a thread
• Credit card interest rates plunge

BANKS will be forced to hand over the credit history of their best customers under new laws that aim to create a bidding war – and lower interest rates – for Australians who pay their bills on time.

Treasurer Scott Morrison will today reveal the plan in the latest attack on the Big Four, which have failed to pass on all interest rate cuts to households.

Legislation will be introduced that will require all banks to start reporting positive credit history to credit agencies from next year.

Credit agencies hold information about those with bad credit ratings, including people who fail to pay their utility bills on time.

This is where banks source some of their information from before deciding on loan approvals.

Banks price-in risk on all home loans in the event there is a default, meaning even a family who has never been in arrears pays higher interest rates.

Overseas experience reveals more information that lenders have leverages better deals for consumers.

Banks do not like it because they do not want to lose their good customers to competitors.

In the US, the addition of positive credit reporting led to a drop in the default loan rate of almost two percentage points.

Treasurer Scott Morrison will announce the move during a speech today.

In a speech to ​Fintech​ ​conference in Melbourne, Mr Morrison will say the Government’s philosophy is about “empowering the customer and driving down cost”.

“I am announcing that the Turnbull Government will now be proceeding to introduce a mandatory comprehensive credit reporting regimen from July 1 next year,’’ Mr Morrison will reveal.

“We intend to start with the four major banks, given they account for approximately 80 per cent of the volume of lending to households.

“The regimen will give lenders greater transparency on a borrower’s true credit position and their ability to pay a loan – a more comprehensive picture.

“This reduces a lender’s exposure to defaults by allowing it to calibrate its lending according to risk.

“This new transparency will also open up the lending market to new players by enabling them to better assess the credit risk of customers.

“They will then be able to offer interest rates that undercut the major lenders without the fear of defaults weighing heavy on their decision making or give them the option of taking on-board more riskier customers at premium rates.

“For borrowers, this regimen should lead to one thing – a better deal on your mortgage, your personal loan or business loan.

“If you have a good credit history – you’re paying down your mortgage, you haven’t missed a payment on your car loan and your credit cards are under control – you will be able to demand a better deal on your interest rates, or shop around, armed with your data.”

Originally published as Banks forced to hand over details of best customers to boost competition