profile considers the consumer credit, tenancy and insurance
referencing industries, in particular issues and legislation
regarding privacy, ownership of information and electronic
commerce in a networked global economy.
It covers -
introduction to the industries and key issues
discussion of how
the industries have evolved, practice and legislative
credit reporting regimes, including profiles of major
credit reporting enterprises and public registries
Australian and New Zealand regimes
- Australian tenancy, hotel and other retail reporting
- Australian personal insurance referencing
by consumers to their own credit ratings and reference
pointers to Australian and overseas regulators, industry
representatives and consumer advocacy
- decisionmaking on the basis of credit reporting data
landmarks in the
growth of the industry and its regulation
profile supplements discussion in the separate guides
on Privacy & Data Protection,
the Digital Economy and
Online Consumers. It
is complemented by a note exploring vetting
services, of interest because credit reporting services
also often provide such identity verification.
There is a separate note on corporate rating
Credit reporting information - personal financial history
data - is a glue that binds together different parts of
contemporary advanced economies and has become a focus
of concerns about electronic privacy. Scott Sandage's
Born Losers: A History of Failure in America
(Cambridge: Harvard Uni Press 2005) comments that credit
reporting normalized surveillance so that it has become
"a ubiquitous part of our lives, from the supermarket
to the automatic teller machine".
Practice across the globe varies but typically information
about consumer credit performance - slow payment or non-payment
of loans from financial institutions, court judgments
relating to debts and bankruptcies - is added to a small
number of data repositories that are operated on a commercial
That information is provided and accessed by a wide range
of organisations, which include banks, retailers, health
service providers, telecommunication operators, government
agencies, debt collection services, vetting
services and recruitment
There is a similar variation in regulation of how data
is collected, stored, disseminated and corrected.
Growth of major national and transnational credit reference
services has reflected the ease with which financial history
data can be gathered in an electronic environment and
the advantages of economies of scale. As the following
pages suggest, the services have attracted increasing
attention from government regulators concerned with privacy,
trade practices and financial supervision.
Large-scale tenancy reporting services - databases about
the rental of residential accommodation - were slower
to emerge and have attracted less attention. Arguably
that is because the data often relates to poorer members
Large-scale identify verification or reference services
are a more recent development, centred on confirming the
accuracy of claims about employment history and qualifications
(and the absence of criminal histories). Although initially
aimed at employers they have sought to expand into new
markets such as dating, on
the premise that your potential loved one cannot be trusted
to divulge past convictions for drink-driving or axe-murder.
how much data
Estimates of the extent, composition, accuracy and use
of credit data vary significantly.
It has been suggested that there are two credit reporting
files for every Australian and over three for every US
citizen. The US Consumer Data Industry Association (CDIA)
claims that the three largest credit reference bureaus
maintain around 190 million credit files, used by credit
reporting agencies across the nation. Over two billion
items of data are supposedly added to US credit records
each month, with an estimated one billion consumer credit
reports being issued annually.
The extent of inaccuracy is uncertain, typically identified
when consumers are denied credit, are victims of identity
theft or respond to offers to purchase access to their
credit records. Comprehensive figures are not available:
industry studies have claimed that error rates are under
1%, consumer groups have identified inaccuracies of over
10% (although from what appear to be different samples).
Estimates of the size of tenancy databases varies, with
suggestions that there may be over 1 million files in
credit data in other decisions
Credit scores play an increasingly important role in the
' financial lives of consumers and can affect their economic
security, for example affecting both their ability to
get mortgage/non-mortgage credit and - as importantly
important - the price they will have to pay for it.
In addition to credit applications, credit scores are
increasingly used for other purposes such as determining
auto insurance rates, recruitment and approving rental
applications. In some US states utility companies may
use credit scores to determine whether a deposit is required.
Texas for example
allows credit scores to be used to determine what rate
consumers will have to pay for electricity.
Several US states have introduced legislation to ban use
of credit scores for particular noncredit purposes, such
as car insurance and utility rate setting. Others mandate
that credit-scoring models are publicly accessible, so
that consumers can better understand how scores affect
access to and pricing of products. At the national level
there has been discussion about the need for creditors
to provide credit bureaus with complete and accurate data.
The rationale is that consumers would thereby benefit
from on-time payments, lower credit balances, and other
behavior that should improve their credit risk and thus
their credit scores.
Pointed to studies of individual credit rating organisations
appear later in this profile.
There has been no major study of the Australian and New
Zealand credit reporting industry. An introduction to
the US industry is provided by Mark Furletti's 2002 An
Overview and History of Credit Reporting (PDF),
Robert Hunt's 2003 The development and regulation
of consumer credit reporting in America (PDF)
and the 2003 An Overview of Consumer Data and Credit
by Robert Avery, Paul Calem & Glenn Canner.
Background to the early development of the industries
is provided by Lendol Calder's Financing the American
Dream: A Cutural History of Consumer Credit (Princeton:
Princeton Uni Press 1991), James Grant's Money of
the Mind: Borrowing & Lending in America from the
Civil War to Michael Milken (New York: Farrar Straus
Giroux 1992), the elegant Born Losers: A History of
Failure in America (Cambridge: Harvard Uni Press
2005) by Scott Sandage and As We Forgive Our Debtors:
Bankruptcy and Consumer Credit in America (Oxford:
Oxford Uni Press 1989) by Theresa Sullivan, Elizabeth
Warren & Jay Westbrook.
Financial Privacy, Consumer Prosperity, and the Public
Good (Washington: Brookings Institution 2003) by
Fred Cate, Robert Litan, Michael Staten & Peter Wallison
might usefully be read in conjunction with Reputation:
Studies in the Voluntary Solicitation of Good Conduct
(Ann Arbor: Uni of Michigan Press 1997) edited by Daniel
Klein. Klein's Credit Information Reporting: Why Free
Speech is Vital to Social Accountability and Consumer
is one of the more cogent arguments for increased transparency
in reporting consumer financial histories.
Transborder issues are explored in papers in Credit
Reporting Systems & the International Economy
(Cambridge: MIT Press 2003) edited by Margaret Miller.
For Australian tenancy reporting services the salient
documents are the Australian Housing & Urban Research
Institute's 2003 Tenancy Databases in the context
of Tenure Management: Risk Minimisation and Tenant Outcomes
in the Private Rental Sector (PDF),
2001 Queensland Residential Tenancies Authority study
and the Commonwealth/State Ministerial Council on Consumer
Affairs 2003 discussion paper.
Information about personal financial history - such as
bankruptcy, degree of
indebtedness, delays in repaying borrowings and failure
to comply with conditions when renting residential accommodation
- is of value to banks, real estate managers, insurance
providers and other bodies. That value underpins dealings
with individuals and more broadly allows lenders and property
owners/agents to assess markets and make investment decisions
regarding groups of individuals.
Operators of rental tenancy databases have suggested an
additional 'deterrent' value, with claims that problem
tenants are inhibited from applying for housing through
agents that use the databases. One agent quipped that
with a national database "you can run but you can't
hide ... especially not in my properties".
of credit reference and tenancy reporting services have
thus used data in two ways.
The first, sometimes called negative or black data, primarily
involves adverse information. It is used to exclude applicants
(eg ensure that loans are not made to poor credit risks)
or impose an appropriate premium (eg those with a poor
credit history pay a higher interest rate for loans or
a higher service fee to offset the likelihood of default
and recovery action).
The second use - positive or white listing - features
applicants with a 'good record' or other desirable attributes.
The accuracy and use of credit/tenancy databases is contentious.
A 2004 study
by US group PIRG claimed that -
of its sampled credit reports contained errors serious
enough to result in denial of credit
of the reports contained mistakes of some kind
54% contained personal demographic identifying information
that was "misspelled, long-outdated, belonged to
a stranger, or was otherwise incorrect"
30% of the reports contained credit accounts that had
been closed by the consumer but incorrectly remained
listed as open
practice those figures are less alarming than the difficulty
of achieving corrections, recognised by legislation such
as the US federal Fair & Accurate Credit Transactions
Act 2003 (FACT Act), which identifies a right to
a free annual credit report on request. We have discussed
issues of access to and correction of faulty ratings/reference
data later in this
A largely undiscussed issue is dissemination and aggregation
of data, with use - unknown to (and uncontrolled by) consumers
- by third parties. Those third parties may include government
agencies. Lack of knowledge about what information is
being data mined is a concern, particularly when information
may not be correct.