Inquiry information

56.15 A credit information file may include information about an individual having applied to a credit provider for credit and the amount of credit sought in the application.^[9] For the purposes of this Report, this information is referred to as ‘inquiry information’. In addition, the Credit Reporting Code of Conduct states that ‘a general indication of the nature of the credit being sought’ also may be included.^[10] Currently, however, whether the credit was granted cannot be recorded.

56.16 Stakeholders expressed concern about the role of inquiry information in credit risk assessment.^[11] Consumer credit caseworkers noted that some of their clients had been unfairly declined credit on the basis of multiple inquiry listings, including those attributable to ‘shopping around’ for credit cards or changing telecommunications service providers.^[12] It was submitted that inquiry information relating to services (such as telecommunications) should only appear ‘as an audit trail’ and should not generally be used in credit risk assessment.^[13]

56.17 In the Discussion Paper, Review of Australian Privacy Law (DP 72), the ALRC noted that more comprehensive credit reporting would allow inquiry information to be matched with information about credit granted. Accordingly, inquiry information might no longer be as open to misinterpretation or relied on to the same extent in credit risk assessment. The ALRC asked for comment on: the role of inquiry information under the proposed comprehensive credit reporting scheme; and whether any other reform relating to the collection, use or disclosure of inquiry information was desirable.^[14]

56.18 The Office of the Privacy Commissioner (OPC) stated that, if more comprehensive credit reporting were to be introduced, inquiry information would no longer be needed as part of credit risk assessment and, therefore, should not be given to credit providers. Credit providers and credit reporting agencies, however, should be required to log access to the individual’s credit reporting information.^[15]

56.19 In contrast, Optus submitted that it was essential to retain inquiry information in credit reports, even if more comprehensive credit reporting is introduced, because of the link between a high number of listed inquiries and credit default. It stated that

inquiry information is not the sole indicator on which decisions are based, but it is certainly one of the criteria used. Multiple inquiries can simply be an indicator that a customer is shopping around for the best deal, but they can also be an indicator of declined credit applications by other providers. For this reason, Optus supports the maintenance of the existing rules in this regard, allowing inquiry information to appear on credit reporting files.^[16]

ALRC’s view

56.20 There is no compelling reason to prevent inquiry information from being reported if more comprehensive credit reporting is implemented. Credit reporting systems are currently structured to provide this information and inquiry information needs to be collected by credit reporting agencies, even if not reported to credit providers as a record of access (a basic data security safeguard).

56.21 It is widely accepted that individuals with more inquiries on their credit report are statistically more likely to default in the future than those with less.^[17] A series of applications for personal loans within a short time, for example, often precedes bankruptcy.

56.22 The ALRC accepts that, due to this statistical relationship, inquiry information may disadvantage individuals who have multiple inquiries for other reasons than financial stress. Any such disadvantage, however, will be minimised under more comprehensive credit reporting because the presence of other data items will result in relatively less weight being given to inquiry information.