Mortgage and trade insurers

57.38 Part IIIA contains a number of provisions relating to the disclosure of credit reporting information to mortgage and trade insurers;^[35] and the use and disclosure of credit reporting information by mortgage and trade insurers.^[36] In particular, under s 18K(1)(d) and (e), a credit reporting agency may disclose personal information contained in a credit information file to a mortgage or trade insurer.

57.39 In DP 72, the ALRC asked whether the new regulations should allow credit providers (but not credit reporting agencies) to disclose an individual’s credit reporting information to a mortgage or trade insurer, where access to the information is required to assist in the assessment of the individual’s credit worthiness.^[37]

Submissions and consultations

57.40 The Financial Counsellors Association of Queensland noted:

It is up to the credit provider to inform insurers of the credit risk of a consumer. Ultimately, it is the credit provider who insists on insurance for riskier consumers. Disclosure should not happen unless the consumer has agreed in writing.^[38]

57.41 In addition, a number of stakeholders argued that mortgage or trade insurers only should have indirect access to credit reporting information through the credit provider.^[39] The OPC explained current mortgage insurance practices as follows:

Most credit providers have some discretionary power to approve applications for mortgage insurance. However, where a loan proposal does not meet certain criteria and mortgage insurance is required, for example, where the borrowers are self employed, the mortgage insurer will complete their own assessment of the loan proposal. This involves a complete assessment by the mortgage insurer i.e. they require all the documentary evidence provided to the credit provider such as bank statements and income statements and also request a credit check to complete their assessment.^[40]

57.42 The OPC submitted that the new regulations should allow credit providers (but not credit reporting agencies) to disclose an individual’s credit reporting information to a mortgage or trade insurer; and require that mortgage and trade insurers use credit reporting information only for the primary purpose for which it was disclosed, and destroy the information once they complete their credit assessment.^[41]

57.43 Restricting trade and mortgage insurers to indirect access to credit reporting information was opposed by industry stakeholders.^[42] The Insurance Council noted that mortgage insurers are the ‘only general insurers who should need access to a borrower’s credit history’.^[43] The Council observed that, while mortgage insurers have delegated underwriting authority to some of their customers, these delegations are ‘limited and strictly controlled’. Further, it submitted that:

The current credit climate has also seen a significant shift in the market, away from delegation of underwriting authority. Consequently, the Insurance Council considers that the comments of the OPC on this issue are now out of date. Further, some customers who submit applications for mortgage insurance are not credit providers and accordingly do not have access to a credit report. If mortgage insurers did not have direct access to credit report applications when considering mortgage insurance from this class (brokers and originators) then these applications would be delayed pending receipt of a credit report from the credit provider.^[44]

57.44 Mortgage insurers provided detailed justifications for maintaining direct access to credit reporting information. They argued that credit reports need to be obtained directly from credit reporting agencies for a number of reasons, including the following:

• Credit reporting information is the only ‘truly independent’ item of information involved in risk assessment. All other information is ‘provided either by the lender, the borrower or an agent of the lender’. To ensure accuracy and to prevent fraud, it is important that the information comes directly from a credit reporting agency to the mortgage insurer.^[45]

• Direct access ensures the timely provision of credit reporting information. This does not disadvantage the individual borrower and permits business-to-business processing of mortgage insurance applications.^[46]

ALRC’s view

57.45 There is genuine concern that changes to the existing provisions of the Privacy Act permitting direct access to credit reporting information by mortgage and trade insures may prejudice existing insurance practices. In view of these concerns, the ALRC is not convinced that there is a sufficiently compelling case to tighten the rules regarding access by mortgage or trade insurers to credit reporting information.

57.46 The new regulations should continue to allow credit reporting agencies to disclose an individual’s credit reporting information to a mortgage or trade insurer, where access to the information is required to assist in the assessment of the individual’s credit worthiness.