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Tuesday, 27 November 2012
Page: 9874


Senator XENOPHON (South Australia) (16:13): I indicate my support for the Privacy Amendment (Enhancing Privacy Protection) Bill 2012, with amendments. I believe it makes a number of important and necessary changes in relation to privacy law in Australia. However, I would like to express my concerns in relation to the credit reporting provisions in this bill. I agree that Australia needs a strong and robust credit reporting system. I know that some organisations have concerns about privacy in relation to disclosing credit history and I believe there must be checks and balances in place to address those concerns. But we need to remember that credit reporting forms an important role in our banking and finance sector. It gives credit providers the information they need to make informed decisions about risk. We do not want to see greater risk in this area, particularly in the current financial climate.

I am very concerned about the fact that lenders mortgage insurers have not been included in the parties allowed access to credit history information with respect to this bill. Lenders mortgage insurance has been part of the Australian housing and mortgage market since the 1960s. Insurers offer protection to lenders if a borrower defaults on their loan, and the insurance products are usually required where borrowers have contributed less than 20 per cent of the purchase price as a deposit. This insurance means that lenders have a safeguard in place and it also means that they have the flexibility to allow borrowers to rectify the loan in cases of default.

So, lenders mortgage insurance is a critical part of the housing market and it is a critical part of finance in this nation, and without it housing would be less affordable and fewer Australians would be able to have access to that finance. Overall, the insurers provide a level of protection and security to the market. They also act as an additional level of scrutiny by assessing risk in terms of loan conditions and credit history. It is simply not in the insurer's best interest to cover high-risk loans, given that they bear the risk of borrowers defaulting on their loans.

Lenders mortgage insurers currently have access to credit reporting information. I understand the need for privacy protection in these circumstances, but I am concerned that it will come at the cost of overall increased risk in this area. I know that there is the possibility for lenders to pass on that information to insurers under the bill. I believe that this is not good enough; it should not be up to mortgage insurers, who bear their own risk and who have their own financial structures and models, to rely on a third party to pass on information. Insurers need access to independent, accurate information, such as credit reports, firsthand.

There are also concerns that this will lead to lenders acting as gatekeepers of such information and choosing to insure the low-risk loans themselves, leaving only the higher risk loans for independent insurers. That is untenable in the impact it would have on the market. There are also further concerns that with this increase in self-insurance, lenders may take greater risks themselves or not make appropriate allowances to cover debts. The likely outcome of this in the long term is less choice, and worse, for consumers as insurers fold under the strain of covering high-risk loans. It is important to note that in similar jurisdictions, such as Canada, which operates in a similar regulatory system, insurers have direct access to credit-reporting information.

Lenders mortgage insurance is regulated by APRA, and there are currently specific controls on how credit-reporting data can be used. Insurers are also licensed under consumer credit protection laws and regulated by ASIC. There are multiple reasons why providers of lenders mortgage insurance should be granted access to credit-reporting information. To this end, I have had some very useful discussions with Senator Brandis and his office, the Australian Greens and Senator Williams in relation to this, and that is why I have circulated an amendment in the names of a number of parties in order to rectify this. I understand that the government will be moving its own amendments in relation to this to deal with the same issue, and that is welcome. I really query why it had to come to this, but I do welcome any changes that will rectify what is a glaring anomaly in respect of mortgage insurers.

So I look forward to discussing this amendment further in the committee stage, but it is a problem that must be fixed. With that caveat, I support this legislation.