• Why do I need to know the difference between consumer and commercial credit?
• What is consumer credit?
• What is commercial credit?
• How can I tell whether the credit someone has applied for is consumer or commercial credit?
• What if someone applies for credit for both private and business purposes?
• Are references between credit providers affected?

Why do I need to know the difference between consumer and commercial credit?

Part IIIA of the Privacy Act 1988 regulates the collection, use and disclosure of consumer credit information. It does not directly affect the circulation of commercial credit information. However, you will need to know the difference between consumer and commercial credit in order to comply with the requirements of the Act.

Commercial information is only incidentally affected by the legislation, where it is used to assess an application for consumer credit. The legislation requires that a credit provider who wishes to obtain commercial credit information to assess an application for consumer credit, or to obtain consumer credit information to assess an application for commercial credit, must obtain the specific agreement of the individual concerned.

It is important for credit providers to identify whether a credit application is consumer or commercial in nature, as this will determine whether they need specific agreement from the customer to obtain particular types of credit information about him or her. It is also important because the legislation imposes strict limitations on the use and disclosure of consumer credit information by credit providers, and on the use of commercial credit information in the assessment of an application for consumer credit.

There are heavy penalties for unauthorised use and disclosure of consumer credit information.

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What is consumer credit?

"Consumer credit" is credit which an individual obtains when acting in a private capacity, and which is to be used primarily for domestic, household or family purposes.

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What is commercial credit?

"Commercial credit" is credit which an individual or a business entity, such as a sole trader or a partner, obtains for business purposes not connected with the individual's domestic, household or family interests.

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How can I tell whether the credit someone has applied for is consumer or commercial credit?

In many cases it will be obvious from the circumstances, for example if credit is being applied for under a business name. If there is any doubt, you should ask the customer whether he or she is applying for credit in a private or a business capacity. If he or she is applying in a private capacity, it is consumer credit, if in a business capacity it is commercial credit.

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What if someone applies for credit for both private and business purposes?

This sometimes happens, for example if someone buys equipment for use in business activities, but also uses it at home for domestic purposes. In this situation you can ask the customer whether the transaction is primarily for private or primarily for business purposes, and the answer should tell you whether you should treat the application as consumer or commercial.

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Are references between credit providers affected?

If the reference being requested is either:

• about the individual's consumer credit worthiness or credit history; or
• about the individual's commercial credit worthiness and is to be used in assessing an application for consumer credit

you must establish that the individual has consented to the disclosure.

If the reference is in connection with an application for commercial credit, and the information concerned relates to the individual's commercial/business credit worthiness or history, the Act does not apply.

If I made a mistake distinguishing between consumer and commercial credit, would it lead to my being liable under the Act?

If you have taken the precautions described above, and acted in good faith on the information supplied to you at the time by the customer, and it subsequently becomes apparent that an application was for commercial rather than for consumer purposes, or vice versa, a complaint would not be likely to succeed. It is only when you failed to take reasonable steps to distinguish between consumer and commercial credit, and it led to your breaching requirements of the Act, that you might be subject to liability.

However, you should note that if you have given incorrect information to a credit reporting agency, for example, information that a person applied for consumer credit when it was really commercial credit, you are obliged under the Code of Conduct (para 2.5) to inform the credit reporting agency of the mistake.

Please contact us for more information.

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