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Report on the Review of the Credit Provider Determinations (Assignees and Classes of Credit Providers)

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August 2006

The Office of the Privacy Commissioner (the OPC) recently reviewed the Credit Provider Determination No. 2006-1 (Assignees) and Credit Provider Determination No. 2006-2 (Classes of Credit Providers) and prepared the Credit Determinations Consultation Paper No. 1 Assignees and Classes of Credit Provider, March 2006 (the Consultation Paper) to assist individuals and organisations to prepare comments for the review of the Assignees and Classes determinations, issued under section 11B(1)(b)(v)(B) of the Privacy Act 1988 (Cwlth), which will both expire on 31 August 2006.

The submissions to the review of the Assignees and Classes determinations were due on 31 May 2006. An analysis of the responses is provided in this report. Some of the issues raised in submissions are interrelated and apply to both determinations. For example, in responding to a question about the listing of statue-barred debts by credit providers covered by the Assignees Determination, some submitters have drawn in the Classes Determination. The Consumer Credit Legal Centre (NSW) Inc (CCLC) submits that the two determinations are intrinsically linked and has made all comments in relation to both determinations. CCLC's responses have been considered, as far as possible and for the purposes of this report, in terms of how they relate to each determination.

Consultation

The results from the consultation process for the Assignees Determination and Classes Determination are presented in separate sections of this report. As well as providing an insight into the issues raised by the consultation paper, the submissions received by the OPC also identified specific issues relating to the telecommunications industry, which relate both to the Classes and Assignees Determination. These issues are presented separately in the section titled "Telecommunications organisations."

Submissions

  1. Altogether 12 submissions were received from the following organisations:
    • Baycorp Advantage
    • Consumer Credit Legal Centre (NSW) Inc
    • Consumer Credit Legal Service (VIC) Inc
    • Legal Aid Queensland
    • Dun and Bradstreet
    • Australian Communications Industry Forum
    • Banking and Financial Services Ombudsman
    • Institute of Mercantile Agents and Australian Collectors Association
    • Collection House
    • Credit Union Industry Association, now Abacus Australia Mutuals
    • Australian Finance Conference including Credit Corp Group
    • Australian Mobile Telecommunication Association

    Review of submissions

  2. The consultation paper asked submitters to address the following questions in relation to the Assignees Determination:
    • Is there any evidence that there are systemic issues relating to the listing of statue-barred debts by credit providers covered by the Assignees Determination?
    • If there is such evidence, how could the Assignees Determination be changed to reduce this problem?
    • Is there any evidence that there are systemic issues relating to unlawful double listings by credit providers covered by the Assignees Determination?
    • If there is such evidence, how could the Assignees Determination be changed to reduce this problem?
    • Is there any evidence that there are systemic issues relating to the record-keeping necessary for compliance with the Privacy Act by credit providers covered by the Assignees Determination?
    • If there is such evidence, how could the Assignees Determination be changed to reduce this problem?
    • Should the Assignees Determination be renewed? If no, why not?
    • If yes, should it be amended and in what way should it be changed? What evidence can you provide to support your proposed change?
    • How long should any new Determination last? Potential durations include 3, 5 or 10 years.
    • What might be the adverse or positive effects of amending the Assignees Determination?
  3. The responses to these questions are summarised as follows:

    Evidence of systemic issues

  4. In general, the industry participants responding acknowledge past issues but reported no evidence of current systemic issues. Industry participants discuss current trends in the debt collecting, or receivables management service sector in Australia, stating that this sector has grown and undergone a process of maturation and consolidation since the time of the original determinations. The effects of this are submitted to be improved business practices and implementation of policies, procedures and technology to prevent the listing of statue-barred debts and unlawful double listings by assignees and credit reporting businesses.
  5. CCLC contends that historic issues remain in relation to statute-barred debts, double listings and record keeping, and provide case studies in their submission, which they believe, provide evidence of systemic failures by those covered by the Assignees Determination. Statute-barred debts

    ASIC report

  6. In September 2005, the Australian Securities & Investments Commission (ASIC) produced a report on the collection of statute-barred debts by debt collectors and creditors . One of the key issues reported by ASIC was a widespread failure of the industry to adopt processes for identifying statute-barred debts. Of it's survey responses ASIC said "We received a range of responses, reflecting a level of confusion and uncertainty in the industry about collecting statute-barred debts."
  7. The ASIC report has identified important issues in relation to the collection of statute-barred debts by debt collectors, who may be covered by the Assignees Determination. It is not clear, however, that there is a connection with, or that these issues could arise from, the operation of the Assignees Determination, which deals with the listing of default debts, rather than debt-collection activities.
  8. In October 2005, ASIC and the Australian Consumer and Competition Commission (ACCC) jointly released a guideline for debt collectors and creditors and a publication to assist consumers when dealing with debt collectors.
  9. Legal Aid Queensland (LAQ) contends that the credit reporting system is being used as a debt collection tool in place of enforcement or legal action being taken by credit providers covered by the determinations.

    Industry opinion

  10. In general, the industry view is that there is no systemic issue. The credit reporting agencies, Baycorp and Dun & Bradstreet, report having processes in place to guard against the listing of statute-barred debts. Baycorp estimates that less than 1% of the complaints it investigates relate to either statue-barred debts or double listings. Businesses covered by the Assignees Determination, such as Collection House, point to their contractual arrangements with credit providers which guard against the purchase of statute-barred debts.

    Consumer group opinion

  11. CCLC believes that the historic issues of statute-barred debts being listed by assignees still exists and provides the example of Alliance Factoring, a debt collector investigated by the ACCC in 2005 in relation to habitual listing of statute-barred debts. (This case is discussed further in the section titled "OPC and ACCC experience.") CCLC reports that it continues to receive consumer complaints about Alliance Factoring listing statute-barred debts. LAQ also considers that the problem of listing statute-barred debts remains and refers also to the ACCC 2005 investigation of Alliance Factoring and 2006 investigation of Collection House. LAQ claims that assignees systematically use the credit reporting system to list statute-barred debts.

    Double listing

    Industry opinion

  12. In general, the industry reports no there is evidence of a systemic issue in relation to double listing, but acknowledges past issues and that effort is required to ensure the transfer of all appropriate information and documentation when debts are assigned to guard against double listings. As with statute-barred debts, credit reporting agencies claim to have processes in place to guard against double listing, and assignees point to their contractual arrangements with credit providers and their business processes which guard against double listing.
  13. The Australian Finance Conference (AFC) acknowledged "isolated instances" of double listings by assignees, but suggested that this is "equally true of" original credit providers.
  14. The responses also indicated that the issue of double listing is directly connected to the issue of record keeping, as inaccurate records may lead to double listing in some cases. Record keeping is discussed below and in the section titled "Classes of Credit Provider Determination."

    Consumer group opinion

  15. CCLC provides evidence in the form of case studies regarding double listings and believes that this issue is systemic. CCLC presents one case study where CCLC wrote to a debt collector requesting removal of a double listing of a clearout (a form of serious credit infringement), but the debt collector refused. CCLC complained to the Banking and Financial Services Ombudsman (BFSO) and obtained the involvement of the bank that acted as the original credit provider before this matter was able to be resolved.

    Record keeping

  16. The issue of record keeping is linked to the issue of listing statute-barred debts and double listings by assignees, and is also linked in general to the Classes Determination. Poor record keeping by credit providers may have a flow-on effect where assignees do not have access to appropriate and accurate documentation and information about a debt, leading to the listing of statute-barred debts and double listings. In relation to the Classes Determination, a number of submitters suggest that non-traditional credit providers, covered by the Classes Determination, are more likely to be poor record keepers. This is discussed further in the section titled "Classes of Credit Provider Determination."

    Industry opinion

  17. Industry participants maintain that there is no evidence of a systemic issue. Baycorp believes that past issues have been addressed through improved business processes and contractual agreements. However, the Institute of Mercantile Agents (IMA) acknowledges that there are issues related to the supply of original documentation for debts, particularly in relation to online applications for goods and services such as mobile telephony services. The AFC also acknowledges that the assignment of debt and consequent need to transfer records from the original credit provider to the assignee introduces an additional compliance risk for assignee credit providers.

    Consumer group opinion

  18. CCLC contends that poor record keeping by assignees constitutes a systemic problem. From its experience, CCLC believes that certain assignees do not have sufficient record-keeping systems in place to comply with the Privacy Act. CCLC also describes in detail a recent representative complaint made to the OPC where an assignee listed defaults on up to 600,000 credit files when the accuracy of the related data could not be guaranteed and the company had not ensured that notification had been provided under section 18E(8) (c) of the Privacy Act. The complaint was lodged in April 2006 and has not been finalised to date. CCLC uses a number of case studies relating to this issue, where the assignee continues to pursue disputed debts for telecommunications services.

    Support for renewal of the Assignees Determination

  19. In general, responding industry participants agree that the Determination should be renewed. In contrast to other industry participants, the Credit Union Industry Association (CUIA, now Abacus Australian Mutuals) argues that the Assignees Determination should not be renewed and that providing organisations outside the finance sector with access to the credit reporting system increases the risk of bringing the credit reporting system into disrepute.
  20. CCLC also argues that the Assignees Determination should not be renewed due to what it believes are systemic failures by those covered. LAQ believes that the Assignees Determination should only be renewed if the amendments provided in its submission are applied. Recommendations are described in the section titled "Recommendations from submitters".
  21. Neither the BFSO nor ACIF specifically stated support to renew the Determination. BFSO points out that in its experience of handling disputes relating to assigned debts, it has not become aware of any systemic issues in relation to the listing of statue-barred debts, unlawful double listings or poor record-keeping. It is unlikely that ACIF members would be covered by the Assignees Determination.

    Recommendations from submitters

  22. Industry participants generally conclude that the Determination should be renewed and although there is no evidence of systemic issues, the Assignees Determination should be amended to provide clarification of the responsibilities of assignees and assignors, particularly in relation to provision of related documentation and information for a debt.
  23. Baycorp suggests amendments to:
    • Clarify the obligations of the original credit provider to comply with the Privacy Act
    • Clarify the obligations of the assignor under the Determination, particularly in relation to the responsibility for providing relevant documentation to the assignee.
  24. AFC suggests that the better response to achieve compliance would be not to amend the Assignees Determination but for the OPC to use its powers under the Privacy Act to prevent non-compliance through education, and to remediate cases of non-compliance through enforcement.
  25. The organisations in favour of renewing the Determination generally believe that any amendment restricting access by credit providers and assignees to the credit reporting system will have an adverse economic impact on the business sector and on individual consumers in the form of an increased cost of credit due to the increased risk for credit providers.
  26. CCLC believes that the Assignees Determination should not be renewed and that only finance sector organisations should have access to the credit reporting system. In CCLC's view, not renewing the Assignees Determinations would help to prevent insignificant (in value) or disputed defaults being listed by assignees on consumer credit files, which may seriously disadvantage consumers who are then unable to access credit at a competitive rate. CCLS believes that an investigation into the case of 600,000 listings by an assignee would have provided "evidence that the largest ever listing of utility defaults was unsound, that procedures were not in place to address consumer complaints and that many consumers suffered detriment."
  27. LAQ does not support the renewal of the Assignees Determination without the following suggested amendments:
    • a time limit in which to list defaults
    • a minimum amount for listing
    • an obligation on the assignee to provide documentation in relation to assigned debts, particularly written-off debts.
  28. LAQ believes these amendments would help to guard against the listing of statute-barred debts, double listing, assist in the accuracy of listings and reduce the chance of serious injustice to customers.

    OPC and ACCC experience

  29. In 2003, when issuing the Assignees Determination, the then Commissioner observed that double listing of loans by assignees was an area of concern for the OPC that needed to be kept under notice, and urged credit providers and credit reporting agencies to improve their practice.
  30. More recently the OPC is aware of two ACCC actions involving assignees and their debt collection practices. When the ACCC believes that a breach of the Trade Practices Act 1974 has occurred, or may occur, it may decide that the best way to resolve this is by seeking an section 87B undertaking rather than litigating. The Federal Court has extensive powers to enforce the undertakings and the ACCC keeps a public register of those undertakings.
  31. In August 2005, Alliance Factoring was required to enter into an undertaking by the ACCC in relation to the listing of statute barred debts. Alliance Factoring provided a court enforceable undertaking to the ACCC following the ACCC's inquiries of complaints concerning Alliance Factoring's debt collection practices and procedures in attempting to collect debts it purchased from Telstra in 2002 and 2003. The ACCC was concerned some alleged conduct may contravene section section52 and 60 of the Trade Practices Act 1974.
  32. The ACCC was concerned by some of Alliance Factoring's debt collecting practices including inappropriately listing debts that were in dispute with a credit reporting agency. In some cases, it appeared that Alliance Factoring had indicated that an alleged debt would be listed as a default on the consumer's credit file unless the alleged debt was paid, when in fact the debt had already been listed as a default (see par. 3.4(d) of the undertaking). This supports LAQ's claims that the credit reporting system has recently been used as a debt collecting tool. Another factor was the difficulty experienced by alleged debtors in resolving disputes with Alliance Factoring because of a lack of a clear complaints handling procedure (see par. 3.4(f) of the undertaking). Clause 12 of the undertaking specifically relates to credit reporting, and includes Alliance Factoring undertaking:
    • not to list debtors until after 60 days after a written notice has been sent to the debtor requesting payment, and
    • not to use the prospect of listing as a threat.
  33. In April 2006, CCLC lodged a complaint with the OPC against Alliance Factoring (as assignee of Telstra debts) and Baycorp for a listing of 600,000 defaults onto credit reports without ensuring the accuracy of the related data.
  34. Collection House and Lion Finance also entered into court enforceable undertakings under the Trade Practices Act 1974 in February 2006 (Lion Finance is a wholly owned subsidiary of Collection House). Collection House agreed to offer refunds to 500 individuals for pursuing the recovery of a large number of statute-barred debts. The undertaking addresses the ACCC's concerns regarding the collection of statute barred debt in NSW during 2001 to 2004.
  35. The OPC's complaint-handling experience shows that complaints about assignees make up around 18% of all credit complaints where there appeared to be a compliance issue and the matter was satisfactorily resolved between the parties.
  36. The OPC's audits of Dun and Bradstreet, and of Baycorp, finalised during August 2003 and December 2003 respectively, did not include any specific recommendations relating to the Assignees Determination.

    Classes of Credit Provider Determination

    Submissions

  37. Altogether 12 submissions were received from the following organisations:
    1. Baycorp Advantage
    2. Consumer Credit Legal Centre (NSW) Inc
    3. Consumer Credit Legal Service (VIC) Inc
    4. Legal Aid Queensland
    5. Dun and Bradstreet
    6. Australian Communications Industry Forum
    7. Banking and Financial Services Ombudsman
    8. Institute of Mercantile Agents and Australian Collectors Association
    9. Collection House
    10. Credit Union Industry Association, now Abacus Australian Mutuals
    11. Australian Finance Conference including Credit Corp Group
    12. Australian Mobile Telecommunication Association
  38. The Consumer Credit Legal Service (VIC) Inc (CCLS) has provided a letter to the OPC in support of the submission to the review made by the Consumer Credit Legal Centre (NSW) Inc (CCLC).

    Review of Submissions

  39. The consultation paper asked submitters to address the following questions in relation to the Classes Determination:
    • Is there any evidence that there are systemic issues relating to compliance with the Privacy Act by credit providers covered by the Classes Determination?
    • If there is such evidence, how could the Classes Determination be changed to reduce this problem?
    • Has compliance with the requirements of the Privacy Act, by credit providers covered by the Classes Determination, improved over the past three years? What evidence can you produce to support your position?
    • Should the Classes Determination be renewed? If no, why not?
    • If yes, should it be amended and in what way should it be changed? What evidence can you provide to support your proposed change?
    • How long should a new determination last? Potential durations include 3, 5 or 10 years.
    • What might be the adverse or positive effects of amending the Classes Determination?
  40. In general, responding industry participants suggested that there is no evidence of systemic issues in relation to compliance with the Privacy Act by credit providers covered by the Classes Determination.
  41. CCLC believes that there are systemic issues in relation to non-compliance with the Privacy Act by credit providers covered by the Classes Determination. LAQ suggests that issues related to the Classes Determination are more often in regard to disputes over liability for a debt rather than compliance issues such as proper notice under section 18E(8) (c) of the Privacy Act being provided. LAQ is also concerned that organisations covered by the Classes Determination have no incentive to undertake proper collection procedures when they are able to use their access to the credit reporting system to compel consumers to pay alleged debts or face listing.

    Compliance with the Privacy Act and improvement in compliance with the Privacy Act

    Industry opinion

  42. In general industry participants responding suggested that compliance breaches by credit providers covered by the Classes Determination were no more frequent than for traditional credit providers.
  43. Baycorp reports that it experiences no disproportionate level of complaints against credit providers covered by the Classes Determination when compared to traditional credit providers. Dun and Bradstreet also report that most credit providers covered by the Classes Determination understand their obligations under the Privacy Act.
  44. In contrast, Collection House, a debt collecting business, reports concerns about the practices of some non-traditional credit providers, suggesting that some mobile service providers have difficulty proving compliance with section 18E (8) (c) of the Privacy Act. The main concern is that some mobile service providers covered by the Classes Determination are not aware of their obligations under the Privacy Act.
  45. The IMA reports that while they believe the majority of companies who are not members of either IMA or the Australian Institute of Credit Management have little knowledge of privacy, ASIC or ACCC regulations, major complaints have lessened and that most breaches are by new entrants in the telecommunications industry.

    Consumer group opinion

  46. CCLC believes that non-traditional credit providers covered by the Classes Determination do not have systems in place to identify statute-barred debts, to ensure accurate data collection at the time that goods and services are provided, or to comply with the notification requirements of the Privacy Act. CCLC believes that significant issues remain, especially in relation to telecommunications organisations and their inability to ensure their information is accurate due to the poor application processes for many telecommunications services.
  47. CCLC also notes that complaints to the Telecommunications Industry Ombudsman rose by approx 69% from 2001-2002 to 2002-2003 and a further 37% from 2002-2003 to 2003-2004, and quote Baycorp figures for 2005 which show telecommunications organisations were responsible for 62% of all credit default listings for that year.

    Support for renewal of the Determination

  48. In general, responding industry participants agreed that the Determination should be renewed.
  49. CCLC responded that the Determination should not be renewed. One industry participant, CUIA, also contends that the Determination should not be renewed, suggesting that the risk of bringing the credit reporting system into disrepute is increased by providing access to non-finance sector organisations. LAQ believes that the Classes Determination should only be renewed if the amendments provided in its submission, as described below in "Recommendations from submitters" are applied.
  50. The BFSO has no members covered by the Determination and did not specifically state support to renew the Determination.

    Recommendations from submitters

  51. Industry participants supporting the renewal of the Classes Determination suggest that issues with the operation of the Determination should be addressed by the OPC through education and enforcement, not by narrowing the Determination.
  52. Furthermore, industry submissions suggest that the risks assumed by traditional and non-traditional credit providers are equal and that businesses, especially small businesses, should not have to provide credit for a minimum of seven days to be deemed a credit provider under the Determination. It is suggested that the Determination be amended to remove the seven days minimum credit period to allow coverage for businesses providing goods or services and not receiving cleared funds as payment at the time the goods and services are provided. It is also argued by industry participants that this will provide enhanced data to the credit reporting system and provide a true indication of consumer indebtedness.
  53. Industry submissions suggest that any amendment to restrict activities of credit providers will have an adverse economic impact on the business sector and will increase the cost of credit for consumers.
  54. CCLC recommends not renewing the Classes Determination and believes that original intention of Part IIIA of the Privacy Act was to restrict access by businesses to the credit reporting system, providing a reference to the Second Reading Speech (to the Privacy Amendment Bill 1990) as evidence of this. Furthermore, CCLC contends that access to the credit reporting system should be provided only to finance-sector organisations as its intended use was for determining the risk associated with providing a loan to a customer, not to determine whether a customer could pay for goods and services.
  55. CCLC states the following as advantages that would flow from not renewing the Classes Determination:
    • Individuals will be able to easily recognise when a particular transaction represents a risk to their credit worthiness
    • Enhanced privacy for all Australians by allowing individuals access to goods and services without the obligation to disclose personal financial information
    • Preventing disadvantage to consumers who are unable to access credit at a competitive rate or who are regarded as a bad credit risk because of an insignificant (in value) or disputed default listing on their credit file.
  56. CCLC and Collection House both suggest that organisations covered by the Classes Determination should be compelled to act in accordance with the Uniform Consumer Credit Code (UCCC). Both point to the protections for consumers provided by the UCCC.
  57. LAQ does not support the renewal of the Assignees Determination without the following suggested amendments:
    • a time limit in which to list defaults
    • a minimum amount for listing
    • an obligation on the credit provider to provide documentation in relation to debts, particularly written-off debts
    • restrict the class of credit providers covered by the Classes Determination i.e. utilities should be excluded.
  58. LAQ believes these amendments would help to guard against the listing of statute-barred debts, double listing, assist in the accuracy of listings and reduce the chance of serious injustice to customers. Restricting access to traditional credit providers will also ensure that the credit reporting system is not used as a debt collecting tool.

    OPC experience

  59. When the Classes Determination was renewed in 2003, the then Commissioner noted that there may be signs of emerging concerns such as a lack of credit providers' understanding of their credit obligations especially regarding notice provisions.
  60. In the "Reasons for Determination" section of the 2003 Determination (see the Consultation Paper), the Commissioner noted that he expected that business would take steps to raise its awareness of its compliance obligations and that compliance with the requirements of the credit reporting system would be improved over the life of the Determination. This issue was also referred to in the Explanatory Statement to the 2003 Classes Determination (see the Consultation Paper).
  61. Since the review of the Classes Determination in 2003, the Office's experience is that approximately 7% of all credit reporting complaints, where there appeared to be a compliance issue and the matter was satisfactorily resolved between the parties, involve complaints about industries covered by the Classes Determination.
  62. The OPC's audits of Dun and Bradstreet and Baycorp, finalised in August 2003 and December 2003 respectively, did not include any specific recommendations relating to the Classes Determination.

    Telecommunications organisations

  63. A number of issues connected to both determinations relate directly to telecommunications organisations. In general, credit reporting agencies and debt collectors covered by the Assignees Determination suggest that the issues of double listing and listing of statute-barred debts are often caused by the poor record-keeping practices of some non-traditional credit providers, citing in particular mobile service providers. Furthermore, debt collection businesses state that these organisations often have limited understanding of their obligations under the Privacy Act.
  64. The main concern for industry participants is that mobile service providers have difficulty in providing all relevant documentation associated with a debt they wish to assign. This includes documentation required to prove the debt, records to prove compliance with section 18E(8) (c) of the Privacy Act, records in relation to all subsequent notification and relevant updated information. While not considered a systemic problem by industry submitters, it is identified by some as a risk factor which requires careful consideration.
  65. Collection House states that there is "growing evidence" that mobile service carriers are experiencing problems in relation to the provision of documentation on purchased debt accounts. Collection House reports that the original service contract is rarely available (thus proof of notification is not available) and is concerned that mobile service providers are not fully aware of their legal obligations in relation to default listings.
  66. Most of the case studies supplied by CCLC relate to complaints about listings of debts or alleged debts for telecommunications services. LAQ states that 25% of credit reporting complaints it handles relate to telecommunication listings or threatened listings.

    OPC experience

  67. The Office's experience shows that telecommunications organisations make up around 20% of credit complaints where there appeared to be a compliance issue and the matter was satisfactorily resolved between the parties. It is also the case that significant complaints relating to non-compliance have been made against organisations that report telecommunications defaults, and these organisations are, or may be, covered by the Assignees or Classes determination.
  68. For example, during 2004, approximately 65,000 customer default listings were removed from credit records held by a credit reporting agency after the OPC found that the failed telecommunications company, One-Tel, did not have systems in place to update customer credit default listings once a debt had been paid. One-Tel may have had access to the credit reporting system to list these defaults under the Classes Determination.
  69. In addition, the Alliance Factoring enforceable undertaking to the ACCC (discussed above), relates to Alliance Factoring's conduct as an assignee of Telstra debts.

    Coverage of telecommunications organisations

  70. Some in the telecommunications sector appear to be of the view that telecommunications organisations can access the credit reporting system only by virtue of the Classes Determination. The ACIF Code C541:2006 Credit Management expresses the view that the Classes Determination has the effect of bringing suppliers under Part IIIA of the Privacy Act to the extent that they allow payment for goods/services after seven days.
  71. In the 2003 review of the Classes Determination, the OPC expressed the view that businesses in the telecommunications sector are likely to be "traditional" credit providers covered by the terms of section 11B(1)(b)(iii) of the Privacy Act and therefore not covered by the Determination. (See "Information arising from submissions: claims and qualitative data" under "Reasons for Determination" in the Consultation Paper.)
  72. However, in the Explanatory Statement for the 2006 Classes Determination, the OPC indicated that "telephone companies" were covered by the Determination. (See section 2.1 "Background to Determination" in the Consultation Paper.)
  73. The OPC has not had reason to determine definitively whether a particular telecommunications organisation is a credit provider by virtue of the Classes Determination, or by virtue of the definition of credit provider in section 11B(1)(b)(iii).

    Key Issues

  74. The key issues in determining whether a telecommunications organisation is a 'credit provider' in accordance with section 11B(1)(b)(iii) of the Privacy Act are whether it 'provides loans' as defined under the Privacy Act, and whether 'the provision of loans' is a 'substantial part' of its business.
  75. The key issue in determining whether a telecommunications organisation is a 'credit provider' under the Classes Determination is that its business or undertaking must 'involve' the provision of loans for more than seven days.
  76. The definition of "loan" in the Privacy Act is very inclusive and it would seem likely that telecommunications organisations billing in arrears could be said to be providing a loan for the purposes of the Privacy Act. However, the OPC believes that this would be a matter to be determined in each case.
  77. For a corporation to be a 'credit provider' under section11B(1)(b)(iii) of the Privacy Act, the provision of loans must be a 'substantial part' of a corporation's business. This assessment would be made in consideration of the whole of a corporation's business and be a matter to be decided in each case.
  78. Traditional telephony services, such as the hiring of equipment and service provision as part of domestic contracts with residential customers who pay in arrears would appear to fall under the definition of a loan and it is likely that many telecommunication organisations are credit providers by virtue of section 11B(1)(b)(iii) of the Privacy Act. Other telecommunications organisations who do not meet this criterion may obtain the status of credit provider by virtue of meeting the criteria of the Classes Determination.
  79. Assessing whether a telecommunications organisation meets the criteria of section 11B(1)(b)(iii) of the Privacy Act or the Classes Determination should be assessed on a case by case basis. The OPC notes also that telecommunications organisations offering only pre-paid services are unlikely to be credit providers for the purposes of the Privacy Act.

    Duration of Determinations

  80. In relation to the duration of the determinations the following input was received in submissions:
    • Industry generally thought it was more efficient not to have an expiry date for the determinations, some noting the precedent of the previous determination concerning ATSIC.
    • Those supporting renewal suggested:
    • Indefinite and only reviewed when an issue arises
    • Indefinite or else 3 years (3); 5 years (2); 10 years (1).
  81. The OPC notes that the Australian Law Reform Commission's (ALRC) current privacy review will include a review of the credit reporting provisions in the Privacy Act and believes that a period of 5 years, which will allow for the incorporation of any recommendations from the ALRC review, would be appropriate.
  82. The OPC notes that if circumstances demonstrate that the determinations should be reviewed within a five year time frame, the Commissioner has the power to commence a review as soon as required.

    Conclusions

  83. Submissions to the review from industry participants and complaint handling bodies such as the BFSO suggest that there are no systemic issues with the operation of either determination. However, the OPC notes a number of concerns discussed in these submissions including:
    • Lack of understanding by some non-traditional credit providers covered by the Classes Determination of their obligations under the Privacy Act, mainly in relation to proper notification and record keeping
    • The follow-on effect that poor record keeping by non-traditional credit providers covered by the Classes Determination in relation to listing of statute-barred debts and double listing by the assignees
    • That some credit providers covered under the Privacy Act or determinations, may not be covered by the UCCC or obliged to conform by the rules it sets out for credit providers, buy may still have access to the credit reporting system.
  84. Notwithstanding these concerns, some industry groups advocate widening access to the credit reporting system through the Classes Determination to include any business that provides goods or services without being paid in cleared funds at the time of sale. It is suggested that this be achieved by removing the requirement for a business to provide a minimum of seven days credit from the Classes Determination. The OPC believes that such an amendment could, at its limit, extend the use of the credit reporting system from its current recognised role as a tool for assessing the risk associated with providing a loan to an individual, to one for determining a potential customer's ongoing ability to pay for goods and services. Such a change would appear to mark a significant shift from the intended parameters of the credit reporting provisions of the Privacy Act.
  85. The consumer groups maintain that there are systemic issues and provides as evidence:
    • Six individual case studies
    • Details of action taken by the ACCC against Alliance Factoring
    • Details of a representative complaint lodged with the OPC by CCLC against one assignee credit provider and one credit reporting agency.
  86. The OPC finds that while there are recurring issues that require attention, these issues have not prevented the determinations from operating satisfactorily in general.
  87. In relation to the Classes Determination, CCLC interprets the original intent of Part IIIA of the Privacy Act as allowing access only to businesses in the finance sector. In its submission, the CUIA is also in favour of limiting access to the credit reporting system to finance sector organisations.
  88. However, this interpretation varies from that applied by the OPC in past reviews of the Classes Determination. The policy intention behind the legislation is to seek to declare as credit providers as wide a range of businesses as was both "practicable and permissible" whose need to access consumer credit information was similar to that of businesses automatically classed as credit providers under the principal categories of section 11B of the Privacy Act. (See section 2 "Policy Context" in Review of Credit Determination Consultation Paper No. 1.)
  89. LAQ submits that the initial intent of Part IIIA of the Privacy Act was to protect the privacy of individuals in relation to their consumer credit records and was drafted to apply to traditional lending products. LAQ also suggests that the Classes Determination brings issues into play which cannot be dealt with by the Privacy Act, such as disputed liability for debts, quality of goods and services, identification of account holders and variations to contracts.
  90. The OPC notes that other regulators are available to deal with these issues, such as ASIC and State government consumer bodies.
  91. LAQ also discusses cases of legal action taken against debt collecting agencies as assignee credit providers and credit reporting agencies and reports on the results of surveys and from its own experience that credit reporting is still of concern to individuals. LAQ states that 67% of the calls handled by its Consumer Protection Unit involve credit reporting.
  92. The issues of the gap between the requirements for credit providers covered by the Privacy Act and determinations and the requirements for credit providers under the UCCC have not been fully explored for the purposes of this report. The Commissioner believes that this issue should be referred to ALRC privacy review and the Uniform Consumer Credit Code Management Committee (UCCCMC), which was established by the Standing Committee of Officials of Consumer Affairs in 1996 to monitor and co-ordinate all activities relating to the UCCC.
  93. Although the consumer groups responding provide evidence of persisting issues, the input from the complaints handling bodies participating in the review do not support the view that systemic issues exist in relation to the operation of either determination. However, there are specific issues that the Commissioner believes should be addressed as outlined in the "Outcomes" section below.

    Outcomes

  94. In weighing up the opinions and evidence provided in the submissions received and the experience of the OPC and other regulators, the Commissioner has committed to the following courses of action:

    Renewing the determinations

    1. Renew both determinations without any substantive amendment for the period of five (5) years.
    2. Provide in the explanatory statement accompanying the instruments:
      • clarification about assignor and assignee rights and obligations under the Assignees Determination and the Privacy Act.
      • information about the rights and obligations of non-traditional credit providers covered under the Classes Determination and the Privacy Act.

      Planning education and audit programs

    3. Plan the development of information sheets and education strategies targeted at businesses covered by the Assignees Determination and the Classes Determination and those operating in the telecommunications sector. For example, information sheets might cover topics such as providing proper notice and record keeping requirements to ensure compliance with the Privacy Act.
    4. Consider the development of a credit reporting audit program focussing on non-traditional credit providers as resources become available. As well as those covered by the Assignees or Classes determinations, an audit program might also focus on non-traditional credit providers who are able to access the credit reporting system by satisfying section 11B(1)(b)(iii) of the Privacy Act. For example, some telecommunications organisations.

      Referring issues for ALRC and UCCCMC

    5. Refer the issue that some credit providers recognised under the Privacy Act and the Classes determination may not be required to comply with the UCCC to the ALRC privacy review and to the UCCCMC.
    6. Refer the issues of the changing nature of the credit sector in Australia and the implications for the privacy of personal credit information to the ALRC. This includes the recent growth and development of the debt collecting industry and the changing role and uses of the credit reporting system by credit providers covered by the Privacy Act or the determinations.

    Related Documents

    1. Consultation Paper No. 1: Assignees, Classes of Credit Providers on the OPC website at www.privacy.gov.au/act/credit/index.html#cpd
    2. The following submissions are published on the OPC website at www.privacy.gov.au/act/credit/index.html#cpd:
    1. Baycorp Advantage
    2. Consumer Credit Legal Centre (NSW) Inc
    3. Consumer Credit Legal Service (VIC) Inc
    4. Dun and Bradstreet
    5. Australian Communications Industry Forum
    6. Banking and Financial Services Ombudsman
    7. Institute of Mercantile Agents and Australian Collectors Association
    8. Collection House
    9. Credit Union Industry Association, formerly CUSCAL
    10. Australian Finance Conference including Credit Corp Group
    11. Australian Mobile Telecommunication Association
    12. Legal Aid Queensland