PR - Non-bank Debt a Burden for Australian Consumers

Consumers who default on utilities or telecommunications debt are 5.3 times more likely to default on other forms of credit, according to research released today by consumer credit reporting agency Dun & Bradstreet (D&B).

The research also shows that consumers who default on low-value amounts (less than $500) are just as likely to default again as consumers who fail to pay up on significant sums of money.

The D&B study, which examined trends in the telecommunications, utilities and finance sectors, demonstrates that non-bank debt is a critical component in assessing the financial health of Australian consumers.

The analysis of default trends data reveals that:

• Individuals who default on utilities debt are 6.5 times more likely to default on other types of credit. The likelihood of recurring defaults by those with telecommunications and finance sector debt are 4.5 and 3.8 times respectively
• The dollar value of defaults has no significant correlation to the likelihood of reoccurrence. A consumer who defaults on a debt of less than $500 is just as likely to repeat this behaviour as a consumer who defaults on a more significant sum of money
• Consumers with outstanding defaults are 5.9 times more likely to default again, while those who have re-paid outstanding debt are three times more likely to reoffend.

According to Christine Christian, Dun & Bradstreet’s CEO, government, lenders and borrowers should consider the implications of this research carefully.

“D&B’s research demonstrates the importance of comprehensive information on credit reports,” said Christian. “Under Australia’s current system a lenders ability to assess credit applications is hindered by the limited amount of information that can be included on a report. Consumers and lenders would both benefit from a reporting model with as much quality data as possible. International research demonstrates that a more comprehensive system improves lending practices, default rates and access to credit for under-served sections of the community.”

The D&B study also found that:

• Applicants with a previous default are a significantly higher credit risk than consumers with no default record
• Consumers with a recent default (last two years) are slightly more risky than those who defaulted up to five years ago.

Dun & Bradstreet says the findings confirm that non-bank and low-value debt needs to be taken more seriously.

“In the current liquidity squeeze, access to credit is becoming more difficult and expensive. The recent rate rise adds another level of pressure to peoples’ finances, making consumer over indebtedness a real concern,” said Christian. "To avoid a significant increase in consumer debt levels lenders must be even more rigorous about risk-based lending decisions. Consumers should also take note. Not paying a small bill, such as a phone bill, can negatively impact a consumer’s ability to access credit for up to five years. Every credit commitment must be taken seriously.”