The Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) (Enhancement Act) commences on 12 March 2014.
The Enhancement Act introduces new Australian Privacy Principles (APP), including APP 13 which deals with the ability for an individual to request correction of personal information held about them by an organisation.
It is a critical issue to determine the extent to which an organisation is obliged to correct personal information it holds about an individual where that information was obtained from a third party and the organisation cannot verify the information itself.
The Office of the Australian Information Commissioner (OAIC) has recently released draft guidelines on APP 13. It had been hoped that the OAIC would provide guidance on how to deal with this critical issue, but unfortunately, it is evident from the draft guidelines released for consultation that the issue has not been addressed by the OAIC.
On a plain reading of APP 13, an organisation is obliged to respond to a request to correct personal information held about an individual, even though that information was obtained from a third party provider.
A practical scenario of how APP 13 (correction of personal information) could operate is illustrated by the following situation:
An individual applies for a loan. A credit report is obtained by the proposed lender from a credit reporting agency. The credit report obtained shows a payment default in respect to a telecommunications company. The loan applicant, when informed of the contents of the credit report, disputes the accuracy of the report. The loan applicant requests that the proposed lender amend the information it “holds” about the individual to remove the record of the telecommunications payment default. The individual also requests that the proposed lender notify the credit reporting agency and the telecommunications company of the correction made.
What are the obligations of the proposed lender in this situation?
The potential problem under APP 13 is intensified by the fact that the old requirement under National Privacy Principles (NPP) 6.5 for an individual to establish that their personal information is not accurate, complete and up-to-date before there is an obligation to correct the information is now absent from APP 13.
NPP 6.5 currently states:
6.5 If an organisation holds personal information about an individual and the individual is able to establish that the information is not accurate, complete and up-to-date, the organisation must take reasonable steps to correct the information so that it is accurate, complete and up-to-date.
The new APP 13.1 provides that:
(a) an APP entity holds personal information about an individual and
(i) the entity is satisfied that, having regard to a purpose for which the information is held, the information is inaccurate, out of date, incomplete, irrelevant or misleading or
(ii) the individual requests the entity to correct the information
the entity must take steps (if any) that are reasonable in the circumstances to correct that information to ensure that, having regard to the purpose for which it is held, the information is accurate, up to date, complete, relevant and not misleading.”
The contrast between NPP 6.5 and APP 13 is evident.
In the illustration above, the proposed lender has no knowledge as to whether or not the adverse credit report by the telecommunications company is accurate or not. All the evidence it has is the assertion of the individual applicant.
All other things being equal, the plain reading of APP 13.1 tends to suggest that the proposed lender would have to correct the record it holds about the loan applicant.
What do the draft guidelines of the OAIC say about this issue?
In the draft guidelines recently issued by the OAIC for consultation the only direct reference to this issue is in paragraph 13.15 which states:
“An APP entity is required by APP 13.1 to take reasonable steps to correct an individual’s personal information to ensure it is not faulty when the individual “requests” the entity to do so. APP 13 does not stipulate the formal requirements for making a request, or require that a request be made in writing, or state that it is an APP 13 request.”
However, the obligation imposed on the proposed lender to “ensure it (personal information) is not faulty when the individual “requests” an entity to (correct the record)”, really begs the question – the important question being – is a request from an individual to correct and an assertion by the individual that the information is “faulty” sufficient to trigger an obligation to correct on the part of the proposed lender?
Most of the analysis in the draft guidelines on APP 13 focuses on the situation where the APP entity corrects the personal information it holds on its own initiative under APP 13.1(b)(i) – and not at the request of the individual.
Can the individual applicant request that the proposed lender notify third parties to correct their records?
In the illustration, the sole obligation of the proposed lender is to correct the record it holds, namely its’ copy of the credit report. It does not need to notify third parties of the correction. The requirement to notify third parties of the correction only applies where the proposed lender has previously disclosed the record of the telecommunications payment default to another APP entity. Relevantly, APP 13.2 provides:
(a) the APP entity corrects personal information about an individual that the entity previously disclosed to another APP entity and
(b) the individual request the entity to notify the other APP entity of the correction
the entity must take steps (if any) as are reasonable in the circumstances to give that notification unless it is impracticable or unlawful to do so.”
What then does the proposed lender do about the request by the individual applicant for correction of the record about the telecommunications payment default?
In this situation, the proposed lender can excise the record of the telecommunications payment default from its records and from consideration of the loan application.
Alternatively, the proposed lender can refuse to correct the information. In circumstances where the proposed lender refuses to correct the information, then the provisions of APP 13.3 apply in the following terms:
“If the APP entity refuses to correct the personal information as requested by the individual, the entity must give the individual a written notice that sets out:
(a) the reasons for the refusal except to the extent that it would be unreasonable to do so and
(b) the mechanisms available to complain about the refusal and
(c) any other matter prescribed by the regulations.”
If the proposed lender refuses to correct its records about the telecommunications payment default, the individual can complain and take the matter to external dispute resolution. In that situation, the proposed lender has no information in its possession to indicate that the record of the prior telecommunications default was “accurate, up-to-date, complete, relevant and not misleading.”
The proposed lender is left between “a rock and a hard place”. In effect, it could be forced to excise the fact of the prior telecommunications default from its records, because to do otherwise would open itself up to the individual applicant making a complaint.
It will be interesting to see how the OAIC deals with this issue during the consultation process in respect to the draft guidelines recently issued.
This will be one area to watch with interest as part of the consultation process.
What then are the practical implications for lenders?
It is of concern if APP 13 (correction of personal information) eventually operates in the manner indicated above, and one must always consider the practical implications for lenders in such a scenario.
It must be remembered that a lender is not obliged to make a loan to a prospective borrower. The obligation is in fact in reverse, namely that a lender/credit provider, before it is able to make a loan, must make an assessment namely:
“It assesses whether the credit contract will be unsuitable for a consumer if the contract is entered into or the credit limit is increased…”
Extracted from section 129 of the National Credit Code.
Arguably a credit provider could “correct” the record of the telecommunications default from the credit report obtained, but still decide not to make the loan to the loan applicant or only make the loan in circumstances where the loan applicant provided further information about the alleged telecommunications default. A lender is not required to give a copy of its’ credit assessment if the loan application is refused.
The situation is otherwise where lenders deal through finance brokers or other intermediaries. A credit assistant is required to make their own “preliminary assessment” of a loan application and to make sure the proposed loan is not “unsuitable”. Even if a credit assistant determines that the loan application should not proceed, the applicant borrower is still entitled to a copy of the preliminary credit assessment (see section 120(1) of the National Credit Code).
In circumstances where lenders deal through finance brokers and intermediaries a situation may arise where the credit assistant recommends the loan proceed on the basis that the entry relating to the alleged telecommunications payment default is disregarded, but the proposed lender determines not to make the loan in any event because it is not satisfied that the loan applicant is telling the truth about the telecommunications payment default or refuses to provide further explanation or details in relation to the same.
Can the loan applicant take the proposed lender’s reliance on the expunged record of telecommunications default to External Dispute Resolution (EDR)?
It is a vexed issue as to how Credit Ombudsman Service Limited (COSL) or Financial Ombudsman Service (FOS) would deal with such a complaint in circumstances where a lender cannot be “forced” to make a loan.
If a proposed lender informs the loan applicant about the existence of the telecommunications payment default, the lender could be at risk of a complaint being made if the loan application is declined and the borrower applicant perceives it was due to the existence of the disputed telecommunications payment default.
It is understood that there is widespread concern in the finance industry about this issue. It will be important to see how the matter plays out as the consultation process takes place over the coming weeks.