Author: Martin North

Martin North is the Principal of Digital Finance Analytics

MFAA launches major broker advocacy campaign

A multi-channel advertising campaign is being launched by the Mortgage & Finance Association of Australia to promote the value of brokers to the general public.

DFA comments that the industry should focus on fixing the inherent conflicts in the broker channel, as revealed in the Royal Commission.  This is not marketing perception problem, it is the reality of current practices!  The MFAA are fighting the wrong war… ASIC’s analysis showed that contrary to myth, borrowers who use brokers do NOT necessarily get a better deal.

Via the Adviser:

Starting from this Saturday (7 July) and running through to the end of October, the Mortgage & Finance Association of Australia’s (MFAA) national advertising campaign – developed by creative agency Redhanded, in partnership with MFAA advisers GRACosway and Porter Novelli – will run across regional television, national newspapers, social media, national radio, as well as on billboards, bus stops and on branded buses, among other channels.

Featuring real broker customers, including winners of The Block, Kyal and Kara Demmrich, the advertising campaign aims to highlight the experiences customers have had with brokers and the value they place in the broker offering and service.

Several leading brokers will also front the campaign, including award-winning broker and director of Rise High Financial Solutions Marissa Schulze, and share what their typical day looks like.

The campaign, which runs with the tag line Your Broker Behind You (showcasing that the broker is supportive of the customer and their dreams of home ownership) and utilises the hashtag #findafairerdeal, also aims to involve other brokers.

The 30-second television commercial, social media posts and several other assets are being made available to brokers through the campaign website brokerbehindyou.com.au, and the MFAA is calling on all brokers to post their own videos, photos and posts using the hashtag to create a wealth of content showcasing how Australia’s brokers are making a difference.

‘We have a wonderful story to tell’

Highlighting that broker market share has increased over the past six years, with the MFAA’s recent stats showing that broker market share in the March quarter reached its higher ever figure, the association noted that while the recent negative publicity has not yet impacted the proportion of people using brokers, the association believed it was the “the right time” to come out in a public campaign to “promote and defend” the industry.

The CEO of the MFAA, Mike Felton, commented: “There is no doubt our reputation as an industry has been challenged through repeated regulatory reports, inquiries and negative media coverage over the past year, but we have a wonderful story to tell. Brokers drive competition, value and choice, which creates positive customer outcomes and fairness for all Australians.

“While we are continuing our ongoing efforts in advocacy and education, through such actions as our involvement in the Combined Industry Forum, this campaign will highlight more publicly the value of the mortgage broking industry.”

He continued: “Many broker businesses are comparatively small, but working together, we represent an industry of real significance, which is systemically important to the Australian economy. It’s time to make that size and scale count.”

Mr Felton revealed that the association tested and shaped the initiative with the help of an advisory panel made up of brokers, aggregators and lenders to ensure it reflected the views of the entire industry.

He continued: “We’re focused on the positives. The message is: ‘Your broker is behind you all the way, providing you with a choice of lenders and products, and support for the life of the loan. Your broker is on your side’.”

The marketing campaign comes off the back of calls from brokers for such an advertising campaign.

Several brokers have taken to the comment section of The Adviser in recent months to call on the associations to put out a public-facing marketing campaign on the broker proposition, with one commentator calling on the associations to “launch an Australia-wide media campaign outlining the fact that the banks are in the process of killing the broking industry and when they do consumers will be far worse off”.

Some brokers have already taken steps to rebut the negative headlines and misinformation being disseminated to the public following the financial services royal commission and Productivity Commission’s inquiry into the financial sector.

Tasmania-based broker Lance Cure launched a local TV advertising campaign to strengthen the public’s perception of the broking industry, while Steve Milligan, broker and director of Mandurah-based brokerage Launch Finance, presented a whitepaper for Federal MP Andrew Hastie titled The Value of Finance Brokers and Positive Consumer Outcomes to “get the truth out there about why brokers are doing so well”.

Likewise, the MFAA recently presented to government departments and regulatory agencies a data package to provide an evidence-based rebuttal of the negative reports and to emphasise ASIC’s review of mortgage broker remuneration, which did not conclude that the upfront and trail commissions have detrimental impacts on consumers.

The association also revealed that a new Deloitte Access Economics report, Value of Mortgage Broking, will be released in the coming weeks.

 

Mortgage Stress Continues To Claw Higher

Digital Finance Analytics (DFA) has released the June 2018 mortgage stress and default analysis update.

The latest RBA data on household debt to income to March reached a new high of 190.1 [1] …

… so no surprise to see mortgage stress continuing to rise. Across Australia, more than 970,000 households are estimated to be now in mortgage stress (last month 966,000). This equates to 30.3% of owner occupied borrowing households. In addition, more than 22,000 of these are in severe stress. We estimate that more than 57,100 households risk 30-day default in the next 12 months. We expect bank portfolio losses to be around 2.8 basis points, though losses in WA are higher at 5.2 basis points.  We continue to see the impact of flat wages growth, rising living costs and higher real mortgage rates.

The latest S&P Ratings data shows a rise in 90 day plus delinquencies in the SPIN series for April, from the major banks. So despite the fact it only covers MBS mortgages the trend is consistent with our stress analysis!

The inevitable result of too lose lending standards and easy loans is creating an intractable problem for many households given the continued low income growth, high cost environment. This also means risks to lenders continue to rise.

Our surveys show that more households are keeping their wallets firmly in their pockets as they try to manage ever tighter cash flows. This is an economically significant issue and will be a drag anchor on future growth. The RBA’s bet on sustained household consumption looks pretty crook. Even now, household debt continues to climb to new record levels, mortgage lending is still growing at an unsustainable two to three times income. Falling home prices just adds extra picante to the problem.

We continue to see households having to cope with rising living costs – notably child care, school fees and fuel – whilst real incomes continue to fall and underemployment remains high. Households have larger mortgages, thanks to the strong rise in home prices, especially in the main eastern state centres, and now prices are slipping. While mortgage interest rates remain quite low for owner occupied borrowers, those with interest only loans or investment loans have seen significant rises.  Rate pressure will only increase as higher Bank Bill Swap Rates (BBSW) will force more lenders to lift their mortgage rates, as a number of smaller players already have done.

Our analysis uses the DFA core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. The data is current to end June 2018. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income.

Households are defined as “stressed” when net income (or cash flow) does not cover ongoing costs. They may or may not have access to other available assets, and some have paid ahead, but households in mild stress have little leeway in their cash flows, whereas those in severe stress are unable to meet repayments from current income. In both cases, households manage this deficit by cutting back on spending, putting more on credit cards and seeking to refinance, restructure or sell their home.  Those in severe stress are more likely to be seeking hardship assistance and are often forced to sell.

Probability of default extends our mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.  Our Core Market Model also examines the potential of portfolio risk of loss in basis point and value terms. Losses are likely to be higher among more affluent households, contrary to the popular belief that affluent households are well protected.

Stress by The Numbers.

Regional analysis shows that NSW has 264,737 households in stress (264,344 last month), VIC 266,958 (271,744 last month), QLD 172,088 (164,795 last month) and WA has 129,741. The probability of default over the next 12 months rose, with around 10,953 in WA, around 10,526 in QLD, 14,207 in VIC and 15,200 in NSW.

The largest financial losses relating to bank write-offs reside in NSW ($1.3 billion) from Owner Occupied borrowers) and VIC ($927 million) from Owner Occupied Borrowers, which equates to 2.10 and 2.76 basis points respectively. Losses are likely to be highest in WA at 5.2 basis points, which equates to $761 million from Owner Occupied borrowers.

A fuller regional breakdown is set out below.

Here are the top 20 postcodes sorted by number of households in mortgage stress.

Some Important Context

The rise in mortgage stress does not occur in a vacuum. The revelations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Commission) have highlighted deep issues in the regulatory environment that have contributed to the household debt “stress bomb”. The most significant area of law discussed by the Commission has been responsible lending. Yet most of the commentary on the regulatory framework has been superficial or poorly informed. For example, several commentators have strongly criticised the Australian Securities and Investments Commission (ASIC) for not doing enough but have failed to explain what ASIC has in fact done, and what it ought to have done. Gill North, Professor of law at Deakin and a Principal of DFA suggests that” APRA (and not ASIC) should be the primary focus of regulatory criticism. APRA has failed to adequately prepare Australia for future financial system instability and its prudential supervision of home lending standards and practices over the last 5 years has been woeful”.

North has published widely on responsible lending law, standards and practices over the last 3-4 years, and continues to do so. Her latest work (which is co-authored with Therese Wilson from Griffith University) outlines and critiques the responsible lending actions taken ASIC from the beginning of 2014 until the end of June 2017. This paper will be published by the Federal Law Review, a top ranked law journal later this month.

The responsible lending study by North and Wilson found that ASIC proactively engaged with lenders, encouraged tighter lending standards, and sought or imposed severe penalties for egregious conduct. Further, ASIC strategically targeted credit products commonly acknowledged as the riskiest or most material from a borrower’s perspective, such as small amount credit contracts (commonly referred to as payday loans), interest only home loans, and car loans. North suggests “ASIC deserves commendation for these efforts but could (and should) have done more given the very high levels of household debt. The area of lending of most concern, and that ASIC should have targeted more robustly and systematically, is home mortgages (including investment and owner occupier loans).”

Reported concerns regarding actions taken by the other major regulator of the finance sector, the Australian Prudential Regulation Authority (APRA), have been muted so far. However, an upcoming paper by North and Wilson suggests APRA (rather than ASIC) should be the primary focus of criticism. This paper concludes that  “APRA failed to reasonably prevent or mitigate the accumulation of major systemic risks across the financial system and its regulatory approach was light touch at best.”

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Note that the detailed results from our surveys and analysis are made available to our paying clients.

[1] RBA E2 Household Finances – Selected Ratios March 2018

Fintech Spotlight – What’s On the Cards?

I caught up with the Co-Founder and CEO, David Boyd of Credit Card Compare, on their announcement of expansion into Singapore.

 Kwok (A Co-Founder of Finty), David & Andrew Boyd.

Credit Card Compare does what it says on the tin, by providing a website for prospective credit card customers to select and compare the features and benefits of a wide range of Australian credit cards. In fact, the business, which started in a domestic setting a decade ago has thrived, and now has around 150,000 people seeking advice each month via the site.

When customers get a card approved from the bank, they receive a referral fee but do not handle the application or credit assessment processes, so Credit Card Compare is essentially a lead generating platform for lenders. The trick of course is to get current data passed back from the banks and David said that given the legacy systems in some organisations, this can be a challenge. They have some additional enhancements in the works, which we will see down the track. As yet they do not provide advice on which card is best, but simply make it possible for consumers to compare cards on a range of standard parameters and prioritise the features which they believe are most important.

The announcement of Credit Card Compare’s acquisition of Singapore based start-up, Finty.com highlights their desire to reach out and expand into selected Asian markets. Singapore has a unique credit card market, in that as well as card applicants being enticed with cash back, rewards and points, Finty enriches the rewards they receive, and as a result has a significant footprint in the market, despite relatively modest numbers of applications. In that market, customer rewards for taking a card are paid once approved, and most card holders possess a battery of separate cards for different purposes, for example, travel, expenses, and shopping. The average Singaporean would somewhere between six to eight cards, a much higher number than in Australia where most people only have one or two cards.

David sees significant growth potential across Asia, and also potentially some leverage from Finty.com back into the Australian business, seeing a win-win between the two businesses, with niche expertise from Singapore paired with executional capability in Australia.

Given the release of the ASIC report into Credit Cards, where they underscore the fact that many households have the wrong cards for their purchase and repayment behaviour, it seems to me that Credit Card Compare is well placed to bring greater sophistication into the local Australian market, whilst growing across the region. A nice trick to pull off if they can do it.

ASIC Highlights The Credit Card Debt Bomb

ASIC’s review into credit card lending in Australia has found that 18.5% of consumers are struggling with credit card debt. ASIC reviewed 21.4 million credit card accounts open between July 2012 and June 2017.

ASIC’s report (REP 580) finds that while credit cards offer flexibility, they can present a debt trap for more than one in six consumers. In June 2017 there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts.

‘Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers’, ASIC Deputy Chair Peter Kell said.

Consumers are also being provided with credit cards that don’t meet their needs. For instance, many consumers carry balances over time on high interest rate products, when lower-rate products would save them money. ASIC estimates that these consumers could have saved approximately $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate.

Deputy Chair Kell said that ‘only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products. There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings. We will be following up to ensure the problems we have identified are addressed, including public updates later this year’.

ASIC has also today commenced consulting on a new requirement that will strengthen responsible lending practices for credit cards.

ASIC also looked at balance transfers and their effect on debt outcomes. The data shows that while many consumers reduce their credit card debt during the promotional period of transfer to a new card, a concerning number of consumers increase their debt: over 30% of consumers increase their debt by 10% or more after transferring a balance.

ASIC found that rules introduced in 2012 that require lenders to apply repayments against amounts accruing the highest interest first have helped reduce the interest charged on credit card debt. However, four lenders (Citi, Latitude, American Express and Macquarie) have retained old rules for grandfathered credit cards open before June 2012. ASIC estimates that almost 525,000 consumers have paid more interest as a result.

ASIC found that while these four credit providers are not breaking the law, they are charging their longstanding customers more interest than they should have been, and their conduct is out of step with the rest of the industry.

In anticipation of  a new Banking Code of Practice, from 2019 Citi and Macquarie will no longer retain the older repayment allocation methodology for grandfathered credit cards. American Express has also indicated that it will make this change in 2019. Lattitude is considering its position.

Background

On 16 December 2015 the Senate Economics References Committee released its report relating to credit card interest rates, Interest rates and informed choice in the Australian credit card market (the Senate Inquiry). A primary concern of the Committee was that too many Australians are ‘revolving’ credit card debt for extended periods of time while paying high interest charges.

In March 2018, the Government implemented the first phase of reforms in response to the Senate Inquiry. These reforms will help prevent future consumers from experiencing problem credit card debt by:

  • ensuring that credit providers assess a consumer’s ability to repay a credit card limit over a period prescribed by ASIC
  • banning unsolicited credit limit increase invitations, and
  • making it easier for consumers to cancel credit cards.

ASIC has also today released a consultation paper about the credit assessments reform proposing that ASIC prescribe a period of three years. Once implemented this reform will strengthen responsible lending assessments for credit cards.

ASIC’s review

In 2017, ASIC began a review into credit card lending in Australia. As well as picking up on issues highlighted by previous regulatory reforms and the Senate Inquiry.

ASIC’s review of credit card lending focused on:

  • consumer outcomes – including whether there are people with debt that causes problems, such as missing payments or carrying lots of credit card debt over time
  • the effect of balance transfers on the amount of debt, and
  • the tailored rules that apply to credit cards.

Snapshot of the market

  • As of June 2017:
    •  there were 14 million open credit card accounts, an increase of over 300,000 since 2012.
    • Outstanding balances totalled almost $45 billion.
    • Approximately $31.7 billion in balances on credit cards that were incurring interest charges.
  • Consumers were charged approximately $1.5 billion in fees in 2016-17, including annual fees, late payment fees and other amounts for credit card use.
  • Around 62% of consumers had only one credit card between 2012 and 2017.
  • Consumers with multiple cards generally had two cards.
  • Fewer than 5% of consumers had five or more credit cards between 2012 and 2017.

ASIC consults on proposed changes to the capital requirements for market participants

ASIC has released a consultation paper proposing changes to the capital requirements for market participants, which prescribe the minimum amount of capital a participant must hold. The proposed changes will better protect investors and market integrity by strengthening the risk profile of market participants and reducing the risk of a disorderly or non-compliant wind-up.

Consultation Paper 302 (CP 302) sets out the proposals to improve and simplify the capital requirements, including further consolidating the two market integrity capital rulebooks into a single capital rulebook (the ASIC Market Integrity Rules (Capital) 2018).

ASIC proposes that market participants of futures markets will be required to comply with a risk-based capital regime instead of a net tangible asset requirement, and must hold core capital of at least $1,000,000 at all times.

Another proposal would increase the minimum core capital requirement for securities market participants to $500,000, as well as introducing new rules such as an underwriting risk requirement. At the same time, ASIC proposes to remove redundant rules and forms and more closely align the capital requirements with the financial requirements of the Australian financial services licensing regime.

These proposals follow ASIC’s review of the adequacy of its capital regime. The review identified elements of the capital requirements that were outdated and not able to adequately address the risks of operating a market participant business today.

It is important that market participants maintain a financial buffer of liquid and core capital to decrease the risk of market disruption from a disorderly wind-up. Well-capitalised market participants are also better able to absorb losses and more likely to be able to meet their financial obligations to clients.

ASIC invites submissions on CP 302 by 15 August 2018.

Download

Background

Part 7.2A of the Corporations Act 2001 gives ASIC the power to make market integrity rules dealing with activities and conduct in relation to licensed financial markets, including market participants on the relevant market.

In 2011, we made capital market integrity rules for market participants of the ASX, ASX 24 and Chi-X markets, followed by the SSX and FEX markets in 2013 and 2014 respectively. In 2017, these rules were consolidated into the ASIC Market Integrity Rules (Securities Markets – Capital) 2017 and the ASIC Market Integrity Rules (Futures Markets – Capital) 2017.

Market participants (other than principal traders or clearing participants) of the ASX, ASX 24, Chi-X, SSX, NSXA and FEX markets are subject to the financial requirements of the ASIC capital market integrity rules.

CBA Withdraws from Low Doc Lending

CBA has announced that it will remove low documentation features on all new home loans and line of credit applications from 29 September, as the bank continues its ongoing move to ‘simplify’ the bank, via The Adviser.

The Commonwealth Bank of Australia (CBA) has told brokers that it is “simplifying” its product suite to ensure that it is “providing a suitable range of products that align with [its] customers’ needs”.

As such, from Saturday 29 September 2018, the big four bank will remove all low documentation features on new home loans and line of credit applications. Should a customer wish to top up an existing home loan or line of credit with the low doc feature, they must provide full financials for all new applications.

All new loans that have low doc feature, including Home Seeker applications, must reach formal approval by close of business on Friday 28 September 2018.

The bank has said that brokers who request an amendment to an application with a removed product or a low doc feature that has not yet reached formal approval by Saturday 29 September 2018 will need to discuss “another product option” with the customer to suit their needs.

Loans must be funded by close of business Friday 28 December 2018.

There are no changes for existing customers that have low doc loans.

The move marks a major change in the lending landscape, but in practice – CBA has not provided true ‘low doc’ loans for some time, requiring more documentation than most historical low doc loans required.

Indeed, this type of loan product makes up a minimal proportion of the bank’s portfolio.

As well as removing the low doc feature, the bank will also remove several home loan products, including:

One-year Guaranteed Rate
Seven-year Fixed Rate loans
12-month Discounted Variable Rate;
Rate Saver products
Three-year Special Rate Saver; and
No Fee Variable Rate

If a customer wants to top up a One-year Guaranteed Rate, Seven-Year Fixed Rate or a 12-month Discounted Rate Home Loan they must complete a switch to another available product that best suits their needs.

An early repayment adjustment and an administrative fee may apply on the One-year Guaranteed Rate and Seven-year Fixed Rate when completing a switch.

Top-up applications for Rate Saver, Three-Year Special Rate Saver and No Fee Home Loans will still be available.

A CBA spokesperson said: “At the Commonwealth Bank, we constantly review and monitor our suite of home loan products and services to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs.

“From September onwards, we will be streamlining our suite of products to deliver our customers a simplified and competitive range of home loan solutions.”

Highlighting that the bank’s product suite offers “attractive” standard variable rate and fixed rate options, while its extra home loan products offer customers “low interest rates, no monthly fees, and no establishment fees”.

“Whatever our customers’ needs, our network of brokers or home lending specialists can help them find a flexible mortgage and guide them through the entire home buying journey, providing support every step of the way,” they said.

Retail Trade Still Struggles

The ABS says the trend estimate for Australian retail turnover rose 0.3 per cent in May 2018 following a rise (0.3 per cent) in April 2018. Compared to May 2017, the trend estimate rose 2.8 per cent, so still stronger than wages growth (as people raid savings and put more on credit cards).

Across the categories department stores rose 0.5% on the previous month, thanks to sales being brought forward from June, food retailing was up 0.4%, household goods and other retailing were 0.2% and clothing and footwear rose just 0.1%.

Across the states,  the northern territories rose 0.9, ACT 0.6%, Tasmania 0.5%, New South Wales 0.4%, Victoria 0.3%, Queensland and SOuth Australia 0.1% and there was no change in Western Australia.

Online retail turnover contributed 5.6 per cent to total retail turnover in original terms in May 2018, a rise from 5.4 per cent in April 2018. In May 2017 online retail turnover contributed 3.9 per cent to total retail.

Risks to Global Growth Rise as Trade Tensions Escalate

Increased trade tensions have raised the risk that new measures may be taken that would have a much greater impact on global economic growth than those enacted so far, Fitch Ratings says.

The US investigation into auto tariffs, possible additional US tariffs on Chinese imports, and the likely reactions of other countries and blocs, point to a potential serious escalation, albeit with an impact that falls short of across-the-board tariffs imposed on all major trade flows.

The US administration’s continuing focus on reducing bilateral trade deficits and the response by China, the EU, Canada and Mexico to existing measures, have increased tensions. So far the scale of tariffs imposed has been too small to materially affect our forecasts for world growth, as we noted in our most recent “Global Economic Outlook”. The additional tariffs raised are very small relative to the GDP of the affected countries and regions.

However, further measures mooted by the US would mark a significant escalation. The initiation of a Section 232 investigation into whether auto imports weaken the US economy and impair national security affects US imports of new cars and car parts that were worth USD322 billion last year. The threat of an additional USD200 billion of tariffs on Chinese imports could prompt China to apply tariffs to all imports of goods and services from the US, which were worth USD188 billion in 2017. China could also retaliate with non-tariff barriers.

It remains to be seen whether US announcements are simply negotiating positions that may be modified. But the detailed preparation of, and justification for, such measures and the possibility of instant and strong retaliation by trading partners present growing risks to trade. If tensions rise further, the US hardens its stance and fully withdraws from NAFTA (which is not our base case), this would magnify the impact. The imposition of high tariffs on US auto imports would represent an existential threat to NAFTA.

Table 2 outlines a scenario in which the US imposes auto tariffs at 25% and additional tariffs on China. Trading partners retaliate symmetrically – in line with their recent responses to US steel tariffs – and NAFTA collapses. This scenario coupled with the existing measures would affect close to USD2 trillion of global trade flows.

Our calculations are not behavioural estimates of the impact of tariffs on GDP, which would be highly dependent on the effect on trade volumes. Nevertheless, scaling the measures relative to the size of the economy helps us to compare outcomes with the trade war scenario analysis we carried out in our study “Global Macro Scenario: US Trade Protectionism and Retaliation” last year.

In this scenario, our calculations would imply a shock to US import prices around 35% to 40% of the size of the shock examined in the trade war scenario, in turn suggesting a potential impact on US GDP growth of around 0.5pp. This would be broadly consistent with some other estimates. The US Tax Foundation estimates that if all tariffs announced by the US and other jurisdictions were fully enacted, US GDP would fall by 0.44% in the long run.

Our base case remains that blanket geographical tariffs between major countries are unlikely, and this was reflected in our unchanged forecasts for global growth in June’s “Global Economic Outlook”. But the downside risks to global growth from trade policy have increased.

A major global tariff shock would have adverse supply side impacts, raising costs for importers and disrupting supply-chains, while reducing consumers’ real wages. The global multiplier effect of lower US imports could be significant. US outward FDI (the largest source of FDI globally) would probably fall. Along with weaker confidence and lower investment, a global tariff shock would also hit job creation.

The Household Asset Worm Is Turning

The RBA updated their E2 Household Finances – Selected Ratios to end March, released at the end of June. So they are yet to reflect the latest downturn in home prices and rising debt. But the trajectory is clear and should be ringing alarm bells.

First the ratio of household debt to housing assets and total assets is going up, reflecting mainly falls in property prices.  The rate is accelerating, confirming that while debt is still rising, values are not. Expect more ahead.

The ratios of assets to income are falling, having been rising for year, again reflecting falls in home prices. So while incomes are flat in real terms, asset values are falling faster.

And finally, the killer, the household debt to income ratios continues higher, this despite the greater focus on lending quality, and reduced “mortgage power”. The household debt to income ratio is now at 190.1, the housing debt in income 140.1, and the owner occupied  housing debt to income is 106.7. In fact this is moving up more sharply as lenders have focused on owner occupied lending.

Combined this shows the problems in the household sector. No surprise then that mortgage stress is going higher. We release the June data tomorrow.

Remember that the debt to GDP ratio is highest in Australia compared with other countries.

Another Day, Another Data Breach

Reports of data breaches are an increasingly common occurrence. In recent weeks, Ticketmaster, HealthEngine, PageUp and the Tasmanian Electoral Commission have all reported breaches.

It is easy to tune out to what is happening, particularly if it’s not your fault it happened in the first place.

But there are simple steps you can take to minimise the risk of the problem progressing from “identity compromise” to “identity crime”.

In 2012 former FBI Director Robert Mueller famously said:

I am convinced that there are only two types of companies: those that have been hacked and those that will be. And even they are converging into one category: companies that have been hacked and will be hacked again.

The types of personal information compromised might include names, addresses, dates of birth, credit card numbers, email addresses, usernames and passwords.

In some cases, very sensitive details relating to health and sexuality can be stolen.

What’s the worst that can happen?

In most cases, offenders are looking to gain money. But it’s important to differentiate between identity compromise and identity misuse.

Identity compromise is when your personal details are stolen, but no further action is taken. Identity misuse is more serious. That’s when your personal details are not only breached but are then used to perpetrate fraud, theft or other crimes.

Offenders might withdraw money from your accounts, open up new lines of credit or purchase new services in your name, or port your telecommunication services to another carrier. In worst case scenarios, victims of identity crime might be accused of a crime perpetrated by someone else.

The Australian government estimates that 5% of Australians (approximately 970,000 people) will lose money each year through identity crime, costing at least $2.2 billion annually. And it’s not always reported, so that’s likely a conservative estimate.

While millions of people are exposed to identity compromise, far fewer will actually experience identity misuse.

But identity crime can be a devastating and traumatic event. Victims spend an average of 18 hours repairing the damage and seeking to restore their identity.

It can be very difficult and cumbersome for a person to prove that any actions taken were not of their own doing.

How will I know I’ve been hacked?

Many victims of identity misuse do not realise until they start to receive bills for credit cards or services they don’t recognise, or are denied credit for a loan.

The organisations who hold your data often don’t realise they have been compromised for days, weeks or even months.

And when hacks do happen, organisations don’t always tell you upfront. The introduction of mandatory data breach notification laws in Australia is a positive step toward making potential victims aware of a data compromise, giving them the power to take action to protect themselves.

What can I do to keep safe?

Most data breaches will not reveal your entire identity but rather expose partial details. However, motivated offenders can use these details to obtain further information.

These offenders view your personal information as a commodity that can be bought, sold and traded in for financial reward, so it makes sense to protect it in the same way you would your money.

Here are some precautionary measures you can take to reduce the risks:

  • Always use strong and unique passwords. Many of us reuse passwords across multiple platforms, which means that when one is breached, offenders can access multiple accounts. Consider using a password manager.
  • Set up two-factor authentication where possible on all of your accounts.
  • Think about the information that you share and how it could be pieced together to form a holistic picture of you. For example, don’t use your mother’s maiden name as your personal security question if your entire family tree is available on a genealogy website.

And here’s what to do if you think you have been caught up in a data breach:

  • Change passwords on any account that’s been hacked, and on any other account using the same password.
  • Tell the relevant organisation what has happened. For example, if your credit card details have been compromised, you should contact your bank to cancel the card.
  • Report any financial losses to the Australian Cybercrime Online Reporting Network.
  • Check all your financial accounts and consider getting a copy of your credit report via Equifax, D&B or Experian. You can also put an alert on your name to prevent any future losses.
  • Be alert to any phishing emails. Offenders use creative methods to trick you into handing over personal information that helps them build a fuller profile of you.
  • If your email or social media accounts have been compromised, let your contacts know. They might also be targeted by an offender pretending to be you.
  • You can access personalised support at iDcare, the national support centre for identity crime in Australia and New Zealand.

The vast number of data breaches happening in the world makes it easy to tune them out. But it is important to acknowledge the reality of identity compromise. That’s not to say you need to swear off social media and never fill out an online form. Being aware of the risks and how to best to reduce them is an important step toward protecting yourself.

For further information about identity crime you can consult ACORN, Scamwatch, or the Office of the Australian Information Commissioner.

If you are experiencing any distress as a result of identity crime, please contact Lifeline.

Author: Cassandra Cross Senior Lecturer in Criminology, Queensland University of Technology