Human Rights - v - Creditor's Rights
In days gone by, there was no right to credit. Creditors didn't have to grant credit to anyone they didn't want to. In this age of political correctness, the Human Rights Act 1993 has changed that to some extent, at least in respect to individuals applying for credit.
The Act sets out the grounds that cannot be used to reject a credit application. There is still no right to credit, but you need to make sure your decision is based on the right grounds. Creditors can't turn someone down for credit, or grant credit on less favourable terms, on the basis of:
- race or colour,
- sex,
- religion,
- sexual orientation,
- marital status,
- age if over 16-years-old (although the word from the Human Rights Commission is that creditors can continue to demand tougher terms from minors - those under 18-years-old),
- political opinion,
- employment status (which means being unemployed or in receipt of a social security benefit or accident compensation),
- disability (including mental illness), or
- family status (including being related to, or married to, or in a de facto marriage with a particular person, or having responsibility for children).
The overriding philosophy of the Act can be defined as: don't prejudge - treat each individual on his or her own merits. This seems fair enough in most cases, but there are some situations which would seem to be unfair to creditors. I can recall an individual who managed to get electricity connected by the same power company four or five times in his own name (or variations thereof), and then in his de facto wife's name, moving house each time without paying the power bill. Even if the electricity supplier had been smart enough to work out that the woman concerned was the de facto wife of this debtor, they wouldn't have been able to turn down her application unless she had other bad debts in her own name.
Common complaints
According to the Human Rights Commission, the complaints received which relate to credit are primarily of three types:
- employment status
- sex/marital status
- family status
The complaints about employment status are usually because an individual perceives that he or she has been turned down for credit because he or she is a beneficiary. If this is actually the case, the creditor is in breach of the Act. However, ability - or inability - to repay, based on level of income, is an acceptable ground for rejecting credit.
The complaints about sex and marital status are often over the fact that a creditor wants a husband's guarantee or signature on an application by a woman in circumstances where a man wouldn't be asked for his wife's guarantee or signature. This is not allowed.
The family status issues are probably the most problematical for creditors. The common cause for complaint is that one member of a family is rejected for credit because of the activities or reputation of someone else in the family. For example, a husband is a bad debtor, therefore the wife is refused credit. I can imagine a variety of cases where I, as a credit manager, would want to make that same decision. However, the customer is likely to have valid grounds for a complaint under the Act.
Like the Privacy Act, the Human Rights Act is poorly understood by creditors. Part of the problem is that the Act, which has been in force since 1 February 1994, is too new to have developed firm precedents in many of the areas of interest to creditors. There are no reported credit cases which have reached the Complaints Review Tribunal. It seems that most credit complaints are resolved by mediation, or dropped by the complainant. A common outcome, of course, is that the creditor rethinks the matter and grants credit.
Even the people who work at the Human Rights Commission have differing views on some of the basic issues if the two people I spoke to are anything to go by. However, trusting the more senior person, it seems that a creditor's adverse opinion of the character of a credit applicant is sufficient reason to turn down the application. Character is not one of the prohibited grounds for discrimination.
Insurance companies have a major advantage over creditors. They can analyse their statistical information and make their decisions on granting policies accordingly. For example, they might conclude that men aged 19 have a high risk of dying in car accidents, and either refuse policies or raise the premiums of all 19-year-old men. Creditors, on the other hand, might look at their statistics and conclude that 19-year-old men have a high risk of defaulting on hire purchase payments. They are unable to either refuse credit, or charge higher interest to all 19-year-old men.
Why don't creditors get the same opportunity as insurance companies? Presumably because weren't as effective at making submissions to the Parliamentary select committee when the Act was being passed.