In-depth articles, interviews and debates covering local and global topics related to the Experian business expertise.
"Full data sharing can be a winning strategy for regulators and benefit the economy as a whole"
Experian Panorama Editor
Mrs. Gillian Key-Vice is Head of Government Affairs in Experian, for the EMEA and Asia-Pacific regions. At Experian her responsibilities cover a wide range of issues relating to Experian’s and the industry’s use of, or access to, data both in the UK as well as Europe, Middle East, and Asia.
In this interview, we discussed, among other things, the Consumer Credit Directive of the European Union, which is due to be implemented across the EU in June 2010, and the new Data Protection Directive, which has just started its legislative process. In both cases she contributed, through her work in ACCIS, where she represents Experian, to the legislative process via public consultations.
You represent Experian in ACCIS, an organization of credit information companies that helps in the implementation of the Consumer Credit Directive in the European Union. What is currently the main challenge of the Association?
There are numerous challenges facing our market right now as well as a number of opportunities. Regulators are very focussed on the responsible lending debate as the Consumer Credit Directive is implemented across the EU. This does create many opportunities to promote the value of data sharing in making responsible lending decisions. Most countries do not share positive data at all, and in those that do, it is often not as comprehensive as could be wished as it is limited to bank lending.
At the same time the recent Data Protection Directive consultation has the potential to produce some challenges too.
What are the benefits of the Consumer Credit Directive?
The Consumer Credit Directive provides for a whole variety of changes most of which do not impact on credit referencing – although of course there are a wide variety of changes for our credit granting clients.
The part that does impact Experian is article 9 which requires “non discriminatory access” to databases across borders. This enables lenders outside the credit reference agency host country to be able to join the database if they meet the same criteria as existing national members. Thus in the UK for example, the database covers lending to consumers living in the UK and lenders in, say, Spain who lend to UK residents - perhaps for a holiday home - can join and access data on the same terms as a UK bank.
This allows consumers with a good credit history in their country of origin to demonstrate its creditworthiness to lenders in other EU countries. At the same time, it reduces risk and fraud as lenders have access to more data and thus make more informed and responsible lending decisions.
Article 8 requires lenders to perform creditworthiness checks for new and existing customers and in some countries that is clearly being interpreted as requiring checks at credit reference agencies. However, in most, if not all, EU countries it is not a legal obligation.
How you would define the implementation so far in the European Union?
Variable! Some countries are struggling to meet the June deadline of course but the main impact that we are seeing is a lack of clear direction on what a reasonable creditworthiness check looks like.
How does having different legislations in the European Union countries affect credit information companies?
I have been dealing with this issue across a number of EU countries recently and I can tell you that there are huge variations in local legislation and local interpretation. For example, some countries consider full data sharing to be unacceptable and cite data protection as a reason and others will allow it but only for traditional bank type lending. In others wider sharing is permitted and the UK the Information Commission takes a more pragmatic position and allows data sharing on any instrument relating to goods or services taken before payment. That is subject to suitable notifications of course. As a result, the database holds a wide range of information the most recently added being that on energy and water bills. Many countries also have other legislation that overlays data protection with other privacy controls too and of course, some datasets such as telecoms have completely different legislation.
Given the benefits of positive credit data, both to the consumer and to the market, do you think that a trend to expand the collection of positive data in the European Union could begin to take shape?
It is now, that is one of my main objectives – to explain the value of full data sharing and how it can be a winning strategy for regulators; benefiting consumers, lenders and the economy as whole. That is not to say that it will be the same in every country, it never is. Experian operates 15 credit bureau world wide and they are all different, taking into account legislation as well as local requirements and attitudes. Certainly the time is right for the credit industry to explore how this might work and open the debate across a variety of markets.
What could be done to facilitate consumer access to consumer credits?
Lenders will be scared of lending to consumers and unless they can get a good picture of a consumer's commitments they will only ever lend to the safest applicants. Increasing focus on responsible lending and requirements to undertake creditworthiness checks will exacerbate this position. That has the potential to discriminate against many people who would be a good risk but just cannot demonstrate the fact. It will also tie consumers to the lenders with whom they already have a relationship so reduce choice and competition. Data sharing is a key factor in getting economies moving again and this is the message the World Bank promotes and that we give to regulators and lenders across the EU.
What are the experiences in using this kind of information services in microfinancing?
That depends on whether it is allowed to be used! In the UK for example the business and consumer data is separate but there are agreements to link the data and so use data about consumers to help them get credit for their business and about the business to help consumers prove their income. In some other countries the credit reference agencies do not hold data in this way and are not allowed to use consumer data and that could be a serious impediment to economic growth.
There is potentially a new Data Protection Directive being drafted by the European Commission. What do you expect of this new Directive?
At this stage it is hard to say but I do not necessarily expect a totally new directive but there will be themes on security without any doubt. What I would like is more consistency across the EU, in a way that makes it clear that data sharing is acceptable of course!
What do you think can be done to help people who move around the EU, many of them find it hard to get access to financial services?
Last year the Commission set up an expert group on credit histories to look at this issue and sadly the consumer groups did not buy in to the recommendations. In fact, the recommendations were very sensible and pragmatic and presented a measured proposal to help consumers "port" their credit history if they moved to another country. With the EU keen to break down barriers and help people move across border it is essential that they should be able to get access to the services they will need, such as bank accounts and credit. Anyone who has moved country will say how hard it can be to do this.
Notwithstanding the reaction of the consumer groups many countries are forging ahead with solutions in this space which will become more and more important as economic growth picks up.
The lesson that we should all learn from this is the importance of engaging with the consumer advisors in our respective countries and work with them. Interestingly those countries that do most with the consumer bodies are likely to have the most data - now there is a thought!
Contact us if you think Experian can help you.