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The credit information landscape in Europe
Gillian Key Vice
Head of Government Affairs
Credit referencing is one of the pillars for financial systems and it is rapidly growing in importance. The primary purpose of credit referencing is to operate as a trusted third party holder of data which can be used by lenders to make better decisions about whether to give, or continue to give credit to consumers and businesses. The Association of Consumer Credit Information Suppliers (ACCIS) represents 37 credit bureaus around Europe, and is increasingly active in speaking to EU regulators as they develop new legislation designed to support credit systems. With the EU Data Protection Directive coming up for review, the time seemed right to undertake a comprehensive survey of the members of ACCIS.
During the work on cross border data, ACCIS developed its policy on the ideal model for a credit bureau. That model is based on a positive and comprehensive database covering a wide range of traditional and non-traditional credit agreements. The data should be available not only for carrying out checks at application but also for customer management, collections, identity checking, crime and fraud prevention and investigation. It should be available on a reciprocal basis, in other words, lenders would see data only if they put data in and data should, of course, only be used for permitted purposes. What emerged during those discussions was that there are many differences between countries, laws, usage of positive and negative data, and breadth and the depth of the data collected across Europe.
This is an important first step in getting to know the detail of an industry with potential to contribute to new solutions in global credit markets. This report, The European Credit Information Landscape: A survey of credit bureaus in Europe, provides a comprehensive overview of the market, its legal framework, and the data collection and accessing procedures.
This report is based on a survey of 30 members of ACCIS, Those respondents cover a range of structures from the Belgian publicly owned registry operated by the National Bank of Belgium, to bank owned credit bureaus and publically quoted commercial models such as Experian. Between the 30 credit reference agencies across 23 countries that answered the survey it is estimated that these ACCIS members collect and supply data on nearly 500 million people.
The EU Data Protection Directive 1995/46/EC is the primary legal background that defines the business practice of the credit referencing agencies in Europe. That Directive is transposed into national law in each member state but as a Directive that does not carry a maximum harmonization requirement it has been implemented and/or interpreted with a number of differences in the national law of each country. In some countries, like Italy, further regulation exists either at a national or regional level adding a further level of complexity.
In some member states it is compulsory by law to deposit data in the register (Greece, Hungary, Netherlands, Slovenia, Belgium and Serbia) and in most it is not. In others it is a legal obligation to consult the database (Belgium, Netherlands, Norway, Serbia and Turkey), but even in those where data sharing and use is not officially compulsory, it is often the general to deposit all the data that they legally are able to supply.
The implementation of the new Consumer Credit Directive 2008/48/EC will not modify this situation, but in fact, in most countries, lenders will be deemed to have failed to conduct adequate creditworthiness checks if they do not consult a database if one exists. Furthermore, many countries that previously had not seriously considered positive data sharing in any form are now actively pursuing it in order to fulfill the obligations under the Consumer Credit Directive and the Responsible Lending Directive, which covers secured credit and is due out soon.
Positive and negative data
All credit reference agencies collect and supply negative data about consumers as a basic activity. On top of that, negative information about SMEs and business of any structure is kept in most countries (17 and 16 out of 23 surveyed). But, currently, differences in the regulatory framework mean that positive data is collected and shared in fewer credit bureaus (18 for consumers, 14 for SMEs and 11 for businesses of any structure). Even this is confusing, as negative data covers different information across the EU with some countries holding court data and insolvency information and some not.
It is generally accepted now that “negative data does not tell the whole story”, as Gillian Key-Vice, Head of Government Affairs in Experian, advised the audience in her keynote during the last Experian Credit Risk Forum held in November in Istanbul. “Consumers get sophisticated and transact with a large number of organizations. The less you know, the less you are in a position to make a good decision”. This and the huge differences in breadth of data (how many sources there are) and depth of that data between countries, is “making governments look at how the availability of data may look like, and how that would help countries recover from the recession”, as more evidence emerges that full data sharing not only reduces bad debt but also increases access to credit.
It is also believed that access to a better range of data helps identify consumers falling into difficulty at a much earlier stage and enables lenders to engage with them to help them back into performance. Thus, the UK, which has one of the most comprehensive models of credit bureau alongside Sweden and the US, has seen how the “consumers have been less impacted during this recession when compared with previous recession scenarios”, due to a combination of factors such as lower interest rates, flexible working patterns and significantly, a willingness by lenders to agree forbearance plans – which they can do based on better information from the credit bureau. A paper published by the National Bank of Belgium also shows that using other non traditional data (as information on arrears from telecoms) can significantly improve the decision process.
The ACCIS survey also found that the principal of reciprocity is not universal as there are bodies that are able to access data without providing it. The principle of reciprocity applies in just 24 of 30 bureaus, but in some cases it’s applied at a data level so for example, only those who share positive data are able to access it. Additionally, in 11 cases the figure of “closed user groups” exists, where data provided by a group of clients can only be accessed by clients of the same group.
Consent by the consumer
The conditions for collecting and processing the data vary too. The Data Protection Directive allows for a range of conditions under which data may be legitimately collected and processed but often “consent” is deemed to be the only option.
In the case of negative data consent by the data subject for collecting and sharing credit data is required in only 50% of the countries although the data subject will have to be pre notified of the intention to share that information. However, in the case of positive data the situation is different. Consent is more usually the main condition but also the legitimate interests of the data controller are also used in a number of states too. This is particularly apt where data sharing is mandatory as it cannot really be claimed that the consumer has a choice as to whether to consent or not.
Consistency in Europe
Differences in data retention periods were also highlighted in the survey and this latter was also featured as a potential issue in the European Commission’s Expert Group on Credit Histories. That report sought to consider whether consistency of definition and practices were a barrier to cross-border credit reporting, which would allow a citizen of the European Union to have the same creditworthiness in every European country, along with definitions, thresholds, types of credit reported, retention periods, and update frequency. As an example, footprints are retained for 3 weeks in the Netherlands, but for 3 years in Belgium. The group’s recommendation was to seek “some degree of convergence of the content of the databases”.
Download the full report
All the data, graphs and information in this article is sourced from the ACCIS / ECRI report “The European Credit Information Landscape: An analysis of a survey of credit bureaus in Europe”, which can be downloaded from the ACCIS website. The 35 pages report contains more graphs and information on the European credit information agencies.