Data Sharing and Credit Referencing
Credit reference agencies collate data on individuals or companies, about their borrowing and repayment history, which allows lenders to make decisions about whether to lend, or continue to lend based on reliable and consistent information.
Whilst credit reporting is widespread across the world there are huge variations in the depth and breadth of data available at credit bureaus.
A credit reference agency can be operated by the public or private sector on a profit or not for profit basis. Public sector solutions are often under the control or even operated by the Central Bank and this is a particularly common model in developing countries. In other countries privately operated credit bureaus may be operated by a consortium, often of lenders and/or banks, or by commercial organisations.
Clearly, any of these systems take time to develop and have to be right for the country in which they operate; both legally and in acceptability to the stakeholders within the market. All credit bureaus have generally been built up over many years, with input and support both in terms of advice, guidance and in some cases, regulation from a range of stakeholders.
The World Bank openly commends the benefits that can be derived from a market where commercial providers will compete for market share based on improving services and innovation. The World Bank has a programme delivered by the IFC designed to promote credit reporting as an important component in operating effective credit markets.
More about this can be seen in the IFC brochure on their global credit bureau programme.
Please note that the information shown on this Web page is provided for general guidance only. It is not intended to provide you with professional advice nor is it intended to substitute you obtaining professional advice.
There are generally three levels of data sharing, although in many countries there are current restrictions that limit data sharing to levels 1 or 2 (see World Bank "Doing Business" Report for more information on levels of sharing by country).
Public data (level 1)
For some countries the credit bureau is based entirely on an amalgamation of data that is already available in the public domain. The level of public data does vary from country to county but generally includes:
- Court actions for debt
- ID information
- Address details
- Electoral Register (in the UK)
Some countries have a much more comprehensive range of public data open for public examination that could extend to combinations of income and any borrowing and assets.
Shared Credit Data
In addition to public data, some countries collect data on credit agreements.
Credit data is shared, on a reciprocal basis between lenders, for specified purposes generally associated with making responsible lending decisions and the prevention of over indebtedness.
The purposes for which the data may be used will vary by country. Some countries limit the use specifically to making decisions on credit applications and others also allow it to be used for other activities such as fraud checks, identification checks and/or high level customer monitoring. Credit data is rarely allowed to be used for the generation of marketing offers and this purpose is specifically excluded in virtually all credit bureaux. In some countries the reciprocity agreement also has limitiations within product and lender type too.
For legal reasons, at the very least, consumers must be advised that their data will be shared and for certain types of information to be shared and/or processed they must give specific consent. Included in this requirement is clear and transparent information on how their data will be used. They must also give consent for the data to be accessed by other organisations.
Whilst the sharing of credit data is facilitated by the credit reference agency, the data normally remains the responsibility and often the property of the lender as data controller (under the terms of the Data Protection legislation in the EU) with the credit reference agency acting as data processor on their behalf.
Negative Credit Data Sharing (level 2)
The basic entry level to sharing data on credit agreements through the credit bureau is where the account is at a serious level of arrears or is in ‘default’.
There is no universal definition of ‘default’, even within the EU, but it is usually taken to mean serious arrears or 3 or more cycles down. In some countries the definition is either set by law or agreed with regulators, and in others it is agreed by credit bureaux in conjunction with lenders.
In the UK the definition of a credit default is agreed with the Information Commission and represents agreements “where the relationship has broken down such that the lender would no longer wish to do business with the borrower – if they have the choice.” It also requires the agreement to be at least 90 days past due, unless there is fraud.
Full or Positive Credit Data Sharing (level 3)
The most comprehensive model is known as full data sharing or positive data sharing. This would be in addition to public and negative data and provides a fuller and more rounded picture of a consumer’s credit commitments and behaviour.
The type and level of full credit data sharing varies from country to country but will generally include monthly updated information on available credit limits and (often but not always) current balances and payment performance showing where they have been paid on time or not. The type of lending products that might be included in the database will vary from country to country and can range from secured and non-secured loans to telephone and utility data. Indeed in the most comprehensive models the definition of credit includes the supply of any goods or services supplied ahead of payment.
Even within the file that is shared different countries permit and/or agree different levels of information. So, for example, not all countries allow balance data to be shared. In fact, this can be deemed to be a missed opportunity as in those countries where balance data is available, analysis shows it to be one of the single most predictive characteristics of potential problems.
Full data sharing usually occurs in highly developed and sophisticated economies but many of the new and emerging economies have embraced the model and have moved swiftly to develop full data sharing regimes, often on a mandatory basis.
India has recently moved from a one bureau model to a multi bureau competitive environment designed to help the Indian economy grow and develop in a controlled manner.
Other countries, in the wake of the recent economic difficulties are now exploring whether they should increase the amount and coverage of data in order to help prevent over indebtedness and make more responsible lending decisions. This is particularly true in the EU where the requirements to perform creditworthiness checks have driven regulators and lenders to explore new remedies.
Countries with full data sharing models will often state that they believe this to be hugely beneficial to consumers, lenders and the economy as a whole because it helps ensure that decisions about the giving of credit are based on the most comprehensive and consistent information.
Consumers find it saves them time and effort as they no longer have to assemble evidence of their credit commitments and there is clear evidence that in fact, many more consumers do get access to credit as a result.
In the UK, the Competition Commission undertook an investigation into the Home Credit market and their final report actively requires home credit lenders to share data in an effort to help financially excluded consumers get access to mainstream credit. The report also includes some interesting references to the benefits of data sharing in helping consumers get access to credit.
Whatever the model, most credit bureaux, and certainly those operating under the European Data Protection Directive, have to comply with a variety of requirements such as making provisions so that consumers are able to easily see what data is held about them and to get it changed if there is a problem with it.
They also have to keep an audit trail of who has accessed the consumer’s data and, usually why. In the majority of countries access to the data does require clear and unequivocal consent from the consumer.
A key element to data sharing via credit reference agencies is robust and effective regulatory controls of the credit and financial services industry with effective governance reporting and controls. This is set out in the “Getting Credit” section of the Doing Business Reports from the World Bank and they can be downloaded here.