Dare to data share

Credit Management, Jun 2008 by Bradford, Mike

Data sharing can be a divisive issue, but to ensure best practice, the UK and European credit markets need to work together better. Experian's Mike Bradford, who is also President of the Association of Consumer Credit Information Suppliers (ACCIS), looks at how these markets can learn from each other and give consumers a better deal.

The sharing of negative data has been commonplace and is standard practice in most markets. However there is a growing expectation that responsible lending and borrowing requires both positive and negative data to enable the objective assessment of affordability and risk, respectively. The UK has employed this model for many years.

While some Governments and regulators have been proactive in their acceptance of this, in many parts of Europe there are still issues around sharing data. At a time when the credit crunch is tightening its grip around all economies, being able to assess a credit application on all available data and the applicant's track record is even more critical. Positive data sharing can give consumers confidence and also a better deal as it enables the lender to price according to actual rather than perceived risk.

Current climate

The Association of Consumer Credit Information Suppliers (ACCIS) was established in Dublin in 1990. The body brings together over 30 consumer credit reference agencies in 22 European countries and associate members from all other continents. Its membership includes member-owned 'mutual' organisations, commercial profit-making companies, government-owned bodies and providers of both negative and positive information.

Since its inception, ACCIS has actively supported as one of its main aims the development of the common European Market. In principle the body supports the European Commission's objective of cross-border availability of, and access to, credit. However, there must be a proven need for this, which will benefit consumers and lenders.

ACCIS is actively encouraging the reciprocal exchange of credit information between its Members to the extent this is permitted within and between Member States. The market dynamics at Member State level vary greatly and there are vast differences in the maturity, size, culture and legal systems across all markets. However, by enabling lenders to enter a new market and feel confident in doing so, consumers will benefit from new products and services tailored to that particular market.

Openness and transparency are critical to consumer confidence, both now and for any future uses of data held. The data subject must be left in no doubt what they are giving their consent to and this must be freely given, specific and informed. They must also have the right to withdraw their consent if they so wish.

Building confidence

Businesses must be able to transfer data securely across borders. In order to achieve and maintain consumer confidence, there are a number of steps businesses should follow. The European market could learn a great deal from the UK model. Firstly, and it goes without saying, businesses need to avoid any breach of legislation. This can be achieved by designing a consumer audit trail. The trail leaves a "footprint" on the database, showing for what purpose was an individual consumer's data was accessed and by whom and when. This can then be provided to the consumer and is a technique often adopted in the UK.

Perhaps the best example of where a consumer benefits from a wide use of their data across sectors with their consent can be shown in the UK data sharing model.

This was launched in 1983 and the model, known as Credit Account Information Sharing is policed by data sharers through a committee and is endorsed by our regulators, in particular the Office of Fair Trading and Information Commissioner.

The purpose of data sharing is purely for the prevention of over commitment, bad debt, fraud and money laundering with the aim of promoting responsible lending.

This approach benefits the consumer by providing them with an efficient means of applying for affordable credit, while at the same time protecting clients and the UK credit industry generally from potential bad debt issues, which in turn feed into the UK's macro economic position. The World Bank cites the UK as having the most robust model for breadth and depth of data and also the protection of an individual's privacy.

European challenges

All European countries have their own specific laws regulating credit, while specific laws regulating the bureau and national markets also differ. All the information collected by credit bureaus is also regulated. However, the development of credit bureaus in Europe is unequal and across different countries there are cultural differences in attitudes towards privacy and the interpretation of the Data Protection Directive.

This means that lenders seeking to develop a pan-European presence cannot have a pan-European risk assessment strategy in anything but the broadest terms.

The different approaches to the use of data also means that credit based marketing tools and automated assessment techniques will result in credit and risk strategies having to be tailored to the individual market.