| Two plans submitted by the DTI to curb overindebtedness involve extending data sharing without permission. Will this make lenders more responsible? |
The DTI consultation paper is designed to provide a starting point for consultation with the financial services industry and consumer groups about extending by 10% the number of bank accounts covered. As part of the government’s over-indebtedness strategy, the DTI wants lenders, where appropriate, to share relevant data about the amount of credit that is available to an individual consumer and their credit use, and to use this information to make responsible lending decisions. The government recognises the current good work of the credit industry in sharing more data, and in developing new ways to predict and respond to over-indebtedness, through data sharing. The Government is thus keen to assist this process of data sharing. However this has to be balanced against individual rights to privacy and concerns about what happens to an individual’s personal financial information. How should we deal with the sharing of data on credit accounts where consumers have not given their permission?
THE UK GOVERNMENT MAY ALLOW DATA SHARING ON 40 MILLION BANK ACCOUNTS
The government is considering allowing banks to share data on up to 40 million bank accounts without account holders' permission. The plan is one of four being considered by the Department of Trade and Industry (DTI).
In a move to counter what it calls the UK's over-indebtedness, the DTI wants to share information on 40 million bank accounts to prevent their users borrowing too heavily. It will consult with industry on four plans, two of which involve ordering that debt data be shared
The accounts involved were opened before banks routinely asked permission to share account data with credit reference agencies. Mostly they are accounts opened before the late 1990s. That means there is no permission from users for the sharing of information and these account holders cannot be subject to now-commonplace credit checks on those accounts.
"As part of our over-indebtedness strategy we want lenders, where appropriate, to share relevant data about the amount of credit that is available to an individual consumer and their credit use, and to use this information to make responsible lending decisions," said Ian McCartney, Minister of State for Trade, Investment and Foreign Affairs in the introduction to the consultation document.
"I recognise the current good work of the credit industry in sharing more data and in developing new ways to predict and respond to over-indebtedness through data sharing. This can only help lenders and borrowers alike to minimise levels of bad debt," he said.
The document makes four proposals. Two of those involve ordering that data on these accounts be shared. While one of the proposals allows account holders to "opt out" of having their data shared, the other has no such provision, leaving the user with no choice about the sharing of data.
The paper is a consultation document and is designed to provide a starting point for consultation with the financial services industry and consumer groups.
The paper does say, though, that the DTI's preferred option is so-called option three, which involves ruling all the data available for sharing but allowing customers to opt out of the sharing. That option, said the paper, would require legislative change in order to be legal, it said.
That proposal will conflict with existing data protection legislation. "It is clear that the government is seeking to put data sharing of financial details on a statutory footing, but it is unfortunate that the consultation document expresses this intention in terms of "circumventing existing data protection legislation" – the phrase used in connection with option three which is the government preferred option," said Dr Chris Pounder, a data protection specialist with Pinsent Masons, a law firm.
Pounder said the consultation may be seen as window dressing, since it is clear which option the government prefers. "There is a risk that many will see the objective of the consultation exercise as not one of "should we share financial data?" but rather one of gathering evidence to justify an action the government has already decided to take," he said.
The DTI says around 40 million bank accounts exist whose data cannot currently be shared. It estimates that 33 million of those are currently active.
----------------------------------------
(NB: At the start of 2006 following a financial crime conference organised by the British Bankers Association, data sharing and co-ordination topped the agenda of UK banks in the fight against financial fraud.)
----------------------------------------
CONSULTATION ON THE REMOVAL OF BARRIERS TO THE SHARING OF NONCONSENSUAL CREDIT DATA
The Government is keen to promote responsible lending in the credit market
as part of its strategy to minimise over-indebtedness. One aspect of
responsible lending concerns the making of lending decisions. Lenders are
encouraged, wherever practicable, to consider the full extent of a consumer’s
credit commitments when deciding whether or not to lend to that individual.
This is usually achieved through the sharing of credit data via Credit
Reference Agencies. The consumer gives their permission to the lender
to share their data via a “fair processing” notice contained within the credit
agreement. However accounts opened before the late 1990s typically did not
contain such fair processing notices. In practice this means that lenders are
unable to share data, other than instances of default, on about 40 million
accounts (of which about 33 milllion are estimated to be current accounts).
This is compared with around 350 million accounts on which data is currently
shared. The Government takes people’s rights to privacy very seriously and
wants to strike the right balance between individual rights and the wider public
interest. This consultation therefore seeks views on the extent to which this
non-consensual credit data could be shared by lenders, subject to appropriate
safeguards, in order to enable lenders to make better, more responsible,
lending decisions.
CONSULTATION QUESTIONS
(The closing date for this consultation is 11 January 2007)
1. Is seeking consent individually from holders of non-consensual credit
accounts a practical solution to gain consumers consent to share data on
non-consensual credit accounts? If not, or if you think there is an
alternative approach, please give details.
2. Can lenders reliably and satisfactorily assess the extent of a consumer’s
ability to repay borrowing by demanding documentary evidence from the
consumer? Please give reasons for your answer.
3. In what cases do you consider that the sharing of non-consensual data
would be proportionate? Please give evidence to support your position and
of how practical it would be (in your view) to produce a workable definition
of the different types of consumer.
4. Do you consider that legislation to permit the sharing of non-consensual
data would breach the Article 8 ECHR rights (right to privacy) of
consumers? Do you consider that any breach would apply to all
consumers, only to consumers who were not at risk of being overindebted,
or only to non credit active consumers?
5. What restrictions do you consider should be placed upon the lenders when
sharing non-consensual data? Please give evidence where possible about
the costs and benefits of such restrictions.
6. What restrictions do you consider should be made concerning the types of
data that could be shared?
7. Do you agree that if the sharing of data on non-consensual credit accounts
was to occur, consumers should be given the opportunity to object to their
data being shared? What form should this opt-out take?
8. What other barriers are you aware of that may prevent the sharing of data
that could help identify whether a consumer is over-indebted?
9. Are the principles of reciprocity a significant deterrent against the use of
shared credit data to identify individuals for marketing purposes? Does
SCOR provide a suitable forum for the governance of consumer credit
data? If not, what additional safeguards do you think are needed? |
| ID: |
38763 |
| Author(s): |
iff |
| Publication date: |
16/10/06 |
|
|
|
|
| | |
Created: 18/10/06. Last changed: 18/10/06.
Information concerning property and copy right of the content will be given by the Institut For Financial Services (IFF) on demand. A lack of explicit information on this web site does not imply any right for free usage of any content. |
