What is a Credit Bureau - or rather, what should it be?

Transcription

What is a Credit Bureau
- or rather, what should it be?
December 2012
© 2012 Experian Limited. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Limited.
Other product and company names mentioned herein may be the trademarks of their respective owners. No part of this copyrighted work
may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian Limited.
What is a Credit Bureau – according to the dictionary?
Sometimes called a credit reference agency, credit information company
or credit register – but never a credit ratings company!
A private firm that maintains consumer credit data files and provides credit
information to authorised users for a fee.
An agency that collects individual credit information and sells it for a fee to creditors so they
can make a decision on granting loans. Typical clients include banks, mortgage lenders,
credit card companies and other financing companies.
A credit bureau, also called a credit agency, consolidates information from creditors to
create a report of individual consumer's credit history.
Establishment that makes a business of collecting information relating to credit, character,
responsibility, and reputation of individuals and businesses, for the purposes of furnishing the
information (credit reports) to subscribers.
An organization that prepares reports used by lenders to determine a potential borrower's credit history. The
bureau obtains data for these reports from a credit repository, as well as from other sources.
Data sharing is the key!
© 2012 Experian Limited. All rights reserved.
2
That is still not all that clear so…
When describing to new markets we tend to say:

A [credit] data exchange system

Operated by a trusted third party

A controlled method to register data about a
consumer’s or business’ financial behaviour

In a locked box

Accessed or used in a controlled way

for specific and authorised purposes

Such as to create a financial CV

Largely mirrors what an applicant might have been
asked to provide in paper form for applications in the
past

Helps span the data asymmetry problem between
borrower and lender
3
What is the issue?
 Lenders need to have reliable information to make
lending decisions
 Consumers and businesses need to be able to give
evidence of their performance
 Regulators need to be able to monitor risk at lender
and market level
 No country has the perfect system – but some are
better. See the ACCIS survey.
 The World Bank references this issue as
“information asymmetry” in their consultation on
General Principles for Credit Reporting
4
What is the role of a credit bureau?
 The UK scores maximum on the
World Bank depth of data index.
Good Credit
Information
Increased
quantity of
information
Understanding
the “bigger
picture”...
Increased
productivity and
growth
Increased
chance of getting
credit
 Credit bureau data can assist
lenders of credit risks and
improve portfolio quality as it
reduces asymmetry between
lender and borrower.
 The repayment rate can increase
by up to 80% when a credit
registry starts operation.
Capital moves to
best business
ventures
 Access to credit also increases
by c10%.
Improved access to credit =
greater opportunity for economic growth
5
Why does it matter?
The Belgian experience since creating a positive bureau in 2003
Source: Banque Nationale de Belgique
57
4.35
56
4.30
55
4.25
4.20
54
4.15
53
4.10
52
4.05
51
4.00
50
3.95
49
Percentage of population with at least one
defaulted credit account
Percentage of population with at least one
credit account
Nombre de contrat et de defaillance (en % de la population majeure)
3.90
2003
2004
2005
2006
2007
2008
1* Part de la population majeure avec au moins un contrat
2* Part de la population majeure avec au moins un contrat defaillant
table based on the Belgian experience of their CB positive data (created in 2003):
 the blue line represents the percentage of the population with at least one credit default
 the red line represents the percentage of the population with at least one credit account
6
How do they actually work?
Credit Application stage
5.Grant (or not)
for credit
Decision!
4. Information request
Y
?
3. Lender
1. Credit
Applicant
6. Credit reports
N
3. Performance data
2. Request
for credit
7
Types of data sharing
Negative Bureau
• Late payments
(over 90 days)
• Default
• Written Off
• Bankruptcies/
court data
Positive/Full file Bureau
• Negative +
• Up to date
(paid on time)
• Minor arrears
(up to 90 days)
• Other data e.g. forbearance
Comprehensive – Multi sector
• Banking
• Energy
• Retail
• Telco
• Water
8
Which models operate around the EU

Ownership/control models
►
►
►

Data Models – bank only or comprehensive
►
►
►

Government/Central Bank - e.g. Belgium, Bulgaria, Spain, Italy
Banks – e.g. Ireland, Germany, Italy, Netherlands, Poland
Private commercial CRAs – e.g. UK, Denmark, Spain, Sweden
Public data only – that may be very limited or comprehensive e.g.
Denmark (changing)
Negative only –Finland, Spain,
Positive (plus negative and public) – UK, Italy, Greece, Hungary,
Sweden, Turkey
Data providers
►
►
►
►
Government only
Bank only
Traditional lender only
Comprehensive/ Full file across other obligations [can include non
bank lending, energy, water, communications etc]
9
ACCIS 2010 survey of 37 members in EU
ACCIS survey of 37 members in EU
10
ACCIS 2010 survey of 30 members
30
ACCIS 2010 survey of 30 members
27
27
26
26
26
26
Type
of loan
product
Type
of loan
product
Details
on
credit
contract
Details on credit contract
25
25
25
22
22
21
21
21
21
20
17
17
15
10
10
10
99
88
7
7
5
33
2
2
Others (please
describe)
Interest rate
Periodicity of
repayment
Outstanding amount
Duration of loan
Original amount of
credit
Utility
Mail order
Telecoms
Retail/instalment
Overdraft
Loans
Home
purchase/mortgage
Credit and store card
0
11
To summarise
– the benefits of sharing positive and comprehensive data
Benefits for
Benefits for
Benefits for
Borrowers - Citizens
Lenders - Market
the Economy

Makes credit available to more low
risk customers c 10% uplift

Restricts credit to high risk customers
and direct them to advice sector
instead

Speeds up the credit application
process by creating a transferable,
reliable, consistent digital financial cv
Makes it easier to shop around for the
best product

Incentivises consumers to manage
their finances to maintain good
payment histories

Reduces the risk of over-indebtedness

Enables customer to effectively check
and challenge input information used
by lenders

Reduces default rates (c 50%) because
better decisions are made about
customers at application and customers
manage their agreements better

Wider and more appropriate
consumer credit drives steadier
financial market development and
economic stability

Improves lending volumes (c10%) and
increasing financial income


Potential to track and monitor
economic activity at a macro level
Streamlines and speeds up the lending
process

activity at a geographic level

Potential to perform monitoring of
financial services providers

Allows lenders to more accurately
evaluate risk of each proposition and
monitor and manage each agreement so
that they can intervene at an earlier stage

Better assessment of proposed
forbearance measures

Allows assessment and monitoring of
portfolio quality

Reduces fraud
12
The optimal system – according to the World Bank
General principle 1:

Credit reporting systems should have accurate, timely and
sufficient data - including positive - collected on a systematic
basis from all relevant and available sources, and should
retain this information for a sufficient amount of time.

What does sufficient data look like?
►
►
►

enough to get a good view of the credit behaviour of the
data subject
enough to get a good view of the commitments of the
data subject
enough to cover as many data subjects as possible
E.g. most consumers and businesses have a telephone –
mobile or fixed

It is a critical service for most businesses

It is one of the first agreements for a young person
13
What is a Credit Bureau?
The UK model
14
Credit referencing in the UK
 In response to the need
 Recognition evolved with all stakeholders that working
together can build a system that benefits:
►
Consumers
►
Lenders
►
Economy
 Information is just one part of an effective solution
 Regulation, monitoring and enforcement are also key –
this bit is still evolving!
15
The UK government’s role 2001 - 2010
Government’s approach to data sharing

Support increased data sharing to enable more responsible
lending and support for consumers in difficulty

Few legislative/regulatory interventions – encourage industry
and consumer representatives to develop voluntary approaches

Collaborative approach to build understanding of data sharing
processes and systems

Vital to protect privacy – strong engagement from UK
Information Commissioner
16
Historically a number of reasons why UK has developed
More people bought
houses and other goods
as consumers became
more aspirational
 Deregulation of banks in 1970s promoted competition and choice
 Government policy for consumers to “shop around”
 Consumers started to open accounts with multiple lenders
 In 2004 a number of suicides gave focus to concerns over indebtedness
 At the same time, government also worried about financial inclusion
17
The data in the UK
Public data
Shared credit data
Derived
 Electoral register
 Closed user group (CAIS)
 County Court Judgments
 Comprehensive
 Links – names,
people, addresses
 Bankruptcies, IVAs etc
 Positive
 Searches
Fraud
 CIFAS
18
The Experian credit bureau in the UK
Industry Wide Data - comprehensive
 Banks & Building Societies
 Credit Card Issuers
 Debt Purchasers
 Finance Houses
 Home Collected Credit
 Insurance Credit
 Home Shopping
 High Street & On Line Retailers
 Payday Loans
 Telecoms & Internet Providers
 Energy & Water Providers
19
Focus on CAIS – what is in there?
 Limit
 Balance – current (and past balances)
 Payment profile – status code 0 – 6
 Flags
►
►
►
Deceased
Arrangement
Debt Management Plan
 Behavioural data (cards only)
►
►
►
Paid in full, part or minimum
Cash withdrawals
Preferential rates
 Disputes & Notices of Correction
20
UK credit bureau data – how is it delivered?
PUBLIC
INFORMATION FILE
& Associations
THE
Alias
FILE
Summarised variables – the Delphi Block
+ Bureau scores
21
UK experience
breadth and depth gives better decisions
More data = growing discriminatory power
90
85
Gini Coefficient

Holistic coverage is essential

Comprehensive data
►
All types of credit
►
Traditional e.g. bank
80
75
►
70

65
60
Positive data
►
Limit
►
Balances
►
Performance
►
Forbearance
►
Defaults
►
Settled
55
50
1990
1995
2000
2005
2010
Non traditional e.g. Telco,
energy, water
22
 3 main consumer and 5 commercial credit reference
agencies
 Credit referencing well developed and in mainstream
use for over 30 years
 Covers wide range of commitments and still growing
 Current landscape developed through close work
between:
►
Government – ICO, BIS, OFT
►
Lenders and their trade associations
►
Consumer Groups
23
Credit Scoring and automation
 A means to accurately and fairly use large amounts of (often) conflicting
data
 Statistical basis using linear regression
 Uses outcomes of over 100,000 accounts – far more than any manual
underwriter could ever take into account
 Ensures consistency and fairness – as long as underlying data is
accurate
 Lenders consistently report in excess of 10% increase in approvals
whilst maintaining book quality
 Highly effective for volume operations & speeds up decision process
 Allows lenders to out sort and manually underwrite “special” cases as
referrals
 In the UK consumers have the right to ask for manual assessment
 Notices of Correction & disputes must be manually considered
 Supported by all regulators
 Rules set out in the Guide to Credit Scoring
24
The Credit Bureau
Regulatory Environment
25
The Credit Bureau Regulatory Environment
Data protection
Data sharing
 Bureau data is personal data and as such the 8 Data Protection principles apply.
 Lenders will search the Bureau with the individual’s consent an the individual is
notified what data will be obtained, how it will be used, what data will be supplied
and how others will use it.
 There are consumer rights including access to data which must be adhered to by
the Bureau.
 Bureau data must be accurate and consumers have the right to request their data
is amended, deleted or suppressed.
 Bureau must adhere to data sharing (and use) rules in the Principles of
Reciprocity, which are administered by the Steering Committee on Reciprocity
and underpinned by the Privacy Notices.
Statutory requirements
 Bureau must respond to the consumer within statutory timeline
 Regulation of consumer credit to transfer to the Financial Conduct Authority as
part of UK regulatory reforms in the Financial Services Bill.
Experian
Credit Bureau
Dispute resolution
 The consumer has the right to independent dispute resolution via the Financial
Ombudsman Service (FOS) should they be unhappy with a firms decision.
 Bureau’s subject to FOS jurisdiction must comply with FOS requirements on
complaints handling processes.
Data use
Representation of the
People Act 2000
 The full Electoral Register must only be used in the Bureau for credit
assessment and prevention of money laundering purposes.
 There are [currently] no restrictions on the use of the edited Electoral Register
within the Bureau.
26
The Experian credit bureau – Nov 2012
The data on consumers
 Public - Electoral register,(47.29m) Bankruptcy,(598k) Voluntary
Arrangements, (270k) County Court Judgments (4.29m)
 Full positive shared data on over 400m credit agreements from
more than 500 companies across a range of mortgages, personal
loans, overdrafts, credit and store cards, mail order, home credit,
payday loans, telecommunications, power and water suppliers,
and Student Loans (default only).
 CIFAS fraud data
 Derived intelligence – different types of search footprints, links
between addresses names, and people
►
►
►
Fully reciprocal
Tightly controlled – Consumer Credit Act, Companies Act,
Data Protection Act, Representation of the People Act,
Codes of Conduct, client contracts
Membership at default or full level
27
The Experian credit bureau
Meeting data accuracy obligations under the 4th DPA principle
 Quality and integrity is key to success and confidence
in model
 Data must be consistent and accurate
►
Definitions agreed at an industry level
►
Constant checks
►
Audits and controls
 New client account opening
►
►
►
Check business model (liaise with OFT if in doubt)
Checks on applicant – Consumer Credit License, Data
Protection registration, Application forms, contracts,
visits, monitoring, testing, products and purpose
Checks on data quality
28
The rules in the UK
29
Data protection act

Data Protection Act 1998…
Replaced 1984 DPA…
Followed the EU DP Directive
30
The rules – in the UK
 Any organisation supplying goods or services ahead of payment can join CAIS
 CAIS has a consumer and commercial database
►
Consumer data covers personal activity
►
Commercial data ranges from sole traders to limited companies
►
Links are created between databases
 For full membership lenders must notify their customers when accounts are
opened that they will do so
►
Experian offers standard wording for Privacy Notices (agreed with the ICO)
 For default lenders can notify at default – giving 28 days notice
►
►
Defaults represent accounts where “the relationship has broken down such that
the lender would no longer do business with that customer – if they had that
option”.
Defaults are defined and rules set in the Guidance Note on Defaults which are
currently under review
 Customers’ non default data on existing accounts can only be shared with
their explicit consent
31
 Consumers must be told if their data will be processed in automated
systems and if credit scoring will be used
►
Consumers have the right to object to automated processing and ask
for a manual assessment
 Consumers must be told why they have been turned down
►
►
They must be told if credit bureau data contributed to the decision and
how to check it
They have a right of appeal of the decision
 Consumers have right of access to their data at a cost of £2.00
►
CRAs must deliver it within a max of 7 days
►
They can ask for and/or access it
●
In paper
●
On line (www.experian.co.uk)
32
 Consumers have the right to dispute data and have it marked as
disputed whilst it is being investigated
►
CRAs have 28 days to investigate disputes
 Consumers have the right to add a notice to their data to explain it –
Notice of correction
 Consumers have right to break links with other people if
►
they are no longer operating as a financial unit
►
Have no joint financial agreements
 Data is retained for 6 years after the account is closed whether good
or bad
 Data must be accurate and up to date and processed fairly
 All uses are set out in the Privacy Notices and agreed with the ICO
33
Principles of Reciprocity
 Cross Industry Code of Conduct for the use of shared data
 Started 1999
 Cross industry agreement on data sharing
 Code of conduct embedded in contracts
 Gives clear guidance on how data that is shared for the prevention
of over-indebtedness may be used.
 Overseen by a cross industry group - SCOR
 Administered by the credit reference agencies
 Regularly reviewed and updated
 Documents available via the SCOR website
34
Purpose of sharing data
Data is shared for the prevention of over-commitment, bad
debt, fraud and money laundering, and to support debt
recovery and debtor tracing, with the aim of promoting
responsible lending.
35
Steering Committee on Reciprocity
Representation
 British Bankers’ Association (BBA)
 3 x mainstream credit reference agencies
 Consumer Credit Association (CCA)
 Niche CRA – Teletrack
 Consumer Credit Trade Association (CCTA)
 Payments Association
 Council of Mortgage Lenders (CML)
 Credit Services Association (CSA)
 Finance & Leasing Association (FLA)
 British Retail Consortium (BRC)
 Telcos
 Building Societies Association (BSA)
 Energy Retail Association (ERA)
36
The Principles of Reciprocity
A quick guide
37
Reciprocity in the UK
You get what you give at
1.
2.
Portfolio level
●
Portfolio = product or even brand or type within a
product
●
E.g. all credit cards/Sub prime credit card
Account within portfolio
●
Account = A. N. Other account within the portfolio
●
E.g. if only accounts opened after 1 January
2009 are shared then only those accounts may
access data for account management except
●
For applications, data may be accessed only if
the account will be shared, if opened
38
Types of Subscription
 Full member – standard
►
Supplies and gets full standard data
 Full member with credit and storecard additional data
►
Supplies (if a credit or storecard issuer) and gets full standard
data and additional credit and storecard behavioural data
 Default member
►
Supplies and gets default data only
 Bank current account default member
►
Supplies default and gets default and delinquent
 Debt collection member
 Supplies default and gets full if the account was shared at full
prior to default
39
Why lenders join up
 Sharing data encourages customers to:
►
►
►
Understand their finances and pay if they possibly can
Contact their lender to discuss any problems they might have
at an early stage
Keep their details up to date e.g. if they move
 Having access to the data enables lenders to:
►
►
►
►
►
Use the shared data to check data accuracy and supplement
missing information
Use the shared data to make decisions about what terms to
offer a new customer
Get alerts about customers who may be getting into difficulty
e.g. if they stop paying others
Use the shared data to make decisions about account
management and collection strategies
Check tracing activity
40
Consumer Policy
 UK Government policy is to engage consumers in their financial
wellbeing
 Encourage them to seek their credit file
 CRAs must make it easy to get information
 Regular engagement with Consumer Minister
 Most consumers (and consumer groups) support data sharing
 Result of deliberate “education offensive” started over 10 years
ago
 Has normalised data sharing
 View escalated after suicides in 2004 and concerns over
overindebtedness
41
So, what about consumers?
42
A dedicated Consumer Affairs manager
43
Engagement with consumer groups
 Which?
►
Regular meetings
►
Monitors and checks data quality
 Consumer Focus
►
Regular reports
 CC Water
►
Engaged on Water data sharing
 MoneySavingExpert
►
Regular articles and comment
►
'Bad Credit' Credit Cards Best cards for poor credit
scorers
44
CreditExpert is the “go to” source for credit files
for consumers
45
Consumers and the Bureau
Some of the Bureau myths
The blacklist
A blacklist is maintained of bad payers
Anyone can get hold of my data
Previous
occupants
Security
The credit history of previous occupants at my
address impacts my credit rating
My credit information is not accessible to me
The decision
Secrecy
The decision is made entirely by the bureau and
not by the organisation I want to borrow from
If I get turned down for credit the decision
is recorded on my file
Rejections are
visible
46
To summarise
– the benefits of a credit register
Benefits for
Benefits for
Benefits for
Borrowers - Citizens
Lenders - Market
the Economy

Makes credit available to more low
risk customers c 10% uplift

Restricts credit to high risk customers
and direct them to advice sector
instead

Speeds up the credit application
process by creating a transferable,
reliable, consistent digital financial cv
Makes it easier to shop around for the
best product

Incentivises consumers to manage
their finances to maintain good
payment histories

Reduces the risk of over-indebtedness

Enables customer to effectively check
and challenge input information used
by lenders

Reduces default rates (c 50%) because
better decisions are made about
customers at application and customers
manage their agreements better

Wider and more appropriate
consumer credit drives steadier
financial market development and
economic stability

Improves lending volumes (c10%) and
increasing financial income


economic activity at a macro level
Streamlines and speeds up the lending
process

activity at a geographic level

Potential to perform monitoring of
financial services providers

Allows lenders to more accurately
evaluate risk of each proposition and
monitor and manage each agreement so
that they can intervene at an earlier stage

Better assessment of proposed
forbearance measures

Allows assessment and monitoring of
portfolio quality

Reduces fraud
47
48

What is a Credit Bureau - or rather, what should it be?

Transcription

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