APPENDIX 38
Memorandum submitted by Experian
ABOUT EXPERIAN
Experian is a global leader in providing analytical
and information services to organisations and consumers to help
manage the risk and reward of commercial and financial decisions.
Combining its unique information tools and deep understanding
of individuals, markets and economies, Experian partners with
organisations around the world to establish and strengthen customer
relationships and provide their businesses with competitive advantage.
For consumers, Experian delivers critical information that enables
them to make financial and purchasing decisions with greater control
and confidence. Clients include organisations from financial services,
retail and catalogue, telecommunications, utilities, media, insurance,
automotive, leisure, e-commerce, manufacturing, property and government
sectors.
Experian Group Limited is listed on the London
Stock Exchange (EXPN) and is a constituent of the FTSE-100 index.
It has corporate headquarters in Dublin, Ireland, and operational
headquarters in Costa Mesa, California and Nottingham, UK. Experian
employs more than 12,500 people in 34 countries worldwide, supporting
clients in more than 60 countries. Annual sales are $3.1 billion
(£1.7 billion/€2.5 billion).
1. EXECUTIVE
SUMMARY
1.1 The purpose of the paper is to provide
the Home Affairs Committee with background to what a credit reference
agency does to assist with its inquiry.
1.2 A credit reference agency (otherwise
known as a credit bureau) does not make any lending decisions
in its own right nor does it express any opinion as to an individual's
ability to repay a loan. Rather it provides factual data and tools
to lenders for this purpose. Lenders will make their decision
based on information provided by the consumer, information obtained
from a credit reference agency (which is obtained with the consumer's
consent), information from other sources and most importantly,
against that particular lender's underwriting criteria.
1.3 Information held by a credit reference
agency largely consists of publicly available records, such as
the electoral register, county court judgments and bankruptcies.
Alongside this it holds information relating to credit applications
and credit accounts provided by lenders, with the consent of the
consumer. By bringing this objective information together lenders
can make accurate, responsible decisions about an individual's
ability to repay a loan.
2. DATA PROTECTION
WITHIN EXPERIAN
2.1 It is a key strategy for Experian to
position itself with consumers and its clients as a trusted custodian
of personal data and an acknowledged leader in the field of compliance,
data protection and data sharing. Its dedicated Regulatory and
Consumer Affairs team is charged with this responsibility across
Experian.
2.2 Experian facilitates the sharing of data
through a secure database repository where data are obtained,
stored and accessed strictly in accordance with relevant legislation
and codes of practice governing the use of shared data.
2.3 Experian operates in a highly complex
and regulated environment. The Data Protection Act 1998 governs
the processing of personal data both by Experian clients and by
Experian itself. There is other legislation governing the use
of specific datasets—The Representation of The People Act
controls the use of electoral register data.
2.4 As a Credit Reference Agency Experian
is also licensed by the Office of Fair Trading under the Consumer
Credit Acts 1974 and 2006. Consumer complaints can be directed
to both the Information Commissioner's Office and Financial Ombudsman
Service.
2.5 Experian is committed to achieving the
highest possible levels of data accuracy, security and integrity.
Its Regulatory and Consumer Affairs function works closely with
regulators, including the Office of Fair Trading and the Information
Commissioner, to ensure that all procedures, products and systems
are carried out and developed to their satisfaction and within
the appropriate legal framework.
2.6 Commitment to compliance and data protection
is further demonstrated through Experian's active participation
on government consultative groups, industry trade bodies and associations,
together with direct client involvement to increase compliance
and data protection awareness.
2.7 Equally Experian is committed to its
consumer-facing obligations as a Credit Reference Agency. Its
Consumer Operations department of over 200 people is dedicated
to working with consumers and suppliers of their data to ensure
its accuracy. In tandem with this service, Experian liaises with
the media, government, money advisors and consumer organisations
to promote transparency in terms of what personal information
is held and why and how it is used.
2.8 This submission expands on the role
Experian plays as a credit reference agency.
3. CREDIT REFERENCING
IN THE
UK—THE USE
OF PERSONAL
INFORMATION
3.1 The UK has three consumer credit reference
agencies. Their databases bring together data from many different
sources—public, proprietary and self-reported by consumers—to
provide the basis for informed and timely business decisions by
their clients. These decisions are primarily around credit applications,
but increasingly relate to authentication checking—confirming
the consumer is who they claim they are, which is critical for
lending decisions and indeed is required by Money Laundering regulations.
3.2 The credit reference agencies provide
comprehensive information on the credit status of individuals
by combining publicly available records with credit account details
received from many hundreds of credit grantors.
3.3 When consumers seek financial services,
they provide the financial service provider with information on
their financial position. As part of the process of underwriting
a consumer's application, the majority of providers, with the
consent of the applicant, utilise the facilities of one or more
of the UK credit reference agencies. These supply the financial
service provider with reliable credit performance data from other
financial institutions, relating to the consumer. The credit reference
agency does not disclose the origin of such information to the
provider.
3.4 The consumer benefits from choice and
competition across a wide range of financial services, which has
been made possible by the innovative and technologically advanced
collection, use and delivery of information. The credit reference
bureaus provide up-to-date and comprehensive information to a
wide range of consumer facing organisations, enabling them to
offer swift and discrete decisions in shops, banks and a range
of other organisations, face-to-face and on the telephone or via
the internet.
3.5 Consumers benefit from the knowledge
that their information is provided and assessed in an understandable
and controlled format and that they have the right to access their
records at any time, and ensure the information is correct. They
also have confidence that their data may not be accessed by unauthorised
persons and that it is protected by law under the provisions of
the Data Protection Act 1998.
3.6 Data sharing in the UK is governed by
the Principles of Reciprocity—as agreed and policed by the
Steering Committee on Reciprocity (SCOR)—as well as being
subject to all the legislative requirements relating to the processing
of personal data.
3.7 SCOR is an industry body consisting
of representatives from the British Bankers Association, Finance
and Leasing Association, Council of Mortgage Lenders, Consumer
Credit Trade Association, Mail Order Traders Association, APACS,
Consumer Services Association and Consumer Credit Association,
together with representatives from the three UK credit reference
agencies. Credit reference agencies are not therefore able to
determine unilaterally how shared personal data may be used.
4. THE UK CREDIT
MARKET
4.1 The UK credit market is the second largest
in the world after the USA, with the majority of the adult population
holding a range of financial products, from a wide variety of
organisations, as a matter of course.
4.2 Competition to satisfy the demand in
the UK is increasingly fierce. Many consumers move from lender
to lender, taking advantage of opening offers and moving on to
the next attractive deal when the offer expires.
4.3 At a time of record levels of UK debt,
lenders are more reliant than ever on full bureau information
to ensure that the new-to-organisation applicant can be identified
and their financial position and stability understood in order
to make credit or financial service decisions. Legitimate and
transparent access to data has been fundamental to the development
of this competition.
4.4 Lenders use credit bureau data, inter
alia, for risk assessment and affordability decisions to ensure
consumers are offered the most appropriate product for their specific
requirements.
5. DATA PROTECTION,
PRIVACY AND
DATA SECURITY
5.1 Lenders search the databases at credit
reference agencies with the full knowledge of the applicant. A
standard notification and consent wording agreed with the Information
Commissioner is now being widely used by banks, credit card issuers
and similar organisations.
5.2 Other clauses advise the customer whether
records of applications and information on the performance of
credit accounts are lodged with credit reference agencies and
made available for the purpose of the prevention of over-commitment
and fraud.
5.2 Only those consumer records on which
consent to share the data is given are held on the credit bureau.
5.3 Extensive client veracity checks are
conducted before a financial services provider is permitted access
to a credit bureau's records. Ongoing monitoring is also carried
out to ensure patterns of client usage are consistent.
5.4 Physical data security is critical to
Experian, with a multi million pound investment having been made
in a purpose built data centre. This is backed up by strict data
access controls and protocols overseen by a dedicated Information
Security function. All Experian employees and clients who require
access to Experian systems and information are individually authenticated
before any information is provided. Rigorous access controls ensure
that information is only provided to authenticated users based
on their authorised job function/responsibilities.
5.5 In addition to compliance with the Data
Protection Act, credit reference agencies work to a number of
other regulatory requirements, codes of conduct and guidance notes
such as the industry-backed Guide to Credit Scoring and the Information
Commissioner's Guidance Notes on Credit Referencing and Defaults.
6. BENEFITS OF
DATA SHARING
6.1 The UK financial services market is
highly sophisticated, competitive and delivers real choice and
benefit to both the consumer and the economy. It has grown and
developed as UK financial services companies have developed through
competition. That competition has been possible because of the
open nature of the UK market and the increasing sophistication
of UK consumers.
6.2 Barriers to entry for financial services
providers are low and the availability of information from shared
databases at credit reference agencies enables real competition
to thrive. It also makes it possible for lenders to lend more
responsibly and monitor account behaviour on an ongoing basis.
6.3 The benefits and value of the UK model
are acknowledged in the work undertaken annually by the World
Bank in its "Doing Business" survey, see http://www.doingbusiness.org/,
which identifies the UK as the top-ranking country in which to
obtain credit based on the balance between legislative protection
for consumers and lenders together with the breadth of information
in the credit reference agencies. It considers that a functioning
and effective credit industry is a vital contributor to economic
stability and growth in GDP.
6.4 The Competition Commission has also
recognised the pro-competitive impact of the provision of shared
access to consumers' payment data in its recent report on home
collected credit.
7. WORKING WITH
CONSUMERS—GENERAL
7.1 As a credit reference agency Experian
has statutory obligations under both the Data Protection Act and
Consumer Credit Act to provide a consumer with a copy of their
credit report and to help them deal with any queries on this report,
if necessary liaising with lenders and other third parties on
their behalf.
7.2 Over the past 12 months Experian has
provided over 1.5 million new credit reports to consumers and
a further three million repeat reports through its on-line credit
report membership and monitoring service. Its Consumer Services
team helped over 900k consumers with questions on their credit
reports.
7.3 Experian takes its consumer obligations
much further than this and works closely with consumer groups,
such as Citizens Advice, Which? and the National Consumer Council,
and with money advice organisations like the Consumer Credit Counselling
Service and National Debtline, providing free credit reports to
people who are receiving free debt counselling.
7.4 Similarly Experian's clients are encouraged
to be as forthcoming as possible about the role credit reference
information plays in their decisions to make sure consumers get
accurate and helpful information when they need it. Experian also
works very closely with all the relevant lending trade associations
on a variety of issues and initiatives.
7.5 Its Consumer Affairs team regularly
provide material for publications and contribute extensively to
all forms of media, including television and radio, to ensure
that consumers are aware of their rights in this area.
7.6 Experian's free booklet, The Credit
Reference Agency Explained provides an overview of the credit
reference agency's role and its "Credit Crossroads"
leaflets provide advice and guidance around financial issues and
"life events". These are distributed through citizens
advice bureaux and other consumer advice centres.
7.7 Each year, the Consumer Affairs team
spend considerable time talking directly to consumers at exhibitions
such as the conferences of Citizens Advice, The Institute of Money
Advisers, Money Advice Scotland, the Trading Standards Institute
as well as at consumer events like the Ideal Home Show and BBC
Good Homes Show.
7.8 At a policy level Experian is involved
in several consumer education and financial capability projects,
including those led by the Financial Services Authority, the Office
of Fair Trading and the Personal Finance Education Group.
7.9 Most recently in 2006, Experian launched
a resource pack for teachers, Getting Credit: A Beginner's
Guide, to help them deliver numeracy and literacy lessons
around the theme of applying for, getting and managing credit.
Additionally support is provided to the Young Consumers of the
Year competition, giving the schools that take part information
about consumer credit and helping set questions about the process
for granting credit.
8. WORKING WITH
CONSUMERS—VICTIMS
OF FRAUD
SERVICE
8.1 Since 2003 Experian has provided a dedicated
support service to consumers who have been victims of identity
fraud. During this time, assistance has been given to over 15,000
identity fraud victims. There are now on average 100 victims of
fraud contacting Experian's Victims of Fraud team each week.
8.2 This free service was introduced to
offer consumers a single point of contact and to act as intermediary
in the restoration of a consumer's accurate credit history. By
acting on a consumer's behalf and by co-ordinating any necessary
activity the Experian service significantly reduces the amount
of time it would normally take an individual to restore his or
her credit history.
8.3 Once Experian has established that an
individual is a true victim of fraud and their identity has been
fully authenticated, they are provided with the following:
— A dedicated case worker (with
a freephone number), who will give general and ongoing advice
on identity fraud as well as dealing with the specific problems
being experienced by that individual and helping to liaise with
lenders on their behalf.
— A free copy of their credit
report along with copies of Experian's consumer advice leaflets—Your
Credit Report Explained and Identity Fraud Explained.
— A discrete password which is
added to their credit report which ensures lenders are alerted
to the fact that an individual has been an ID fraud victim and
should therefore request the password prior to proceeding with
an application for credit.
— Information about and referral
to CIFAS (the UK's fraud prevention service) for Protective Registration.
— Free 12 month membership Experian's
credit report monitoring service, CreditExpert.
9. CONCLUSION
9.1 The UK model enables the consumer to
shop around for the best deal secure in the knowledge that lenders
are able to see the most up to date information about them and
make the best possible decision. Consumers are no longer limited
to taking products from the organisation with which they already
have a relationship because other do not know enough about them.
As a result, healthy competition has driven down the cost of credit
to consumers and resulted in wider choice.
9.2 The macro and micro economic benefits
of this are acknowledged in the DTI White Paper in 2003—Fair,
Clear and Competitive—The Consumer Credit Market in the
21st Century, which opens with the statement:
"Consumer credit is central to the UK economy.
Economic stability based on sound fundamentals is bringing rising
prosperity, record employment and low interest rates, all underpinning
increased demand for credit. For most, credit cards and other
secured and unsecured lending provide people with greater control
and flexibility when managing their finances—collectively
benefiting the economy A competitive and efficient financial sector,
of which the consumer credit market is an important part, is essential
to raise the level of economic growth in the UK economy."
9.3 The World Bank makes it clear that central
to the success of the UK consumer credit market is the effective
and competitive credit bureau regime in the UK.
9.4 At the same time, the consumer's rights
under the Data Protection Act to obtain a copy of the information
held about them (and to get it queried and/or corrected if it
is incorrect) gives them the security of knowing what information
was used to make that decision and critically, who has been looking
at it. This is because every access is required to leave a footprint
visible to that consumer showing when and by whom their credit
report was searched.
9.5 Credit referencing in the UK is transparent.
A credit reference agency provides a central and highly controlled
repository of information that may be made available only with
the consent of the data subject for purposes that benefit them,
typically in accessing goods or services.
May 2007
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