Association of Consumer Credit Information Suppliers

Under this question, ACCIS would like to share with the EBA our key general messages on the consultation document.

1. Accurate creditworthiness assessments are a fundamental component of responsible lending and consumer protection. As the EBA noted, “the excessive household borrowing in the pre-crisis era, caused inter alia by poor creditworthiness assessments, has resulted in high levels of arrears as well as outstanding debt” . A European Parliament study on consumer credit concluded that “poor creditworthiness checks, particularly when selling high-cost credit products, have been one of the major causes of consumer detriment across the EU, especially for more vulnerable consumers and even when the initial loan amount is small.

2. It is well established that creditworthiness assessments that use more comprehensive data are more accurate in predicting credit risk and affordability, thereby increasing financial inclusion and the supply of credit while simultaneously lowering the rate of non-performing loans.

3. It is also well established that data sharing among lenders through credit data infrastructures such as credit register (public) and credit information bureaux (private) is one of the core components of successful credit markets. Over the last 20 years, the positive impact of this mechanism has been proven by international institutions such as the World Bank and several relevant academic articles. European legislation is not neutral in this regard: in line with recital 59 of the Mortgage Credit Directive and recital 28 of the Consumer Credit Directive, credit registers and credit information bureaux should receive priority attention as sources of information or for verification purposes, compared to other third-party sources.

4. We welcome that the draft guidelines align the requirements of the Consumer Credit Directive and the Mortgage Credit Directive’s (MCD) in relation to the consumers’ creditworthiness assessment. This alignment enhances consumers’ protection from over-indebtedness and supports their financial inclusion. The alignment concerns:

• the requirement to have a sufficiently comprehensive view of the borrower’s financial position (paragraph 85)
• the requirement to consider not only negative but also positive financial information about the borrower (paragraphs 105, 118, 239, 241 among others), and
• the requirement to verify the borrower´s information (paragraph 96 at alia)

We think, in particular, that the reference to a “sufficiently comprehensive view” encompasses the need for data for creditworthiness assessments to be relevant, accurate, timely and proportionate (paragraph 86).

5. We also welcome the explanation in paragraph 96 of the draft Guidelines that creditworthiness assessments should include both the credit risk for the lender and the affordability risk for the borrower. This means that lenders should assess not only whether a borrower is likely to repay (i.e. the “prospect” of repayment) but also whether he or she can do so without “inducing undue hardship and over-indebtedness ”) (i.e. their “ability” to repay).

6. We welcome the clarification of the type of information that can be considered by the lender when carrying out creditworthiness assessments listed in Annex 2.

7. However, we think that certain aspects of the consumers’ creditworthiness assessment merit further clarification (as explained in detail below).
ACCIS would like to suggest adjustments to paragraphs 86 and 88 in the draft guidelines and to points 6, 7 and 8 in Annex 2.

In paragraph 86, we suggest that the “time dimension” of the data used for creditworthiness data should also deserve attention.

In paragraph 88, we suggest a more extensive re-draft of the text to (i) clarify the distinction between sources of information and the person or entity with whom the information can be verified in light of article 20 of the Mortgage Credit Directive; (ii) clarify that the assessment should encompass “the consumer’s creditworthiness”, which includes both the borrower’s “prospect” to meet its obligations under the loan (i.e. the credit risk for the lender) and, also, the affordability risk for the borrower, as stated in paragraph 96; (iii) distinguish between credit register (public) and credit information bureaux (private); (iv) recognise the relevance of external databases; (v) correct a wrong reference to the EU General Data Protection Regulation (GDPR); and (vi) clarify that the collection of the borrower’s permission would not be required for data that credit bureaux collect on the ground of legitimate interests.

In point 6 (Annex 2), ACCIS suggests including ‘assets’ together with ‘income’, as they are both possible sources of repayment. Assets should, therefore, be deleted from current Point 7. In order to differentiate and avoid confusion between the ‘financial commitments’ covered in current Point 8 and the ‘financial liabilities’ included in current Point 7, we propose to use “other financial commitments in the amended Point 8. These should cover non-discretionary expenses like alimonies but also other committed expenses such as insurance or telecoms as they are all regular outgoings of the borrower that are likely to be paid from the same source of income on which the creditworthiness assessment is based. This would also be in line with paragraphs 109 and 118 of the draft Guidelines.

In our attached response, the EBA can find our suggested drafting suggestions for all of the above.
We believe that the requirements for mortgages set out in paragraphs 103 and 105 should be consistent with the requirements for consumer credit set out in paragraphs 116 and 118. While we understand that paragraphs 103 and 116 relate to a borrower´s prospect to repay (i.e. the credit risk for the lender), we note that there are some differences in the wording. For the sake of consistency, we suggest using similar wording in both paragraphs in light of Article 20 of the MCD and paragraphs 85, 91 and 98 of the draft Guidelines: creditworthiness assessments should be based on information about the borrower´s sources of repayment, and financial position / situation. This includes in particular information about the borrower´s financial commitments which gives an insight into what kind of borrower the applicant is and how much money he or she already owe (thereby constituting a primary factor for lenders to determine the borrower’s credit risk). Likewise, while we understand that paragraphs 105 and 118 relate to the borrower’s ability to repay the loan (i.e. the affordability risk), we note that there are some differences in the wording. To ensure consistency, we suggest deleting ‘living expenses’ from para. 118 and include a new paragraph after paragraph 120 similar to paragraph 109. A reference to credit scoring should also be mentioned in the mortgage credit and consumer credit sections (as in paragraphs 126-127 for lending to professionals).

We believe that the requirement in paragraph 104 to include third party verification documenting the borrower’s income should also be included in paragraph 117.

We note that the requirement to carry out sensitivity analyses for consumer credit set out in paragraph 121 does not appear in Section 5.2.2 for mortgages (despite being a general requirement under paragraph 101). To avoid confusion and unnecessary duplication, we would suggest that requirements that are mentioned under the general section do not appear again in the specific sections.
Enrique Velázquez