Responsible Lending

Credit is an opportunity that should be universally available. Access to credit is directly instrumental to an individual's economic and social development; it encourages aspiration, helps eliminate poverty and generally improves the welfare of recipients. Nobody – regardless of social, economic background – should be unfairly denied credit.

But credit comes at a price. Prospective borrowers don't have an irrefutable right to credit and before granting credit, any responsible lender will want to be confident that the money they lend can and will be repaid. To help make this determination, conscientious lenders will look at the information held by Credit Reference Agencies (CRA) and base their decision on the past performance of borrowers and, where possible, an individual's overall level of indebtedness.

Of course, as we now know after the disgrace of the national bailout, not all lending was responsible – and some would say it was downright reckless. But that’s not all down to the lending institutions: many of the problems are as a result of structural shortcomings that have denied lenders access to the decision-making data.

In the aftermath of the bailout, this was immediately recognised by our new paymasters. One of the conditions of the national bailout was that Ireland must establish a Central Credit Register (CCR). To ensure its effectiveness there is to be a mandatory reporting requirement for all credit providers to the CCR (subject to minimum value threshold, etc).

The current recommendations state that the CCR license holder would be obliged to provide prescribed “core” services to the Central Bank and lenders. In practice, this could mean that the CCR will hold loan performance data for all credit facilities where the loan value exceeds €1,000 and that all credit providers may be obliged to review the loan performance data and total indebtedness of an individual before approving a loan or credit facility. It would also provide the Central Bank with aggregated loan performance data that could in theory, at least, help identify lenders who were over exposed to underperforming debt.

BusinessPro StubbsGazette (BPSG) broadly welcomes the introduction of mandatory reporting for all credit providers but believes it is unreasonable to use a single central register and that the mandatory reporting should be to all approved credit information providers. We are firmly of the opinion that implementation of the report recommendations as they currently stand would effectively eliminate competition in the credit information market, resulting in a loss of innovation and price competition, and making Ireland a less attractive country for financial service providers to do business.

At BPSG we believe that the recommendations contained in the Credit Reporting Market Structure Report are seriously flawed and that wide ranging changes are required before the plans can be considered fit for purpose.

It's not entirely clear where the Data Protection Commissioner will stand on the introduction of these changes. Under current provisions there is a clear requirement for lenders to obtain consent from borrowers as to how their personal data will be used but there will be the inevitable question as to whether consent has been freely given, when to deny consent will result in the denial of credit facilities or the granting of credit on less favorable terms. What is certain, is that borrowers have an inalienable right to be sure that personal information held about them is correct and up to date, so they are not unfairly refused credit.
A secondary, and not insignificant factor that needs to be addressed is the rights of access to default money judgments held in the records offices of the district and circuit courts.

For over ten years, Credit Reference Agencies like BPSG had unfettered access to the district and circuit courts to collect details of default money judgments, satisfactions and cancellations. In October 2010 the Court Services – quite unilaterally and abruptly – halted access to the records offices of the courts, effectively denying CRAs a vital source of information to help support credit checking and responsible lending.
It flies in the face of all that is logical to deny access to vital source of credit information in the midst of a recession created by a debt crisis. Ireland would do well to look to England & Wales for a solution, where there has been a statuary public register of all default money judgments for over a century. The UK isn't free of the blight of over indebtedness or irresponsible lending but it does at least provide access to the information that can be used to address the issues.

The new CRR will certainly make life harder for fraudsters but there is another area where we could look to the UK for tackling the scourge of fraud. Lenders currently deal with unprecedented levels of fraud and face the challenge of weeding out many millions of Euros worth of fraudulent applications.

One of the most common types of fraud could become one of the most easily detected if the law was changed to include detection and prevention of fraud in the permitted uses of the Electoral Register. Thousands of frauds are perpetrated each year by individuals purporting to live at the house of a next door or near neighbour, thereby disassociating themselves from any history of credit default at their own address. If the full Electoral Register could be used for this singular additional purpose, we could fight financial crime more effectively and avoid the risk of Ireland being seen by fraudsters as a soft touch for financial crime.
While there may be general agreement that access to financial services can provide a pathway to prosperity for many, widespread access to credit can and will induce perverse effects unless the infrastructure is in place to support responsible lending.