I. OPINION ON THE PUBLIC CONSULTATION ON RESPONSIBLE LENDING AND BORROWING IN THE EU

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1 Warsaw, 26 August,2009 EUROPEAN COMMISSION Internal Market and Services DG Dear Sirs, On behalf of the Polish Credit Information Bureau ( BIK ) I have a great pleasure to enclose our opinion concerning the Responsible Lending an the Report of The Expert Group on Credit Histories and we express our readiness to participate in any possible works with this matters. Regards, Krzysztof Markowski President of the Management Board Biuro Informacji Kredytowej S.A. Biuro Informacji Kredytowej S.A. [joint-stock company], ul. Zygmunta Modzelewskiego 77a, Warsaw tel.: +48 / ; fax: +48 / ; biuro@bik.pl; KRS number ; District Court the capital city of Warsaw, 13th Commercial Division Share capital PLN , paid in full; NIP [tax identification number]:

2 OPINION OF THE POLISH CREDIT INFORMATION BUREAU ( BIK ) ON THE DOCUMENT PUBLIC CONSULTATION ON RESPONSIBLE LENDING AND BORROWING IN THE EU AND THE CONSULTATION DOCUMENT ON THE REPORT OF THE EXPERT GROUP ON CREDIT HISTORIES. I. OPINION ON THE PUBLIC CONSULTATION ON RESPONSIBLE LENDING AND BORROWING IN THE EU General comments Slump in consumer credit and home loan repayment, which takes place in many countries, and which results in financial system crisis, introduces the necessity of analysis of lenders conduct in terms of responsible credit lending and borrowing. The European Commission directed to the Member States a survey aiming to test the usefulness of introducing regulations, on the European level, which could diminish the risk of irresponsible credit lending in the future. The fact that such phenomena appeared in particular countries seems to be indisputable. A disadvantage of the document, which was sent for consultation, is the lack of assessment of the reasons for appearance of the subject phenomenon that the banks, contrary to their own interest, here and there, became involved in transactions burdened with unjustified risk, using the market financial instruments in order to gain necessary liquidity and avoid capital securing of the transactions in their balances. It is not the question of general macroeconomic reasons, organization of financial markets or underlying the sphere of organization of corporate governance. These macro sources of the current problems on the credit markets were described also on the European level (de Larosièr group), nevertheless for the subject of consultation, crucial is the issue of reasons for the credit crisis underlying the sphere of crediting process: the shape of bank offer, risk assessment procedures (including the creditworthiness, information provided by the lender to the borrower, and finally the access by lenders, via Credit Information Bureau, to the public databases enabling the verification of information provided by the client of a bank on him/herself). There are three issues, which are relevant to the lenders tendency for excessive exposure to risk in the sphere of consumer credit and home loan: Lack of balance in the organisation of credit institutions between the sale and risk sectors. The current concept of organisation envisages separateness and mutual control of the two sectors inside the banks and credit institutions. The practice has led to the leaning towards the sale. The sale and marketing sectors have definitely dominated the credit policy in the recent years. The reasons for this dominance should be sought in money overload and low mark-ups on the safe instruments. Are the banks going to redefine their structural organization in the light of their crisis experience? It is possible that the high liquidity being the source of the phenomenon, will remain in next years, which will not be in favour of tightening of the risk control performed by the banks. Probably the bank supervisory authorities should enforce some steps in this scope. We do not believe that it is expedient to establish, on the European or national level, the quantity parameters for the banks to assess the risk. The material being the subject of consultation raises the issue of the insufficient risk control in the context of the intermediaries activity. This is a secondary issue. The intermediaries act in the scope of the lenders authorisation. They should control the intermediaries. It does not exclude the grounds for some forms of supervision of the intermediaries, however it cannot free the lenders from the liability for the intermediaries activity. 2

3 Competing using fast sale. Consumers expect fast credit decisions with the minimum of formalities and documentation. The banks yield under this pressure, fearing that the consumer may turn to other institutions of easy credits, some of which do not fall under supervision in Poland. As a result, the rate of credits at risk within cash and instalment credits is tenfold higher than within home loans, which are granted under a procedure that is more onerous for the borrower. High risk of the fast credits is compensated by the banks with high mark-ups. In the procedure of granting fast credits, the banks allow the non-collectible credit roll-ups by excessively indebted persons. It seems expedient to include the parabanks in the national supervision and consider introducing regulations counteracting the competitive use of fast credits. Insufficient use of external databases and limitation of the contents thereof by the provisions of law. The Consumer Credit Directive recommends the use of external databases for the assessment of the creditworthiness. This is a significant step towards the development of the conditions of responsible lending. However, it should be noted that this recommendation included in the Directive refers solely to the consumer sector of the Directive. It should be implemented into the national banking law, so that this recommendation was executed universally, at least by the banks. In Poland the recommendation to use the bases is included in the latest recommendations of the supervisory authorities. It would be appropriate if the supervisory authorities took up the issue of completeness of data transferred by the banks to the bases. It has its ups and downs. It is necessary to introduce synchronisation of the provisions referring to databases with the provisions on personal data protection. It is obvious that there should be a certain sound compromise between the aim of the responsible lending and personal data protection. While defining the aim, it should be assumed that the credit history is the consumer s capital, thanks to which he/she should obtain the credit easier and faster. Responsible lending is impossible without verification of the data provided by the client via public databases and knowing his/her credit history. The factor which hampers the responsible lending is the consumer s right to withdraw, at any time, the positive information from the history of the repaid credit and the excessive formalization of the possibility of processing information regarding expired liabilities with delays in payment. Answers to the survey questions Re par. 1 (2.3) The Polish law stipulates the prohibition, also in advertising, of practices misleading the consumer, (the Act of 23 August 2007 as an execution of the Directive 2005/29/EC). Therefore this case is regulated in the Polish law. The problem is that naturally the format of the advertisement does not enable to include therein all necessary elements of the offer. The press criticizes the banks for the consolidation credits, which offer refinancing with a lower instalment, not mentioning in the advertisement that it is connected with an increase of the total cost of the credit as a result of the extension of the credit period (APRC may be different in these offers). Should it be qualified as misleading? Definitely yes, if such a lack would be repeated in the pre-contractual information, however it seems permissible in the advertising. Re par. 2.(2.3). The consumer, without any doubts, should be informed about risks. There is only the issue of details left: by whom, in what form and what the consequence of the lack of such information is. The results of which currency impairment scale should be presented to the consumer? And what if the given assumption turns out to be inaccurate? There are countries (especially the new ones), which are familiar with multicurrency, societies of others do not have such experience. In many countries the significance of risks is different. Does the formulating of recommendations make sense on the European level? We are afraid that such recommendations would result in signing by the borrower the declaration that he/she was informed about the risk. 3

4 We think that the recommendation to inform about risks should be included in a document such as good practices (soft regulation), not because the stronger regulation is not appropriate, but because it would be ineffective and insufficiently flexible. Re par. 3.(3.1). The provision prohibiting the sale of given credit products to consumers would be discriminatory. It would be difficult to find grounds for it. But maybe a specific example could be considered. Development of the product offer increases competition on the market, standardization would limit it to the detriment of the consumer. Re par. 4 (3.1) Lenders should analyse the credit risk, including the creditworthiness, and in this way, specify the credit suitability. The problem here lies in the legal nature of this recommendation. In the Polish law it is stipulated by the Banking Law Act, therefore it applies (in the scope specified by the Act) only to the banks and other institutions authorized statutorily to grant credits (e.g. SKOKs [credit and savings unions]). The execution of this principle by the banks is a subject of control by the financial (banking) supervisory authorities, which are entitled to order to cease granting credits contrary to this principle and, in extreme cases, to impose sanctions of the organizational-personal nature. The credit agreements concluded with infringement of this principle are binding on the parties thereto. Therefore, it is necessary to enable lenders to verify address data of the borrowers on-line in the PESEL (Public Electronic System of Population Record) data base free of charge or for a small fee which would allow verification of data provided by the bank clients, simultaneously limiting the possibility of committing financial frauds. The extension of the requirements of the assessment of creditworthiness to the parabank institutions is expedient, however, it would require establishing the supervisory authority enforcing this requirement. Without them, it would only be a purely instructional and inessential. The criteria specified in the question are the basic instruments of the credit risk assessment. Their numerical value should be established by the banks independently based on their own risk models relying on information from internal and external bases. Their standardization would be a mistake, for example the risk connected with granting credit of the specific income multiple for persons with different level of income varies. The difference also results from the period for which the credit is granted. Re par. 5 (3.1) A credit intermediary should act in this scope based on the lender s instructions, and the latter shall supervise the intermediary and be accountable towards supervisory authority for infringement of the principle by its sellers and intermediaries. It should be stressed, however, that the creditworthiness is understood in the narrower or broader scope. In the narrow meaning it is the comparison of the streams of projected income and expenses of the borrower within the term of credit agreement. In the broader meaning the assessment of creditworthiness also includes the issues of the credibility of the borrower, the value and the liquidity of collaterals. It may also rely on the scoring techniques using sociodemographic data. The use of the creditworthiness in the narrow meaning is not very useful (however necessary) for the purpose of the assessment of the risk (liability) of the long term credits (including mortgage ones), due to the naturally low reliability of the projected income and expenses within 20 to 30-year horizon of such an agreement. Re par. 6 (3.2) We believe that these issues should be developed on the national level. There are significant differences in the European Union in the scope of the development of credit markets and the level of economic education. Therefore, it is more appropriate to formulate recommendations in the scope of the form of the provided information in connection with the existing market practice on a given market and in reaction to the observed irregularities. We recommend a soft regulation, the stronger one will be easy to evade. 4

5 Re par. 7 (4). The issue of the economic and financial education is crucial, since the actual level of the knowledge in the society in this scope is very low. This results from the fact that using more developed credit products in the new Member States has a very short history. Also the consumer debt level in the sphere of home loans in Poland is low in comparison with the European Union. The educational activities (supported by the National Bank of Poland) are the long term activities. The only practical, currently available instrument strengthening the responsible lending is the development and propagating of interbank databases. The following are particularly necessary: the parabanks are included in the information exchange, to the extent permitted by law, the supervisory authority clearly recommends that the credit institutions use reports and transfer full databases to the base of credit registers, the full information on repaid credits is stored in the bases, lenders have access to public bases in the scope necessary for the responsible lending. Re par. 8 (5.1) The subject definition may be used also with other credits granted to natural persons. The fact that the intermediary, apart from the consumer credit, acts as an agent also in other transactions, seems to result from the offer itself. What is the differentiation for? Re par. 9 (5.1) This question cannot be answered without the knowledge of the subject of the regulation, which the person asking has in mind. Generally, the lender is liable for the lawful activity of the intermediary and it is the lender that should control his/her activity and verify his/her qualifications. Borrowers should be informed about the nature of the connection between the intermediary and the lender. Re par. 10 (5.2) We are not in possession of such information. Re par. 11 (5.3) It is possible to express the opinion as regards the issue of the scope and purpose of the regulation concerning intermediaries upon acquainting with the draft of such a regulation. Re par. 12 (5.4.1) The conflict of interests referred to in the question is highly possible yet a positive solution is difficult to be found. The pure solution would be refraining from applying commission for sellers (both own and foreign ones), and in the case of brokers and independent intermediaries, the remuneration should be paid by the client. However, it is not very practical/unrealistic. The disclosure of the commission amount may be a solution thereto. Re par. 13 (5.5) Prior to answering this question, one should consider the purpose of these registrations/supervisions and the legal grounds and the manner of incurring costs. Generally, the lender should be liable for the activity of the intermediary who acts on its behalf. There are different levels of supervision; there is the banking supervision, insurance supervision, securities supervision, payment system supervision each has different purpose and the scope of activity. Probably it should be rather the soft supervision in the form of payment institutions. It should be considered in the light of more precise proposals. Re par. 14 (5.5) as above Re par.15 (5.6) The easiest solution is if the bank or credit institution assume the liability for the intermediary. Introducing the intermediation to the activity of the banking ombudsman would be a difficult task. 5

6 II. OPINION ON CONSULTATION DOCUMENT ON THE REPORT OF THE EXPERT GROUP ON CREDIT HISTORIES. Indeed, as specified in the introductory part of the Consultation Document on the Report of the Expert Group on Credit Histories, the Expert Group emphasises that the exchange of credit information is an absolutely basic condition for the development of an integrated market of financial services. However, the possibility to use credit data by creditors, in particular information about expired liabilities of clients, i.e. information on the history of fulfilling the obligations is essential for the reduction of credit risk (preventing the so-called difficult credits), and therefore improving the quality of credit portfolio, but most of all it is essential for responsible lending, i.e. such lending that on the one hand protects the bank against granting credit to a person who does not guarantee correct repayment, and on the other hand protects such a person (consumer) against excessive debt. Responsible lending is one of the priorities determined by the European Commission, which was confirmed on 15 June 2009 by the Commission in the public consultations on responsible lending. The obligation to undertake actions by the Member States to ensure such legal solutions that allow responsible lending results from 26 th recital in the preamble to Directive of the European Parliament and of the Council 2008/48/EC of 23 April 2008 on Consumer Credit: Member States should take appropriate measures to promote responsible practices during all phases of the credit relationship, taking into account the specific features of their credit market ( ). In the expanding credit market, in particular, it is important that creditors should not engage in irresponsible lending or give out credit without prior assessment of creditworthiness. In the Report of the Expert Group (on page 8 item 8 and 9) it is clearly stated that inaccurate credit risk assessment may lead to wrong credit granting decisions. Creditors who are unable to access complete credit data could therefore price the credit product incorrectly by under- or overestimating a borrower s credit risk. Overestimation may mean higher costs for the consumer. This places such creditors at a competitive disadvantage towards the creditors who are able to access accurate and complete credit data. Creditors that underestimate credit risk may, in turn, face unexpected losses. This may also result in risk for bank deposits of consumers. The last sentence of item 8 refers directly to Article 8 of the Directive. It is stated that incomplete information leads to more difficult fulfilment of the creditor s obligation to assess the client s creditworthiness, which is required by Article 8 of the Directive. Item 9 refers to the fact that, if the creditors are unable to access sufficient information on their credit history, borrowers may find themselves with a credit product not adapted to their needs having to pay unnecessarily high instalments, exposed to the risk of over-indebtedness or the risk of immediate repayment. Moreover, as stated by Charlie McCreevy Commissioner for the Internal Market and Services in the above-mentioned announcement of 15 June 2009: The current crisis has shown how much irresponsible lending can adversely affect the whole economy. The availability of complete and accurate credit data is essential in order for creditors to assess the borrower's creditworthiness and, thus, lend more responsibly. Therefore, in the opinion of the European Commission it is obvious that access to complete and accurate credit information constitutes absolute grounds for the assessment of creditworthiness and more responsible lending. That confirms only the basic conclusion of the Expert Group with respect to that matter. 6

7 In fact as specified in the Consultation Document on the Report of the Expert Group on Credit Histories the Expert Group on the basis of relevant surveys of the European financial markets and the experience of credit bureaus exchanging credit information among one another (German bureau Schufa, Belgian credit bureau, Dutch bureau BKR, Italian bureau Crif) noticed low interest and high costs related to the radical change of current principles (models) of the exchange of credit information. Therefore, the Expert Group postulates that a pan-european system of the exchange of credit information is not set up, recommending application of the best verified and the least expensive model of indirect access to credit information (i.e. through cooperating credit bureaus from particular EU countries). In the first part of this document we will make reference to particular Recommendations of the Expert Group, and in the second part we will present the standpoint of BIK concerning the questions raised by the European Commission in the document entitled: Consultation Document on the Report of the Expert Group on Credit Histories. I Therefore, referring to particular Recommendations (Polish version of Recommendations - translation of BIK) included in the Report of the Expert Group - BIK presents the following standpoint: R.1 The EGCH recommends that a single pan-european retail credit register is not set up for consumer credit. It does not seem a realistic option, nor the most effective solution, at least for the foreseeable future. Re R. 1) BIK completely supports and from the beginning of its participation in the works of the Expert Group postulated that at analysing by the European Commission of the optimal model of credit information exchange the creation of something similar to pan-european credit information exchange bureau was not taken into consideration. An attempt to create a central bureau would generate difficult to evaluate (but obviously enormous) costs of adaptation of IT systems of particular creditors and credit bureaus to new centralised principles of exchange and such an attempt would certainly take many years. The currently operating credit bureaus, particularly those associated in ACCIS (The Association of Consumer Credit Information Suppliers), are able, on the basis of already elaborated models of agreements, to easily arrange between one another the most effective method of data access, without requiring from the creditors providing data to them any additional actions related to the adaptation of their IT systems. If another exchange model was accepted, i.e. bank to bank contact or bank to pan-european central system contact, it huge outlays on the part of banks would be required, which would definitely be reflected in the costs of credit granting that would, in the end, be incurred by the consumer. R.2 The EGCH recommends that creditors be given free choice between all access models available to them, depending on the business case and having regard to data protection rules. However, the EGCH considers that the indirect access model may be the most suitable, as a first step in generating a cross-border market. Re R.2) The model of indirect access to credit information recommended by the Expert Group as specified hereinabove is fully supported by BIK as the most effective, practical, not requiring outlays on the part of creditors (and thus not increasing the costs of credit), and 7

8 already known on the European Union markets. This model ensures transparency of the system (fewer entities engaged in the information transfer), prevents fraud, ensures better consumer protection (data are transferred by a lower number of systems, which limits the possibility of human errors or system error), enables creditors to continue cooperation with a national credit bureau that has access to all credit information bureaus in the EU. An additional advantage of this model of cooperation is the fact that a national credit information bureau, in accordance with the conditions of arrangement with a foreign credit bureau, will be responsible for translating the credit report and/or for adaptation of data terminology to the national market. R.3 The EGCH recommends that national Data Protection Authorities work towards more convergence or harmonisation in the interpretation of data protection rules and in their practices in order to facilitate the process of cross-border credit data exchange. Re R.3) BIK supports the recommendation that the entities responsible in particular Member States for the protection of personal data (in Poland Inspector General for Personal Data Protection) commence joint works for the harmonisation of the interpretation applied by them of the provisions concerning personal data protection and the applied practice of authorities within that scope in order to facilitate the process of the cross-border credit information sharing. Nowadays despite the fact that the same Directive concerning personal data protection applies in the EU Member States, the practice of authorities, at least as far as access to credit information is concerned, is very different, e.g. the authority for the personal data protection in England presents a more measured approach when it comes to noticing legally justified interests of creditors as well as of borrowers consumers, whereas e.g. in France and in Poland the practice of data protection authorities is definitely concentrated only on the protection of the consumer's interest, i.e. its right to privacy excluding justified rights of creditors (e.g. in France only the negative data may be processed, i.e. data on the failure to fulfil the credit obligations, whereas in Poland, processing of positive data after the expiry of an obligation requires a written consent of the consumer and processing of negative data is possible upon the fulfilment of some prerequisites). Consequently, the last approach, contrary to its assumptions, may turn against the consumer, due to the fact as we indicated at the beginning that the lack of information on the history of a client s credit liabilities may lead to granting credit to a person who does not guarantee its repayment, which consequently results in the risk of over-indebtedness of such client or may cause higher credit costs for the consumer. In order to ensure the respect of the basic principle in the system of credit information exchange, i.e. the principle of reciprocity in the transfer of data, there cannot be such large discrepancies as specified hereinabove between Member States within the scope of personal data protection. We would like to emphasise, however, that works undertaken for the harmonisation of the principles of personal data protection obviously should not be directed at the introduction of further absolutely binding provisions concerning the limitation of the possibility of processing personal data in order to assess creditworthiness and analyse credit risk. In order to assess the creditworthiness, the bank must have access to information on the credit history of the client. If the access is possible only on the basis of the client s consent, which may be cancelled at any time (which is the case in the Polish legislation), such access is illusory, and, as a result, the bank may fail to fulfil the requirement of responsible lending. 8

9 R.4 The EGCH recommends that the Commission organises a roundtable discussion on credit data, identity theft and anti-money-laundering rules with the relevant national authorities. Re R.4) The postulate concerning the organisation, by the European Commission, of a discussion similar in form to a roundtable discussion was presented by the representative of BIK at the beginning of the Expert Group works. The suggestion on the part of BIK concerned, in particular, the organisation of such discussion with the representatives of personal data protection authorities. In the opinion of BIK, the most important matter is that the representatives of the personal data protection authorities are acquainted to the greater extent with the topics concerning needs and obligations of the financial sector within the scope of responsible lending and the need to access positive and negative credit data related thereto (in particular historical data). The Expert Group, as well as the representatives of the Commission, were interested in the initiative. Therefore, it was recommended to the Commission that the roundtable discussion cover a range of additional issues related to the access to credit data. It is essential to emphasise and indicate to competent authorities that access to credit data is important and necessary not only for the assessment of creditworthiness and the analysis of credit risk but also to counteract: extortion of loans, identity theft and money-laundering. R.5 The EGCH recommends that, in case of national differences regarding authorized purposes or actors, the use of the data should also comply with the national rules of the country where the data was collected. R.7 To promote greater cross-border responsible lending, the EGCH recommends that access to data should be possible, in line with national authorised purposes, throughout the credit lifecycle and after the expiry of the credit agreement, in particular, for the purpose of risk assessment, account management, collections, recoveries, including fraud prevention and anti-money laundering checks. Re R.5, R.7) BIK supports also the abovementioned recommendations, as it is not possible to disregard the specific internal regulations existing in many Member States and related to credit data access for specific groups of recipients or to the possibility to use such data. An example of such internal regulations is the Polish Banking Law Act, which as a specific legal act introduced a strict regime with respect to making access to data constituting a bank secret, specifying enumeratively the circle of entities authorised to obtain such information from a bank (Article 105 par. 1) and from a bureau, such as BIK (Article 105 par. 4). Until the possible amendment to the Banking Law Act that will obviously be necessary in relation to the cross-border model of credit data exchange recommended by the Expert Group Polish specific regulations must be respected. On the other hand, as indicated by Recommendation 7, it is important, in order to promote further interest and increase responsible cross-border lending, that access to credit data should be ensured (statutorily) during the term of credit agreement, as well as after its expiry, in particular for the assessment of credit risk, risk management, risk monitoring during the repayment, collection of receivables, as well as due to the necessity to counteract extortions of loans and money-laundering. Nowadays in Poland there is important limitation concerning 9

10 banks access to data after the expiry of obligation. It results from Article 105 a par. 2 and 3 of the Banking Law Act, stipulating that in the case of proper fulfilment of obligation of the client towards the bank, the client s data, after the expiry of the obligation, may be transferred only on the basis of the client s written consent, which may, however, be cancelled at any time, whereas in the case of a client improperly fulfilling repayment obligation, additional prerequisites must be fulfilled (inter alia, lapse of 60 days from the due day of obligation repayment and lapse of 30 days from the notification of the client about such fact by the bank) but, nonetheless, the maximum period of processing of data of such client without its consent is 5 years. BIK, together with the Polish Bank Association, engaging in works performed in the Ministry of Finance on amendment to the Banking Law Act, consistently postulates abolition of barriers that limit processing of credit information after the expiry of obligation, suggesting that it should be possible for banks and institutions established under Article 105 par. 4, i.e. such as BIK, to gather and process such information without the client s consent in order to assess creditworthiness and analyse credit risk, and institutions other than banks and credit institutions (generally outside the bank sector) should have access to information upon the consent of a client. In the light of Recommendation 7 such change of attitude of the Polish law maker appears to be necessary. R.6 The EGCH recommends that compliance with the non-discriminatory access to databases requirement in Article 9.1 of the Consumer Credit Directive should be considered, in particular, as providing foreign creditors access at the same level and terms as local creditors, i.e. with no additional barriers or privileges, and respecting the principle of reciprocity, without prejudice to data protection rules, as stated in Article 9.4 of the Consumer Credit Directive. R.9 The EGCH recommends that in case of cross-border data exchanges, the reciprocity principles must be preserved as a key requirement. It should be applied in a way that it also ensures non-discriminatory access to and exchange of credit data. R.10 Some EGCH experts recommend that a foreign creditor should be able to access the borrower's home credit register only if the creditor participates in its own national CR. R.11 The EGCH recommends reciprocity requirements to be proportionate. Thus, a foreign creditor accessing a borrower's data in a credit register should only report back data on that particular borrower. R.12 The EGCH recommends the reciprocity principle to be interpreted as implying that creditors, when accessing a foreign credit register, would obtain the type of data as that they provide. Re R.6, R.9, R.10, R.11, R.12) Recommendations 6, 9, 10, 11, 12 refer to one of the absolutely basic principles of credit information exchange, i.e. PRINCIPLE OF RECIPROCITY 10

11 The principle of reciprocity constitutes grounds for the activity of BIK from the beginning of its existence - therefore BIK fully supports the Recommendations of the Expert Group specified hereinabove. Recommendation 6 refers to Article 9 of the Directive of the European Parliament and of the Council 2008/48/EC of 23 April 2008 on Consumer Credit ( Directive ), stipulating that: Each Member State shall in the case of cross-border credit ensure access for creditors from other Member States to databases used in that Member State for assessing the creditworthiness of consumers. The conditions for access shall be non-discriminatory." In the opinion of the Expert Group completely shared by BIK, one of the basic conditions ensuring creditors non-discriminatory access to databases is the principle of reciprocity that has a very simple message: you get what you give. In return for obtaining data from the base a creditor is obliged to provide the same data (of the same scope) to such data base. This principle is particularly important in the cross-border access to data, as due to the different legal systems in particular Member States there are different scopes of data processing in credit databases. Some countries, such as e.g. France, Finland or Belgium, permit only negative data processing, i.e. data on late repayments of credit liabilities. In other countries, such as Poland, Germany, Great Britain, Denmark, etc. also positive data may be processed, i.e. information on the existing credit liabilities and their repayment. Under the principle of reciprocity, a creditor from France entering the data base in Poland will obtain only negative data, as in return the creditor will able to transfer to the Polish database only negative data about the client it enquires about. The Expert Group recommends that the requirement of non-discriminatory access to the databases referred to in Article 9 par. 1 of the Directive should be understood particularly as enabling access to the databases by the foreign creditors at the same level as domestic ones, that is, without additional barriers and in observance of the principle of reciprocity. The Expert Group also indicates that in the cross-border access to the credit data the principle of reciprocity has to be seen as the leading principle of such access. The basic distinctive feature of the bureaus gathering credit data from other bureaus, in Poland and worldwide, is the principle of reciprocity, which consists in that every entity which is going to assess the creditworthiness of a client on the basis of the data gathered by the credit bureau is obliged to transfer data regarding its clients to the credit bureau. Reciprocity guarantees the completeness of information, which forms the basis for reliable assessment of credibility and creditworthiness of a given person. This special feature of the credit bureaus activity has also been noticed by the World Bank in its publication Credit Bureau Knowledge Guide of 2006, in which it states that the principle of reciprocity is a key principle of the credit bureaus activity and in its main assumptions should be understood in such a way that the credit bureau members (cooperating entities) may receive from the credit bureau the credit report only if they transfer their own data to the credit bureau. For example, commercial information bureaus acting in Poland fail to meet the reciprocity requirement. Therefore in the Report of the Expert Group, in the column indicating the number of credit bureaus acting in particular Member States, it is shown that in Poland one credit bureau operates, as only the one executes the principle of reciprocity in granting access 11

12 to the positive and negative credit data. The Report also indicates that another bureau which also executes the principle of reciprocity apart from the BIK bureau is the Polish Banks Association, which runs the negative credit information base. In the European Union there are countries in which credit bureaus process solely negative data (e.g. France, Finland, Belgium) but respecting the principle of reciprocity. There are also bureaus (e.g. Schufa in Germany) which process data from the out-of-bank sector, but the bank data are made available only to the banks and credit institutions. This reflects the special legal status of the credit data and different legal solutions adopted for processing and rendering available such information. Whilst Schufa in Germany administrates different categories of information in different ways, Poland has introduced a system of statutory separation of particular databases due to the different nature of the processed data and different purposes of their availability. All credit bureaus in Europe, including the Polish Biuro Informacji Kredytowej S.A., meet the requirement of reciprocity and this principle has to be absolutely binding in the process of the cross-border exchange of credit data. The best solution, called for by BIK and ACCIS, would be that the principle of mutuality like the principle of non-discriminatory access to databases was included in the proper act implementing the Directive in Poland, and that this principle being the social norm observed by the credit bureaus as good practice became the legal norm. R.8 The EGCH recommends that the provisions in the Consumer Credit Directive regarding access to databases should be extended to cover legitimate creditors providing mortgage credit. In the view of some EGCH experts, it should also be extended to creditors providing consumer credit not currently covered by the Consumer Credit Directive. Re R.8) In principle BIK supports the Recommendation of the Expert Group that the subjective scope, particularly Article 9 of the Directive, should also include the creditors offering mortgage credits, so that such creditors have access to credit databases on nondiscriminatory conditions. BIK does not share the opinion of some Experts that the access should also be extended to entities (creditors) not covered by the scope of the Directive. R.16 The EGCH recommends that, where not yet in place, appropriate and efficient data quality control mechanisms are introduced. For cross-border data exchanges adequate cooperation should be in place between those mechanisms. Re R.16) BIK fully supports this Recommendation. The credit information bureaus being the institutions processing special personal data, as these data constitute a bank secret, observe apart from the general standards required by law high standards of data security which are required by data providers and, in particular, by banks. All agreements with the data providers include appropriate provisions in the scope of the observance of the processed data security, including, but not limiting to, the security systems, user codes, encryption keys, etc. Such types of security should certainly exist also within cross-border exchange. It seems, however, that in this scope there is no need for any new legislative solutions, as the current legal solutions (The Personal Data Protection Act/Directive) fully allow the use of the external control mechanisms. 12

13 R.13 In accordance with Article 12 of the Data Protection Directive most experts in the EGCH consider that an appropriate contribution by the consumer should be requested for database access. However, some experts in the EGCH consider that, in order to ensure better quality data, access upon request should be unlimited and free of charge, at least once a year. Re R.13) In this case BIK has an unambiguous opinion and acknowledges as the majority of Experts that due to the fact that there is the statutory obligation of rendering the data report available upon the client s request once every six months, the client should pay an appropriate fee at least covering the costs of production and provision of such a report. Taking into consideration the huge potential scale of requests (in the case of BIK these are numbers amounting to tens of millions, as such is the number of clients in the base) the cost of producing such reports every six months would be huge. Therefore, there is no reason, as is the case with any kind of administrative certificates or complaints to administrative authorities (e.g. GIODO [the Inspector General for Personal Data Protection]), that the credit information bureau acting as the data administrator should not be entitled to charge a token fee, at least covering the costs of the production and provision of such a report. Such possibility is definitely provided for in Article 12 of the Directive of the European Parliament and Council of 24 October 1995 (95/46/EC) on the protection of individuals with regard to the processing of personal data and on the free movement of such data, quoted by the Expert Group. R.14 The EGCH also recommends to ensure a certain level of convergence, at crossborder level, regarding consumers' access conditions. R.22 The EGCH recommends that it should be easy for consumers to obtain (from Credit Registers and/or creditors) information about their rights, including on the various redress mechanisms available in case of his/her data is wrong or mis-used. Re R.14, R.22) In this case we acknowledge that the Directive of the European Parliament and Council of 24 October 1995 (95/46/EC) on the protection of individuals with regard to the processing of personal data and on the free movement of such data completely and to a sufficient extent guarantees consumers free access to personal data processed by credit information bureaus. In the majority of EU Member States this access is statutorily guaranteed at least once every six months. As regards the issue of clients complaints referring to the correctness of the processed data, it is obviously credit information bureaus (also BIK) that inform clients about the complaint procedure, which is (as in the case of BIK) an element of the regulation on data availability. Such information is published on BIK websites, and a client acquaints himself/herself with it before rendering the report available. Certainly, in the crossborder aspect, the above mentioned Directive is the guarantor of the client s claims in connection with data protection. R.17 The EGCH recommends that the credit data industry develops practical solutions that would assist creditors and consumers in understanding foreign credit reports. R.20 The EGCH recommends that: - Credit Registers develop websites where their basic characteristics are clearly mentioned. Ideally, such websites should contain that information in the local language(s) and in English; - the Commission develops a portal providing links to the different national Credit Registers' websites. 13

14 Re R.17, R.20) BIK supports this initiative. Certainly, in the case of the cross-border credit data exchange such information has fundamental significance, ensures transparency of the relationships with clients, and also supports the financial education of the society, particularly in bringing attention to the importance and significance of the processed data for the establishment of the client s credit history and the significance of the history for the assessment of his/her creditworthiness and credibility. After all, the client education is one of the key conditions of responsible borrowing, referred to in Public consultation on responsible lending and borrowing in the EU. Currently, all credit bureaus publish on their websites general information on the bureau activity and on the significance of the data gathered therein in a process of striving to obtain credit, but above all, they also publish more practical information on products rendered available to clients (reports), the manner of ordering the products, the manner of interpretation of the information included in the reports, etc. The publication of such information in English is obviously crucial in the process of the cross-border exchange. The proposal to develop an appropriate portal on the European Commission website with links leading to particular credit bureaus is a very good solution. R.19 The EGCH recommends Credit Registers to seek some degree of convergence of the content of their databases at the appropriate time. In particular with reference to the concepts and definitions used (e.g. bad debt, arrears, default, loan types ), as well as to data retention periods. Efforts should take into consideration the cost and benefits of the solutions to be implemented, as well as their impact in terms of data protection. Re R.19) In this case BIK absolutely agrees with the opinion presented by ACCIS. Since the 1990s ACCIS together with its members (including BIK) has aimed at harmonising data types and definitions used in the territory of Poland. However, credit information bureaus to a great extent rely on banking legislation, whereas it is not harmonised in the territory of EU. For example, regardless of the Capital Requirements Directive, the definition of defaulting on payments used for the assessment of arrears in credit repayment may differ depending on the country and type of credit. In relation thereto, we suggest that the regulation authorities should first of all concentrate on the harmonisation of the terminology in banking/financial regulations in order to reach some extent of similarity, which would facilitate credit information bureaus in harmonising their data and definitions. We also support the second sentence of the recommendation, in which the experts emphasize the importance of the fact that before passing any new principles, the supervising authorities should assess whether there is justified need, and also assess the costs and benefits resulting from the implementation of a new principle. 14

15 II. Answering the questions asked by the European Commission in the document entitled Consultation Document on the Report of the Expert Group on Credit Histories - BIK presents the following stand: General Assessment 1. As indicated above, BIK agrees with the Recommendations of the Expert Group. 2. Additional suggestions which we would strongly like to present to the European Commission are the following: THE PRINCIPLE OF RECIPROCITY in the documents developed on the basis of the Report of the Expert Group (recommendations, positions, Directive) the Commission should recommend that the PRINCIPLE OF RECIPROCITY, like the principle of non-discriminatory access do databases, constitute a legal norm within internal regulations of the Member States. The Commission should decide about amendments to the Consumer Credit Directive in such a way that Article 9, which provides for non-discriminatory access to databases, should include the provision stipulating that the access be performed under the principle of reciprocity. The new Article 9 par. 1 might therefore be the following: Any Member State ensures the creditors from other Member States, under the principle of reciprocity, access to databases used in the Member State to assess the creditworthiness of consumers. The conditions of the access are non-discriminatory. Additionally, due to obvious reasons, in Article 3 of the Directive, which includes a lexicon of terms, there should also be the definition of the principle of reciprocity in accordance with the content developed by the Expert Group and presented in Recommendation 12 ( you get what you give ). The content might be the following: The Principle of Reciprocity means the requirement for the creditor to provide the credit information bureau with information on a borrower in the same scope as the information on this borrower was gained from the credit bureau (or through the credit bureau). THE RIGHT TO PROCESS THE POSITIVE AND NEGATIVE DATA BY THE CREDITORS AND CREDIT BUREAUS AFTER EXPIRY OF THE OBLIGATION like in the case of the principle of reciprocity, the Commission should, in a manner not raising any doubts, determine that the creditor and credit bureaus are entitled to process positive and negative credit data after expiry of the obligation towards a bank as long as this is necessary to assess the creditworthiness and analyse credit risk. Without free access to such data by the creditors there is no responsible lending. Data Access 3. In BIK s view the model of indirect access to credit data recommended by the Expert Group is an optimal solution from the access efficiency standpoint, as well as, for economic reasons. 4. We do not consider that the person to whom the data refer and are processed in a credit bureau, is in any manner, on the basis of the provisions already being in force, limited in 15