The intent is to provide more consumer protection vis-a-vis Schufa and Co. (Co. meaning German Credit Bureaus).

Whether it is zip code or bank details: consumers’ creditworthiness often depends on questionable factors. To change that, the federal government intends to tighten the regulations for credit bureaus. 

The rights of consumers towards credit reporting agencies such as Schufa are to be strengthened through a reform of the Federal Data Protection Act. The federal cabinet has passed a corresponding draft law.

The federal government is reacting to a ruling by the European Court of Justice (ECJ). The highest European court had ruled that checking consumers’ creditworthiness was only permitted within narrow limits. The data that, according to the draft, may not be used in the future so that companies can assess a person’s ability and willingness to pay includes, among other things, the home address, name, or personal data from the use of social networks. Information about incoming and outgoing payments to and from bank accounts is also taboo.

The background to the ECJ decision in December were two cases from Germany. A woman who had been denied a loan sued. She asked Schufa to delete an entry and grant access to the data. Schufa then only provided the score value and general information about the calculation, but not the exact calculation method.

The Schufa score also often plays a role in assessing the solvency of prospective tenants. “In the future, consumers will have to find out straight away which data and categories of data affected their score, how they were weighted and what significance the score has,” said Environment and Consumer Protection Minister Steffi Lemke (Green Party).

Measure against discrimination

Possible discrimination through scoring is now being put a stop to. For example, the planned law, which still must pass the Bundestag and Bundesrat, excludes the possibility that the postal code decides whether someone is classified as solvent or not.

Interior Minister Nancy Faeser said the draft clearly stipulates that data on ethnic origin and health data may not be included in the automated calculation of solvency.

Facilitation for research

The reform of the Federal Data Protection Act is also intended to make research projects easier. According to the Ministry of the Interior, companies and institutions that process data for historical, scientific, or statistical purposes will in future only have to contact one supervisory authority as a contact person when it comes to data protection.

Source: [German language only ] Tagesschau

BIIA Editorial Comment: These proposed changes to a credit reporting marketplace that is already well regulated could severely restrict the use of data that is critical for lenders in identifying individuals and the making the right credit decisions. The proposed restriction on the use of information on incoming and outgoing payments to and from bank accounts would appear to be in contradiction with regulatory developments elsewhere that enable this data to be accessed and used to assist in the provision of financial services to individuals (such as PSD2/3) and the proposed Open Banking regulation.