They know you so well, but lenders want the whole history of consumers
Student debts remain a gaping omission in the pictures built up of our 'risk' as borrowers. Is that set to change?
Sunday 05 March 2006
Can you have too much of a good thing? Not, you might think, when the subject is sharing data on debt.
The more information a bank, building society or credit provider has on an individual, the better it can make a decision about whether to lend money.
Along with "negative" data such as frequency with which an applicant has missed payments in the past, lenders including Barclaycard and Egg now share "positive" information such as how much is spent on a card each month, the size of the repayments, and changes to credit limits.
Yet the financial services industry still suffers from two gaping holes in the data sharing between lenders and the three credit-reference agencies - Experian, Equifax and Callcredit - that supply them with details of our finances.
First, data on any student loans you may have - their size and your repayment history, whether good or bad - is not being passed on by the Student Loans Company (SLC) to the agencies.
Despite growing pressure on the Government from both consumer bodies and lenders to change this - particularly with the arrival of top-up fees - the Department for Education and Skills (DfES) is sticking to its policy of keeping this information to itself.
Its decision was originally based on student loans being set up as a different kind of debt - one owed to the taxpayer, not a normal commercial firm, and charged a very low interest. Today, they are paid off at a rate of 9 per cent of any salary above £15,000.
But the credit industry's desire to get a grip on the problem of bad debt, and be more responsible lenders, is adding to the pressure for a fuller picture.
Already, banks are asking the Government for details of student loan debt where an individual is defaulting on other repayments.
"We have not, so far, agreed to [share this data] but are keeping the policy under review," says a DfES spokeswoman.
Citizens Advice, one of Britain's biggest debt advice bodies, wants lenders to take as much information into account as possible "so that people aren't taking on too much debt that they can't afford to pay back", a spokesman says.
This view is backed by Martin Hall, the director-general of the Finance and Leasing Association, a credit industry body. "Knowing whether a young person has a student loan, and whether it is being paid back or not, is useful."
But not everyone supports the idea of student loan disclosure. Malcolm Hurlston, the chairman of the Consumer Credit Counselling Service, says the value of data sharing could be "exaggerated". "It's more a question of which piece of information is the right one, and is it predictive" of a borrower's behaviour?
Mr Hurlston wants to see research into data sharing and whether existing information could be used in better ways in giving a picture of consumers as a lending risk.
For example, with credit card customers, lenders should give details of where only the minimum repayment - usually 2 per cent - is being made each month, he suggests. "It's fairly clear that people with eight credit cards making only the minimum monthly payments" are getting into difficulty.
The second omission from the data at the credit- reference agencies, says Neil Munroe of Equifax, is information about credit agreements made years ago.
In the mid 1990s, many lenders didn't foresee the credit boom that was round the corner, and no authorisation was sought to put data-sharing arrangements in place.
That means the agencies and the lenders are in the dark about what may be a significant part of some consumers' credit history.
The Department of Trade and Industry is now to hold a consultation to try to unpick the legal difficulties of reversing this situation - particularly the issue of invasion of privacy.
The consultation is expected to start at the end of next month.
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