Sam Dunn: Will banks ever learn not to talk to strangers?

Plans announced last week by four major lenders to share information on their customers don't go far enough
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The Independent Online

As a boy, I would often hog the family record player, only for my disgruntled sister to run off and complain about me.

The argument would always end in the same way - with my gruff ceding of rights to the hi-fi, and my mother's words ringing, along with a flea, in my ears: "Share and share alike."

My attitude, it was drummed into me, would lead to only one thing: trouble. She was right, of course, but in the case of the financial services industry, this kind of wise advice is only belatedly sinking in.

Banks and other lenders have previously been reluctant to share with each other and with credit reference agencies every piece of financial data on their customers - for example, a history of late payments or credit limit breaches. This, in turn, has led them up a blind alley.

Credit checks are, by their nature, designed to help a lender form as clear a picture of potential customers as possible - and make sure it gets its money back. So when checks have been nigh on impossible to carry out properly, mistakes are made and too much easy credit is handed to the wrong kinds of customer, who can't pay it back.

Last week, Barclays became the latest lender to post higher debt write-offs from its personal customers. The bank said it had tightened lending criteria as a result.

So why the shyness of many major lenders when it comes to disclosing data? It's largely down to their previous failure to grasp the importance of gaining customers' consent to their own financial footprints being shared with others.

Before the late 1990s, when data protection legislation began to change, data between banks was generally shared only in the case of serious defaults. This meant that missed payments or other "minor" indiscretions would stay off the radar, and it allowed customers with less than glorious records of managing money to borrow even more.

More alarmingly, a number of lenders simply didn't see the relevance of either the need to disclose customers' personal financial information, or the need to gain their permission to do it. Some failed to include consent boxes on credit application forms.

Thankfully, legislative changes beginning with the 1998 Data Protection Act have helped to to make data-swapping much more common than in the past. Today, industry standards demand that all major UK lenders share "negative" data showing missed repayments and defaults.

A lot - but not all - of so-called "positive" data is also now shared. This gives basic information on how long a particular credit agreement has been running, say, or on an individual's regular payment patterns.

Last week, four lenders - Barclaycard, Abbey, Egg and the Co-op Bank - went further and revealed they would be sharing "behavioural" data on their credit card customers, such as the level of their monthly spending and repayments.

This progress should be applauded but two giant consent issues still need resolving. First, "historic" data - details of credit agreements taken out before the DPA came into force - is often not permitted to be shared. This allows borrowers who have not defaulted on sizeable loans still running to apply for more, without the new lender knowing anything about the earlier debt.

More critically, data on student loans doesn't have to be shared between the Government and lenders. This status quo is preposterous; the Department for Education and Skills should open this data up straight away.

Undergraduates need financial stability when they emerge saddled with debt from university: not more money thrown at them unwittingly from lenders.

In both cases, government and financial services officials say they're still way off any kind of solution: they need to get a serious move-on.

s.dunn@independent.co.uk

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