Credit card ‘behavioural data sharing’ – an industry initiative in support of responsible lending
By Paul McCarron, The UK Cards Association
Data sharing is well established in the UK and is a key component of the industry’s commitment to responsible lending. It has evolved over 20 years, driven forward through proactive work at an industry-level, with recent years seeing significant advances in the widespread sharing of positive data across credit cards, personal loans and current accounts.
The case for ‘behavioural’ data
Increasing external stakeholder pressure around 2005 focussed on how shared credit card data did not sufficiently differentiate between customers paying in full and those paying only the minimum payment. Furthermore, the data was of limited value in helping lenders to identify customers holding multiple cards and who may be recycling payments through ongoing and increasing cash advances.
Responding to these challenges, a number of banks signalled their intention to develop a project to address these concerns and The UK Cards Association has subsequently worked with its members and the three credit reference agencies to shape the initiative. ‘Behavioural data sharing’ is not a new scheme in itself, but an important enhancement to well established practices.
It is not always possible to anticipate how a customer’s ability to manage their debts may be impacted by a life-changing event, such as divorce, or redundancy. However, this additional data will go some way to allowing lenders to identify, at an earlier stage, those who may be showing signs of getting into financial difficulties, an aspiration which also helps the industry to deliver on commitments made around ‘early intervention’ in the 2008 version of the Banking Code.
The additional data complements the information which has been shared for many years and includes details of a customer’s credit card payments, and whether this was equivalent to the minimum payment; any changes to credit limits, the extent to which cash is withdrawn using the credit card and whether any promotional deals are in place.
The existence of a promotional rate indicator is important. It helps lenders to differentiate between someone only ever paying the minimum repayment (particularly across a number of credit cards) because they may be in financial difficulty and someone who has the means to repay more, but chooses not to because of a deal they have obtained. Some external reports have suggested that this data may be used to identify and reject so called balance transfer ‘gamers’, i.e. those regularly transferring balances between cards, but suitable additions to strict industry rules reinforce that the project is in fact very firmly focussed on the industry’s commitments to responsible lending.
So what’s next?
This feels like a significant step forward. Six credit card issuers are now sharing the additional data and all APACS members have committed to participate. The industry remains determined to continue to deliver ongoing improvements in data sharing and to maintain the long standing commitment to engage with Government in respect of facilitating access to additional data sources which could further support responsible lending, including student loans and council tax information.