Privacy Act can cause an excessive loan

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Banks must make a comprehensive analysis of the personal and financial situation of individual consumers. The regulator AFM requires banks to actively protect consumers against over-credit (excessive loans). As soon as a customer applies for a loan, the lender always checks on the basis of a number of variables whether the desired loan is justified. Such an analysis involves two main issues: a calculation of how much someone can borrow responsibly and an inventory of a number of personal data. Consider, for example, income data, but also more privacy-sensitive issues such as debts and whether the spending pattern is healthy in relation to income.

With regard to the latter – the requesting of personal data – banks and credit brokers are reaching the limits set by the privacy law. In order to properly assess whether people are not too deeply in debt, banks sometimes need information that they are not allowed to request according to the GPC.

The result is that sometimes too high loans are granted to customers, while not all information was available for the bank in question.

According to the regulator, ‘active protection against over-credit’ means that all sorts of personal data are also collected, assessed and recorded during the term of the loan. This too can conflict with laws and regulations regarding privacy.

Lack of clarity in current legislation

Lack of clarity in current legislation

According to ‘privacy watchdog’ Autoriteit Persoonsgegevens, there must be a balance between the requirements of the AVG and compliance with financial legislation.

The shoe pinches in that ‘balance’. The AVG prescribes that only the necessary personal data may be processed. But what is necessary? The consumer credit market is subject to change and the standard for ‘borrowing space’ (how much a customer may borrow) is currently being partially revised. In line with this, there is currently no clear description of the law of what over-credit is. When does a customer borrow too much and how do you find out as a bank? In other words: which personal data are necessary to request and which are not?

There is a second lack of clarity. The AFM (Financial Markets Authority) regulator asks credit companies and banks every year to take a good look at their ‘codes of conduct’. The most important criterion here is whether customer interests are central. Although the AFM annually assesses whether banks are adhering to this, it still remains an ‘open standard’ that is subject to market forces and is not clearly laid down in law.

Where is the duty of care and can this be done differently

Where is the duty of care and can this be done differently

This brings us to another point that plays a role in counteracting excessive lending.

If a customer applies for a loan, the ultimate duty of care lies with the provider (the bank). The bank must, therefore, request, assess, record and properly inform the customer of all necessary data.

We at the Good Finance think that this is not always logical as a consumer credit broker. After all, with a credit application and during the term, we have the first customer contact. In our opinion, it would, therefore, be meaningful for us to take care of the duty of care ourselves. Not only when taking out a loan, but also during the term.

A good example of this is the Continuous Credit. This form of flexible credit is increasingly disappearing from the lending landscape and this is partly due to the inadequate implementation of the duty of care. Below we explain how that works.

Continuous Credit disappears partly due to lack of duty of care

Continuous Credit disappears partly due to lack of duty of care

Revolving credit is in principle a great product that many have benefited from and have benefited from. Consumers can withdraw money up to a certain amount and then do this again after repayment. That gives a lot of flexibility, especially around the holidays, during holiday periods and in the event of unforeseen expenses (car or central heating system breaks down). Consumers must take flexible interest into account and be able to handle the financial flexibility of a Continuous Credit properly.

What is the problem then? At present, regulators within the banks, regulators and branch associations of intermediaries and providers are mutually upset about who will take on the fulfillment of this duty of care with a Continuous Credit. The result is that the duty of care is still not properly in order and, as a result of this, the revolving credit disappears from the shelves. That’s a shame because many consumers still benefit from it and use their Good Credit well for many years.

Duty of care – closer to the customer?

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As a credit broker, we applied to our partner banks years ago to be allowed to provide all services that belong to a Good Credit. So also assessing the follow-up withdrawals and the necessary credit revision that goes with it.

The idea behind this service is as follows.

As soon as a customer has repaid and wants to withdraw an amount again, this is a wonderful way for us to review his / her situation and determine whether the credit still fits the current situation of the customer. We collect, assess and record all relevant data and share this with the bank for payment of the admission and fulfillment of the duty of care.

We can also check whether a follow-up recording is still in line with all current acceptance criteria of the partner bank where the Good Credit runs. Does the Good Credit still fit the income, expenses, family situation, BKR obligations, the spending objective and the course of the loan? The ultimate goal is that only responsible follow-up shots are allowed.

For our partner banks, this has the additional advantage that a decision to approve follow-up pictures is justified and reproducible.

In our opinion, this is a win-win situation for all three parties. The customer is not at risk of over-crediting, the bank can properly fulfill its duty of care and we as a broker can continue to properly monitor our Good Credit customers and record this information.

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