What influence does Schufa have on credit decisions? The case of a plaintiff who was denied financing by the bank has ended up at the European Court of Justice. The ECJ ruled on this today.
How powerful is Schufa? The credit agency uses huge amounts of data to calculate how creditworthy it considers individual consumers to be. Banks, online retailers, mobile phone providers, car dealerships, energy suppliers – they all want to know what their customers’ payment behavior is like before contracts are concluded and goods are handed over. Are the credit ratings from Wiesbaden relevant or just a component in a complex review process? This is the essence of a legal dispute on which the European Court of Justice will make a judgment this Thursday (9:30 a.m.).
What is Schufa?
The business model of the “Protection Association for General Credit Protection,” founded in 1927, includes collecting data. On this basis, Schufa provides its approximately 10,000 contractual partners – including banks and savings banks, mail order companies and energy suppliers – with an assessment of the creditworthiness of consumers if there is a legitimate interest. According to its own information, Schufa has information on 68 million people in Germany. More than 90 percent of the time “only positive information is stored.” The credit agency provides an average of 320,000 pieces of information to companies every day. In addition to Schufa, there are other credit reporting agencies: such as Creditreform and Crif.
What data does Schufa collect?
Schufa receives information from its contractual partners about opening current accounts, issuing credit cards, concluding leasing contracts and loans. Schufa also stores personal data such as name, date of birth and address, but has no information about a person’s income.
What does Schufa do with this data?
The data is used to calculate the basic score, which is updated quarterly. On a scale of 0 to 100 percent, this describes the probability with which a consumer will meet financial obligations. The higher the score, the higher the creditworthiness. Anyone who regularly pays bills late and often receives reminders will be rated worse.
Schufa does not disclose in detail how the score is calculated. Their argument: “If the calculation model were completely open, the score could be manipulated and would no longer be of any value.” However, the formula is “known to the responsible data protection authority and is monitored by it and independent scientists”. Companies and individuals such as landlords can obtain information from Schufa.
What is the case before the ECJ about?
At its core is the question of whether, in certain cases, scoring can be equated to an automated decision that affects the data subject – in accordance with Article 22 of the European General Data Protection Regulation (GDPR). And about how important a Schufa score is for a company’s decision to grant a loan or contract or not.
The background to the proceedings before the ECJ are several cases from Germany. In one of them, a plaintiff who was denied a loan asked Schufa to delete an entry and give her access to the data. Schufa told the woman her score and general information about the calculation, but not the exact calculation method. The Wiesbaden Administrative Court referred the case to the ECJ in order to have the relationship with the GDPR clarified in principle. The regulation stipulates that decisions that have legal effects for those affected must not only be made through the automated processing of data.
How have the proceedings before the ECJ gone so far?
ECJ Advocate General Priit Pikamäe did not object to the way the Schufa score was calculated in his opinion presented in mid-March. The CEO of Schufa Holding AG, Tanja Birkholz, makes it clear: “How we score is unaffected by the judgment.” It’s not about the scoring algorithm. However, the ECJ lawyer found that the automated creation of a probability value about creditworthiness already constituted a prohibited automatic decision. This also applies if third parties such as banks finally decide whether the respective consumer is creditworthy. The opinions are not binding for the judges at the European Court of Justice, but they often follow them.
What position does Schufa represent?
The credit agency argues that it does not make any decisions, for example about granting loans or concluding a cell phone contract. Schufa supports its partners with information in the decision. “Just because a score is important doesn’t mean it’s relevant,” says Schufa boss Birkholz. The decision for or against a transaction is made by the company with which a consumer wants to conclude a contract. According to the credit agency, the contractual partners also confirm this: the score is “a valuable component of risk assessment”, but not decisive.
When granting loans by banks and savings banks, for example, additional data is included, such as regular income and expenses as well as assets. In online and mail order sales, it matters whether the customer is a new or existing customer, what the shopping cart is made up of and how much the order is worth. Given the intense competition in this industry, telecommunications companies often award a contract even with a negative Schufa entry and a lower score – from Schufa’s point of view, this is also proof that their data is not omnipotent.
Source: Stern
