Almost every adult has had to deal with Schufa at some point. The ECJ has examined the use of scoring – and made clear guidelines. Is Schufa’s business model now shaky?
The highest European court has set strict limits on the use of the Schufa score. Companies are allowed to use the Schufa score, which quantifies people’s creditworthiness, to decide whether to enter into contracts with customers – but only if it is not the only basis for the decision. Because if this value plays a significant role in granting a loan, this represents an “automated decision in individual cases” that is prohibited under the General Data Protection Regulation (GDPR), according to the European Court of Justice (ECJ) in Luxembourg.
Banks, telecommunications services or energy suppliers usually ask private credit agencies such as Schufa about a person’s creditworthiness. Schufa then provides an assessment, the so-called score value. This is intended to show how well the person concerned fulfills their payment obligation. According to its own information, Schufa has information on 68 million people in Germany.
The background to the current decision is two cases from Germany in connection with Schufa before the ECJ. On the one hand, a woman sued who was denied a loan. She asked Schufa to delete an entry and grant access to the data. Schufa only provided the score value 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 General Data Protection Regulation (GDPR) clarified.
Violation of the GDPR
The judges now made it clear: If the conclusion of a contract depends significantly on the Schufa score, this violates the GDPR. This could have an impact on many companies that have previously relied on Schufa’s assessment.
The citizens’ movement Finanzwende welcomed the decision: “The judgment is good news for all consumers – and a serious blow for Schufa,” said consumer protection expert at Finanzwende, Michael Möller. The judge’s ruling forces Schufa to deal with its quasi-monopoly position more responsibly than before. “The power of Schufa is crumbling – it’s about time.”
Schufa itself also sees the judgment as positive because it provides clarity. “The overwhelming feedback from our customers is that payment forecasts in the form of the Schufa score are important for them, but are generally not the only decisive factor in concluding a contract,” Schufa announced after the verdict. “Therefore, the vast majority of our customers will continue to be able to use Schufa scores without adjusting their processes.”
Delay in decisions about credit or rental agreements?
Data protection expert Christoph Ritzer from the law firm Norton Rose Fulbright in Frankfurt, on the other hand, sees a “significant dilemma” for the banking industry if Schufa scores can no longer be used as easily as before. According to Ritzer, if proof of income, energy supply contracts and other data have to be presented again, this could significantly delay decisions about credit or rental agreements.
“It can therefore be assumed that providers will either have to check their customers’ creditworthiness more intensively themselves, or will ask customers to register with Schufa and agree to the scoring.” This is a typical Pyrrhic victory for consumers: “In the end, only those who allow Schufa to process and pass on their data will benefit from the ruling,” said Ritzer.
Consumer advocates are still hoping for more transparency – and for further laws: “So that consumers can finally understand how their credit score comes about, the legislature should now give the credit agencies concrete guidelines,” demanded Michaela Schröder from the Federal Association of Consumer Organizations. Federal Consumer Protection Minister Steffi Lemke (Greens) said: “We already agreed in the coalition agreement that transparency in scoring must be improved. We will now examine the relevant regulations as soon as possible.”
Storage of data from public directories
The second case concerned the storage of data from public registers, such as insolvency registers. The ECJ had to decide whether Schufa could use data on consumer insolvencies and store it for longer than the courts. The judges have now put a stop to this practice: it violates the GDPR if private credit agencies store such data longer than public insolvency registers. The residual debt exemption granted is intended to enable the person concerned to participate in economic life again; However, this is always used as a negative factor when assessing creditworthiness.
In March, the Advocate General at the ECJ was very critical of this practice in his report. Schufa then voluntarily shortened the storage period for the entries from three years to six months.
The German courts must now decide on the specific cases, taking into account the decision of the ECJ.
Source: Stern
