What Is A Credit Bureau

The role of the credit bureau
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Agenda
• Win, win - how the UK model has contributed to economic growth

• A closer look at how it works
• Introduction to the bureau in the UK
• Data sharing in the UK then & now
• How is the data used - credit - fraud - ID checking - staff
checking - other
• Regulation - how is it all controlled?
• Consumer education
© Experian Limited 2007. All rights reserved.

2
The Evolution of Data Sharing in the UK
Early 17th Century – traders meeting in

London coffee shops to share
information on credit standing of local
customers

3
Before De-regulation
 “The great unbanked” - cash society - or cheques

 Expensive and limited choice
 Credit was available to a favoured few - mainly mortgages and HP
 Decisions were often made based on personal knowledge of a bank
manager
 Mortgages were only sold by building societies
 Home ownership was 50.1% (government figures)
 Lending decisions took days or even weeks
 Everything happened face to face

4
Now
 Most people have a bank account but do not visit their bank
 58,000 cash machines
 86 machine transactions per second
 263 card transactions per second 24/7
 Average 1.6 debit cards & 2.3 credit cards
 By 2003 > 70% of households are owner occupied
 > 7000 mortgages and 300 credit card issuers
 Decisions made in minutes, any time, any day, any place

5
Then Now
 Opening a bank account 1971  Applying for a credit card 2006

• Personal introduction in branch • Research on www
• 3 weeks to open • Apply on telephone 22.00
• Use immediately to shop on line
• Applying for a mortgage 1976 • Applying for a mortgage 2001

• Save for 2 years • Research on www
• Require significant deposit • Apply on telephone
• Only 2 types of mortgage • 3 days to funds
6
World Bank Doing Business Reports 2006 & 2007
Good credit Increased chance

information of getting credit
Increased Capital moves to best

More
information
productivity business ventures
& growth

7
Role of Credit Bureaus in Financial
Markets
• Allows lenders to more accurately evaluate risks and improve

portfolio quality
• Increases credit volume / improves access to credit
• World Bank states “the best way to help borrowers is to improve

credit information and make it easier to take and enforce
collateral”
• So access to credit is a vital part of economic growth

8
World Bank
World Bank Doing Business Reports 2006, 2007 &
2008
 World Bank states “the best way to help borrowers is to improve

credit information and make it easier to take and enforce
collateral”
 Most popular reforms in 2006 were to create or expand credit
bureaux
 high risk borrowers will not get credit if protection is too strong
 Curbs new business start up
 more information at http://www.doingbusiness.org/

9
UK number 1
again!

10
The UK Economy
 Steady and sustained economic growth

 28.97 million in employment most since 1971
 Up 220,000 this year
 31.06m jobs - highest since 1959
 Unemployment % is up slightly - but more people to employ
 Confidence is relatively high
 Some contraction in revolving credit
 House prices continue to rise steadily too

11
Source ONS 13.09.2006

What is a Credit Bureau?
Granting of Credit
Information Request
Y
Credit Credit
? Grantor Performance Data Credit Bureau Applicant
N
Credit Report
Request for Credit

12
Where does it Fit into the
Lending Decision?
 Independent broker of information

provided by lenders and third parties
 Lender accesses credit bureau to check credit history of applicant
 Applicant must be notified
 EC Data Protection Directive 95/46/EC
 Credit bureau is itself regulated
 Credit bureau does NOT make any lending decisions

13
An Introduction to the Experian bureau in the UK
The Consumer Credit Bureau
 Created early 1980s Public Data - several thousand clients

 Electoral register
• Since early ‘80s
• Holds over 1.3bn records
• > 44m added annually
• Updated monthly
 County court judgments
 Other public data e.g. bankruptcies, Individual Voluntary
Arrangements
 Credit data - CAIS closed user group

15
Industry Wide Data
Building Societies Banks Telecomms providers
Finance Houses
high street retailers Utilities providers

Home shopping
Credit Card issuers

16
Purpose of Sharing Data
Data is shared for the prevention of over-

“
commitment, bad debt, fraud and
money laundering, and to support debt
recovery and debtor tracing, with the
aim of promoting responsible lending”.

17
Closed User Groups
 Reciprocal - get what you give
 2 levels of membership
• Default only
• Full
 Available in raw and summary formats
 Retained for at least 6 years
 > 70% of credit active population
 Highly predictive
 > 500 members
 > 800m records

18
CAIS
 CAIS was launched in 1983

 Started as Mail Order default data sharing
 Soon moved into general financial Industry default data sharing
 Data volumes and clients quickly grew over the next few years
 The first CAIS Flags were introduced in 1994
 Experian lead industry quality initiatives 1995/6
 SCOR established in 1998
 First Principles of Reciprocity agreed in 1998
 ICO requirements for defaults - issued in 1999

19
CAIS – 21st Century
 First phase Third Party Data requirements from 24th October 2001
 CAIS Enhancements introduced in 2004 to support increased current

accounts sharing
 Further CAIS Enhancements in 2006 to support the APACS Behavioural

Credit Card
Sharing Initiative
 New CAIS layout summer 2007 – enhanced for new product descriptions

20
The future…
 CAIS developments in last 6 months:


Overnight loading of client monthly updates
 Improves data accuracy
 Facilitates faster client alerts
 Helps reduces consumer queries

New company and account types
 Segmentation of CAIS from 25 to 70+ products / sectors
 Allows for improved predictability
 Improves data accuracy
 Compliant descriptions for new data assets

21
More data - CAIS
New Credit and Storecard Data

 The APACS initiative for the sharing of behavioural data on credit cards is
underway, this involves the sharing of the following fields on all credit card
accounts:

Payment Amount

Previous Statement Balance

Number of Cash Advance

Value of Cash Advances

Minimum Payment Indicator

Promotional Rate
Home Credit Lenders

 The Home Credit Competition Commission has confirmed that home credit
data must be shared with bureaus by June 2008

22
Consumer Credit Bureau statistics
Nov 2007 Nov 2003

Electoral Roll 45.5m 44.5m
Rolling Register updates 2.1m N/A
County Court Judgments 4.74m 4.53m
Bankruptcy 258,000 146,000
CAIS 402m 297m
default records 25.8 19m
Credit Application Data 174m 84.4m
Alias/Associations 125m 89.4m
Address Links 319m 146m
CIFAS (Known frauds) 504,000 322,000
CML (Council of Mortgage Lenders) 100,000 240,000
Total 1051m 686m

23
But what does this mean to our
clients?
The Credit Bureau
“This Solution ticks all the boxes – staff satisfaction, customer services and
improving our bottom line. By using Experian’s data via the web as part of the
qualification process we have greatly reduced the amount of work our
underwriters spend on applications that are subsequently rejected”
The Credit Bureau and Delphi for Customer Management
“Both this product, an our ongoing relationship with Experian, have proven
productive and successful. A regularly updated view of customers credit
commitments and behaviour is essential to both effective credit risk
management and to discharge our duties as responsible lenders”
The Credit Bureau, Authenticate and Detect
“The use of Experian products has helped reduce the online fraud by 88%,
saving millions of pounds. The system provided by Experian has been extremely
powerful – it brings together and automates all the credit risk and fraud elements
and is very flexible”

24
Data Security
Security is Security is Security can

important to important to our contribute to the
our clients and Regulators corporate bottom
Experian and top line
Implement a sound
Understand the security program to
threats facing your meet the regulatory
organization and provisions and your Maximise the
how they affect your customers contributions to
businesses expectations your organisation
Never take security for granted:

“The impacts to your business can be “colossal.”
25
Derived Intelligence
 Searches (Footprints)
• Credit applications - c150m pa
• Quotations
• ID
• Consumer file requests - c2m pa
 Links
• Names
• People
• Addresses

26
Data Protection in practice
 CRA clients search databases with consent of data subject

 They notify data subjects what data they will get, how they will use it
and what data they will supply and how others will use that.
 Consumers may request their file for a small charge
 File shows all financial data and who has searched, and why.
 Only authorised personnel may access consumer data - with the
consent of the data subject
 It is monitored and reported
 Client use is strictly controlled e.g. use as a marketing source is not
permitted
 Breach is a criminal offence

27
How is the Bureau Data Used?
 Varies by purpose and notification
 Non credit data
 Public
 Negative
 Default
 Full
 Raw or scores / subsets only

28
The regulatory environment
How does it really work?
UK Consumer Policy
 Partnership based on mutual benefit
 Extensive consultation
 Public consultation and expert working groups
 Long lead times
 Learn from experience
 Self regulation
 Regulatory Impact Assessments (RIAs)
 Avoid unintended consequences

30
Overriding policy of Protection of
protecting public interest for
individual privacy BALANCE collective good -
fraud, economic
• Privacy for
drivers, free
privacy’s sake
access to goods
and services
Highly prescriptive
regulation and
Consumer
controls
awareness and
encouragement to
Paternalistic - the accept personal
consumer cannot responsibility
protect themselves
BALANCE
Liberal - free
choice
31
Data Protection Principles
 Fair and lawful processing

 Specified and lawful purposes
 Adequate, relevant and not excessive
 Accurate, and where necessary kept up to date
 Not kept for longer than necessary
 Rights of data subjects
 Security of data
 Data transfers outside the EEA

32
The Principles of Reciprocity
 Started 1999
 Cross industry agreement on data sharing
 Code of conduct embedded in contracts
 Administered by Steering Committee on Reciprocity (SCOR)
 Continually updated to support market
 Documents available at
http://www.experian.co.uk/corporate/compliance/datasharing/index.h
tml

33
Steering Committee on Reciprocity -
Representation
 Association of Payment and Clearing Services (APACS)

 British Bankers’ Association (BBA)
 Consumer Credit Association (CCA)
 Consumer Credit Trade Association (CCTA)
 Council of Mortgage Lenders (CML)
 Credit Services Association (CSA)
 Finance & Leasing Association (FLA)
 Mail Order Traders’ Association (MOTA)
 3 x credit reference agencies

34
Credit reference agencies and the Consumers
Some of the Myths
 The blacklist
 Affected by previous occupants
 Red lining
 Secrecy - ‘the X files’
 We decide who gets credit
 Credit rejections are held on your report

36
Consumer Literature
 Your credit report explained

 The credit reference agency explained
• A guide for consumer advisers:
 Journalists
 MPs
 Clients
 Debt counsellors
 …and anyone whose has a role advising the
consumer

37
Financial Education
Young people are tomorrow’s consumers
 Times 100 Case Study (www.tt100.biz)
 Getting Credit: A Beginner’s Guide
 Young Consumers of the Year
 FSA Workplace financial capability project
 www.experian.co.uk/learningzone

38
Any Questions?

What Is A Credit Bureau

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The role of the credit bureau

• Win, win - how the UK model has contributed to economic growth

© Experian Limited 2007. All rights reserved.

Early 17th Century – traders meeting in

© Experian Limited 2007. All rights reserved.

 “The great unbanked” - cash society - or cheques

© Experian Limited 2007. All rights reserved.

© Experian Limited 2007. All rights reserved.

 Opening a bank account 1971  Applying for a credit card 2006

• Applying for a mortgage 1976 • Applying for a mortgage 2001

Good credit Increased chance

Increased Capital moves to best

© Experian Limited 2007. All rights reserved.

• Allows lenders to more accurately evaluate risks and improve

• Increases credit volume / improves access to credit

• World Bank states “the best way to help borrowers is to improve

• So access to credit is a vital part of economic growth

© Experian Limited 2007. All rights reserved.

 World Bank states “the best way to help borrowers is to improve

© Experian Limited 2007. All rights reserved.

© Experian Limited 2007. All rights reserved.

 Steady and sustained economic growth

© Experian Limited 2007. All rights reserved.

Source ONS 13.09.2006

Request for Credit

© Experian Limited 2007. All rights reserved.

 Independent broker of information

 Lender accesses credit bureau to check credit history of applicant

 Applicant must be notified

 EC Data Protection Directive 95/46/EC

 Credit bureau is itself regulated

 Credit bureau does NOT make any lending decisions

© Experian Limited 2007. All rights reserved.

 Created early 1980s Public Data - several thousand clients

© Experian Limited 2007. All rights reserved.

Building Societies Banks Telecomms providers

high street retailers Utilities providers

© Experian Limited 2007. All rights reserved.

Data is shared for the prevention of over-

© Experian Limited 2007. All rights reserved.

© Experian Limited 2007. All rights reserved.

 CAIS was launched in 1983

 Soon moved into general financial Industry default data sharing

 The first CAIS Flags were introduced in 1994

 Experian lead industry quality initiatives 1995/6

 SCOR established in 1998

 First Principles of Reciprocity agreed in 1998

 ICO requirements for defaults - issued in 1999

© Experian Limited 2007. All rights reserved.

 CAIS Enhancements introduced in 2004 to support increased current

 Further CAIS Enhancements in 2006 to support the APACS Behavioural

© Experian Limited 2007. All rights reserved.

 CAIS developments in last 6 months:

© Experian Limited 2007. All rights reserved.

New Credit and Storecard Data

Home Credit Lenders

© Experian Limited 2007. All rights reserved.

Nov 2007 Nov 2003

© Experian Limited 2007. All rights reserved.

© Experian Limited 2007. All rights reserved.

Security is Security is Security can

Never take security for granted:

© Experian Limited 2007. All rights reserved.