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Finland mulls "positive credit register" to help curb household debt

The Justice Ministry says these times of easy-to-get credit require a register that combines information on consumers' outstanding loans with their income data.

Käsi ohjaa tietokoneen hiirtä.
Image: Tiina Jutila / Yle

Finland should establish a centralised database for positive credit information, according to a report published by the Justice Ministry on Tuesday.

The main author of the paper, Professor Erkki Kontkanen said that a positive credit register is required because the number of credit providers has increased and the process of granting credit has also been digitalised. He further cited household indebtedness and international practice as drivers for adopting the system.

The term "positive credit register" is widely used to refer to a database that credit firms can use to obtain real-time information about customers’ debt burden and income.

The purpose of the database is to provide more information about applicants’ creditworthiness than current systems, where creditors can only see possible payment defaults. A more comprehensive credit profile would allow lenders to better evaluate consumers’ solvency or ability to pay back their loans as well as control potential over-indebtedness.

Sanctions for failure to verify solvency

In his report, Kontkanen suggested that the register could contain information about credit granted to consumers as well and their incomes. The document also proposed setting up the register in conjunction with an income register due to come online in 2019. The Tax Administration’s Incomes Register Unit would be responsible for maintaining both data sets.

Information on loans granted would be based on data collected by the Bank of Finland for the purpose of monitoring and controlling the consumer credit market. The Incomes Register Unit would gather this data and new regulations would give the central bank access to necessary information from the register. However the bank would not be authorised to access data on individuals in the register.

The proposed system would require lenders to update the register with information about credit granted and to review potential borrowers’ background data before granting them a loan.

The report also recommends amending legislation to introduce sanctions in cases where lenders neglect their duty to check consumers’ credit data.

20-million-euro price tag for reforms

According to the report, setting up the database would cost roughly 20 million euros. Vero’s Incomes Register Unit and the Bank of Finland would split the costs during the establishment phase of the venture.

Annual upkeep of the register would amount to an estimated three million euros and would be covered by a fee to be paid by users of the system.

Justice Minister Antti Häkkänen said he supports the proposal for a positive credit register, adding that Finland needs better ways to curb household over-indebtedness.

“Individual responsibility is important, but now we also need government action. More comprehensive information about the ability to service loans would give financial institutions better options and the responsibility to conduct more responsible lending operations,” the minister said in a statement.

The report provides a solid foundation for further preparatory work, the minister remarked.

In 2017 an Yle survey of lawmakers revealed broad support across party lines for a positive credit register. Several EU member states already have a similar system in place.

The Justice Ministry previously looked into the matter in 2013. However then-author Professor Ahti Saarenpää did not recommend adopting the system, partly due to EU data protection regulations that were being formulated at the time.

Legal expert Jukka Lång said that new EU data protection regulations adopted in May this year would not serve as an obstacle to adoption of a positive credit register.

Individuals whose data are held in the register should have the option of checking their personal records and should also be able to obtain information about those records are used. Additionally, lenders should not be able to run credit checks without consumers’ knowledge that their credit data was being processed, Lång suggested.

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