Data Sharing

Both lending institutions and industry observers are becoming increasingly enthusiastic over the growing trend to data sharing. Put simply, this is the practice of giving access to other lending institutions of all the information they hold on you. This will include information on mortgage repayments, personal bank accounts, loan and credit card repayments, etc. There was a time when, if you applied for a loan, the lender had to rely almost exclusively on the information you provided in the application to decide whether or not to go ahead with the loan. Now, lenders can find out almost everything you’ve ever done in the financial arena and judge you based on the whole picture. It is claimed that this practice will increase responsible lending practices as it becomes more difficult for an over indebted applicant to pull the wool over the eyes of a lender.

Proponents of data sharing claim that customers will benefit in a number of ways:

• Customers who have not been getting the credit they deserve are more likely to get it since lenders will be assessing them on the fullest picture possible.
• Those who are in risk of over extending themselves will not receive more credit and thus will not be as likely to default on a loan.
• Data sharing will lead to more responsible lending decisions as more information will be available.
• The overall stability of the British financial system will be increased by greater transparency and information becoming available to all financial institutions.

Many banks and institutions are already practicing data sharing and there is a lot of pressure from supporters of the practice to have this increased. However, as is perhaps to be expected, not everyone is in favor of data sharing. They believe it may lead to loans being denied to people who could afford to repay them and badly need them. Also, some banks and financial institutions have proved to be extremely reluctant to hand out the valuable information they hold on customers.

The Bank of England is in favor of the practice and seems to be successfully persuading banks to join in. The Bank of England’s position is that many consumers simply are not aware of the dangers of over indebtedness and lending institutions therefore have a responsibility to ensure they do not allow people’s finances to get out of hand. One way of doing this is by allowing other lenders to see their information, and using the information from other lenders when assessing loan applications.

It seems that for better or worse, data sharing is increasing and we all better get used to the fact. It will be some time before we see how it effects lending policies.