Financial sector gives the green light to a positive credit register

The Finnish financial sector supports the government’s plan to set up a positive credit register in Finland. The increased transparency would help Finns avoid over-indebtedness. Bank loans in Finland are paid back diligently, but bad credit histories from other sources are a growing issue.

“Most bad credit histories are payment defaults from consumer credit and fast cash loans, often combined with unforeseen life situations or severe social exclusion. We want to act responsibly and help prevent people from falling into the debt cycle where its risk is foreseeable”, said Ari Kaperi, Executive Chairman of the FFI’s Board, in the Financial Evening (Finanssi-Ilta) in Helsinki on 2 March.

Large home loans have raised concerns in Finland. Even though home loan ceilings have been in effect in Finland for only a short time, stricter limits have already been suggested. Banks always assess their clients’ repayment capacity carefully with a stress test. The test applies simulated interest rate levels, which are much higher than the actual interest rates at the time.

”It is important to increase transparency. By looking at existing credit information, banks and other responsible creditors can analyse the client’s repayment capacity even better. This is particularly useful with new clients. A positive credit register would be a good tool for this purpose, and would benefit the clients, too”, Kaperi states.

The financial sector supports the positive credit register, but not unconditionally. The sector demands that the system should be cost-efficient and designed only for its stated purpose, that the data should be comprehensive and adequately up-to-date, and that it should be maintained by a suitable authority, for example the Bank of Finland. Earlier on, the sector was sceptical about the register due to ambiguity as to how its costs and benefits would be distributed.

Comprehensive data, Kaperi clarifies, means that it should include not only bank loans but also loans granted by small creditors and finance houses outside financial groups.

“The credit register should work on the principle of reciprocity. This means the data should only be available to creditors who also submit it. Use of the data must also be strictly limited to credit granting purposes only”, Kaperi continues.

Most European countries already have a positive credit register in place, which means they record not only negative information such as payment defaults, but also positive information. In Finland, this type of information can currently be collected only with the client’s permission.

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