Schufa: Collateral benefits through reform of the Federal Data Protection Act

Highlights: Federal government wants to rein in credit agencies and strengthen consumer rights. A single measure could result in an enormous advantage for Schufa. Some data may no longer be used in the future, including the home address, name or personal data from the use of social networks. Information about incoming and outgoing payments to and from bank accounts is therefore taboo, as is biometric data, health data or information about ethnic origin. It is unclear whether this will actually happen: the other credit agencies can change and improve their scoring.

The federal government wants to rein in credit agencies and strengthen consumer rights. A single measure could result in an enormous advantage for Schufa. The overview.

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Bell sign: in the future, the place of residence should no longer be taken into account when it comes to lending

Photo: Juergen Blume / epd / IMAGO

What is it about?

In December, the European Court of Justice ruled that new regulations must be regulated as to how customers' creditworthiness is assessed. If credit institutions rely significantly on Schufa information, this is considered an automated individual decision and is fundamentally prohibited under data protection law.

The federal government responded to this at the beginning of February and presented a reform of the Federal Data Protection Act. This contains a stricter legal framework for credit scoring and is intended to strengthen the rights of consumers against credit reporting agencies such as Schufa. (Read more here about what Schufa is, what the Schufa entry is good for and how it calculates people's creditworthiness.)

What is in the federal government's draft law?

The draft partly contains new rules on how people's ability to pay can be assessed. Some data may no longer be used in the future, including the home address, name or personal data from the use of social networks. Information about incoming and outgoing payments to and from bank accounts is therefore taboo, as is biometric data, health data or information about ethnic origin.

What is the current discussion about this?

A debate is currently sparking over the future ban on including people's addresses in their creditworthiness. Until now, this was permitted within narrow limits, explains Christine Steffen from the North Rhine-Westphalia Consumer Center: “Address data was allowed to be used, but only if the people concerned were informed in advance that their score would be created with reference to the address. I have my doubts as to whether this has always happened in practice. And that is also why it will be prohibited in the future.

What is the problem when address data is used?

Consumer advocates are critical of the use of address data. “That’s discriminatory,” says Christine Steffen. “It cannot be the case that where I live or where I live determines what my score is.” She therefore expressly welcomes the ban.

What side effects does the ban on the use of address data have?

From a data protection perspective, the new version of the Federal Data Protection Act is intended to protect consumers. But from a business perspective, credit agencies, which have so far relied primarily on address data for credit scoring, could find it more difficult - and this would give Schufa an advantage.

Schufa already has a prominent position among the credit agencies because it has a lot of consumer data. This is because it is the oldest and best-connected credit agency. Schufa has stored information about 68 million people in Germany, which is 80 percent of the population.

The ban could strengthen their position even further. It is unclear whether this will actually happen: the other credit agencies can also change and improve their scoring. “We have to watch how this develops in practice,” says Steffen. »If Schufa exploits its market power, it is a question of competition law. The Federal Cartel Office might have to take a look at that.” For the consumer advocate, however, something else is in the foreground at the moment. »The focus is on changes from a data protection perspective and the protection of consumer rights. This ban is to be welcomed.”

How does it go from here?

Nothing is certain yet anyway, as the reform of the Federal Data Protection Act has not yet been passed; the proposal under discussion is only a draft. “It remains to be hoped that the consumer-protecting rules in the draft actually come to pass in the end.” The new Federal Data Protection Act is scheduled to be passed in the summer.