The new data sharing - What will it mean for your loan?
The idea of data sharing is growing in popularity among lending institutions, creditors, and industry observers. While in the past, limited data on a person was shared, now more complete records are shared when a person applies for a loan.
Information may be shared in relation to mortgages, personal banking, and personal loans. The idea is that with a widespread practice of data sharing, the mounting problem of over-indebtedness may be reduced and responsible lending practices increased.
How does data sharing work? Information currently available to lenders through credit bureaus is provided on a reciprocal basis with companies providing the same depth of information that they receive.
Proponents argue that this will benefit customers in two ways: Those who have not received the credit deserved will be able to do so with data sharing, and those who are over-indebted will not be able to obtain additional debt, thereby placing them in less risk of defaulting on a loan.
Proponents also argue that data sharing will help the overall problem of people having too much debt. Some companies are already practicing data sharing, and are urging the Big Four banks to do more to improve the levels of data available to other registered financial providers.
Data sharing is also believed to be an effective protective measure for British financial institutions as the reduction in customers' over-indebtedness reduces lenders' overall risks of multiple defaults.
Data sharing is not welcomed by everyone, of course, for a variety of reasons. Opponents argue that customers may be denied loans when they are in fact able to pay, and this can put some people in difficult situations when a loan is considered a necessity. Additionally, not all lending institutions are willing to part with valued customer information.
Recently, the Bank of England (BoE) has been putting on the pressure for increased customer information sharing, and lenders seem to be responding. BoE agues that many customers are not aware of the risks in taking on too much debt, and lenders who promise "cheap" deals are encouraging customers to take on more debt than they can afford. In response, other lenders are changing their bad debt provisions in an effort to discourage over-indebtedness and to encourage more responsible lending.
Only time will tell if increased data sharing and changes in lending policies will alleviate the problem of over-indebtedness. Analysts note that the problems are primarily associated with credit cards and unsecured loans rather than mortgages.