9 Questions for SCHUFA

About the future of SCHUFA scores, consumer protection, and ESG

Consumer protection, ESG, CJEU ruling
9 Questions for SCHUFA

Consumer Protection and ESG

#1 In many countries, consumer protection in financial services is becoming increasingly important (e.g., Consumer Duty in the UK). Consumer protection also plays a significant role within ESG. Do you anticipate further tightening of consumer protection regulations in Germany and Europe?
SCHUFA At the EU level, there was a significant change recently with the new Consumer Credit Directive, aimed at enhancing consumer protection in credit lending. This change was necessary to adjust regulations to new developments in credit lending. The market has significantly changed in recent years due to new offerings such as online loans and Buy Now, Pay Later options. SCHUFA welcomes the new Consumer Credit Directive as it mandates creditworthiness checks for micro-credit lenders for the first time.#2 SCHUFA now stores data after a personal bankruptcy for only six months instead of the previous three years. How does this affect the scoring?

SCHUFA By deciding to shorten the storage duration of debt relief data in spring 2023, amidst ongoing court cases, SCHUFA aimed to provide clarity and security for consumers. Generally, the more relevant data available, the more accurate the score and the more precisely it reflects actual creditworthiness. However, due to the low number of stored debt relief cases relative to the entire SCHUFA data set, this reduced storage period does not fundamentally impact the SCHUFA scoring process and its significance. Nonetheless, it increases the individual default risk for the inquiring company, as a customer's creditworthiness cannot be fully assessed, raising the personal risk of consumers becoming over-indebted again.#3 Has the payment behavior of consumers changed in light of the current difficult economic conditions and crises? If yes, how?
SCHUFA The financial situation remains tense and has even worsened for a portion of the population, as our latest consumer survey in November 2023 shows. Although our data indicates that the number of newly reported payment disruptions is below the level of the previous year, this is because people have adjusted their consumption behavior to their difficult financial situation, consuming less. However, our survey also shows that many people currently cannot set aside money, reserves are further depleted, and there is an increasing need for financial support.#4 Are there industries that currently benefit particularly from the SCHUFA score or use SCHUFA services more than before?
SCHUFA Across industries, we observe an increasing demand for creditworthiness information, as well as solutions around KYC (Know Your Customer), compliance, and fraud prevention.#5 Does SCHUFA plan to adapt its services to the changing needs and necessities of banks and lenders? If yes, what changes might those be?
SCHUFA We are in continuous dialogue with our customers to support them optimally with our solutions around creditworthiness, identity, fraud prevention, and compliance. In recent years, for example, we have expanded our fraud prevention solutions as fraud becomes an increasing issue in the digital age. The topic of "Know Your Customer" (KYC) has also become increasingly important in recent years (e.g., sanctions against Russia), for which we offer corresponding solutions. Most recently, we developed the SCHUFA ESG Solution, a platform that enables the capture and exchange of ESG-relevant data for credit institutions, investors, and companies.#6 Can you provide a brief overview of what the solution helps with?
SCHUFA The SCHUFA ESG Solution allows obligated credit institutions, investors, and companies to easily, efficiently, and structurally meet current and future regulatory requirements. The platform facilitates easy data exchange between credit institutions, investors, and companies, automatically calculates the required metrics, and helps avoid duplicate data collection. Obligated companies save time, effort, and costs.

SCHUFA

SCHUFA reviews an average of 320,000 credit inquiries daily. They create credit scores and offer solutions to help individuals and companies protect against identity theft and fraud, contributing to money laundering prevention. Additionally, SCHUFA provides a platform for sharing sustainability data across industries. The company has about 900 employees across seven locations and made around 267 million euros in revenue in 2022.

#7 What metrics are included?
SCHUFA The SCHUFA ESG Solution supports companies in implementing complex regulatory requirements, whether meeting their own reporting obligations or complying with third-party requirements. Companies collect sustainability-relevant data for their business in a guided process and select the required framework. Based on this, the share of taxonomy-eligible and compliant activities in revenue, CapEx, and OpEx, as well as relevant ESG KPIs, are automatically calculated and converted into a reporting-suitable format. The results can be shared directly with auditors and made available to banks or investors.

SCHUFA on the CJEU ruling

#8 The European Court of Justice (CJEU) decided in December that the SCHUFA score cannot be the sole criterion for a credit decision. What does SCHUFA say about the CJEU ruling?
SCHUFA SCHUFA welcomes the ruling of the CJEU on scoring. It answers important questions on how payment forecasts (scores) can be used in companies' decision-making processes in accordance with the General Data Protection Regulation (GDPR). The ruling states that using scores in certain cases constitutes an automated decision, and then Article 22 GDPR applies.#9 How is it ensured that the SCHUFA score remains a useful tool for lenders without serving as the sole basis for decision-making?
SCHUFA Even after the current CJEU ruling, it is fundamentally possible to base credit decisions significantly on a score value. If a company's credit score plays a significant role in deciding against a contract, affected companies may need to make adjustments. Article 22(2) GDPR provides legally compliant ways to use scores significantly in decision-making processes, such as consumers' consents to the process or the necessity for contract conclusion. A national law can also regulate the creation and use of scores if it meets certain GDPR requirements. On February 7, 2023, the Federal Government decided on the draft of the First Act to Amend the Federal Data Protection Act (BDSG) presented by the Federal Minister of the Interior and Community. This draft law re-regulates the legal foundations for scoring and strengthens consumer rights.