European Court of Justice limits use of Schufa value

European Court of Justice limits use of Schufa value

Schufa assesses the creditworthiness of individual consumers on the basis of data on banking transactions, for example. Companies can use the Schufa score to assess the likelihood of someone paying their bills. It is used by banks, credit brokers and energy suppliers, for example.

In its ruling, the ECJ answered questions from the Wiesbaden Administrative Court. A woman who was unable to obtain a loan due to her low Schufa score sued the court. The ECJ now asked the Wiesbaden court to examine whether the German Federal Data Protection Act contains a valid exception to the ban on automated decisions in individual cases. If there is such an exception, it must also be examined whether the European rules for data processing are fulfilled.

The ECJ also ruled that private credit agencies such as Schufa may not store data on residual debt discharge after a private insolvency for longer than the public insolvency register. However, Schufa had already shortened this period to six months in March. This means that it no longer stores the data for longer than the public register.

In an initial assessment of the ruling, the credit agency explained that it had prepared itself together with corporate customers. The "overwhelming feedback" from customers was that "payment forecasts in the form of the Schufa score are important to them, but are generally not the only decisive factor in concluding a contract". This is why the majority of them can continue to use Schufa scores "without adapting their processes".

Michaela Schröder, Head of Consumer Policy at the Federation of German Consumer Organizations, welcomed the ruling. It is "a first important step towards strong consumer protection in credit scoring". She demanded that the legislator should now provide the credit agencies with specific guidelines so that consumers "can finally understand how their credit score is calculated."

Read also:

• This will change in December
• German activists speak out in Dubai on suffering in Israel and the Gaza Strip
• Nuclear fusion - hype or solution to energy problems?
• Budget crisis fuels debate on citizen's income - Bas warns against populism

1. The ruling by the European Court of Justice (ECJ) impacts the use of Schufa value by credit intermediaries operating within European borders.
2. The lawsuit was initiated by a woman who struggled to secure credit due to a low Schufa score, forcing her to approach the Wiesbaden Administrative Court.
3. The ECJ requested the administrative court to assess if the German Federal Data Protection Act includes a valid exception to the ban on automated decisions in individual cases.
4. The European rules for data processing must also be examined to ensure compliance if such an exception exists.
5. Schufa, as a private credit agency, must adhere to the ECJ's ruling and not store information on residual debt discharge after private insolvency for longer than the public insolvency register.
6. The Schufa value, although crucial in payment forecasts, is not the only determining factor in sealing credit agreements for most corporate customers, according to the credit agency.
7. Michaela Schröder, Head of Consumer Policy at the Federation of German Consumer Organizations, commended the ECJ's ruling, but emphasized the importance of providing clear guidelines to credit agencies, allowing consumers to better comprehend their credit scoring processes.

Source: www.stern.de