Schufa score must not be decisive for creditworthiness
The European Court of Justice has ruled that Schufa scoring is illegal. At least when customers of the credit agency - such as banks - decide on loans based primarily on the Schufa score. In this case, the court ruled that this is a prohibited automated decision.
Companies are not allowed to decide whether to conclude contracts with customers solely on the basis of an automated assessment of creditworthiness by Schufa. The European Court of Justice ruled on Thursday in Luxembourg(case: C-634/21|) that the so-called Schufa score must be regarded as a fundamentally prohibited "automated decision in individual cases" if Schufa's customers assign it a decisive role in the granting of credit.
Banks, telecommunications services, landlords or energy suppliers usually ask private credit agencies such as Schufa about a person's creditworthiness. Schufa then provides an assessment, the so-called score value. This is intended to show how well the person concerned fulfills their payment obligations.
The background to the proceedings before the ECJ is a case from Germany. In one such case, a person who had been refused a loan asked Schufa to delete an entry and grant him access to the data. Schufa provided him with his score value and general information on the calculation, but not the exact calculation method.
Automated processing of data prohibited
The Wiesbaden Administrative Court referred the case to the ECJ in order to clarify the relationship with the General Data Protection Regulation (GDPR). The GDPR stipulates that decisions that have legal effect on people may not be made solely through the automated processing of data. The judges in Luxembourg have now ruled that scoring falls under this and is only permissible under certain conditions. Schufa's customers are not allowed to give the score a decisive role in the granting of credit.
The Wiesbaden Administrative Court must now decide whether the German Federal Data Protection Act contains a valid exception to this prohibition that is in line with the General Data Protection Regulation. Schufa welcomed the ruling: it provides clarity on how scores may be used in the decision-making processes of companies in accordance with the GDPR. "The overwhelming feedback from our customers is 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," Schufa announced after the ruling.
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- The Federal Court of Justice in Germany will now decide if the German Federal Data Protection Act contains an exception to the European Court of Justice's ruling, which declared that Schufa scoring is only permissible under certain conditions due to its classification as an automated decision with legal effects.
- Despite the European Court of Justice's ruling, the Wiesbaden Administrative Court referred a case from Germany to clarify its relationship with the General Data Protection Regulation (GDPR), which prohibits decisions that have legal effects on people being made solely through the automated processing of data.
- Consumer centers and Advisors may need to advise consumers on the implications of the European Court of Justice's judgment, as banks, telecommunications services, landlords, and energy suppliers will need to modify their credit approval processes to avoid using the Schufa score as a decisive factor, due to potential legal issues.
- The European Court of Justice's judgement has the potential to impact numerous types of companies, including financial institutions, utility providers, and landlords, by requiring them to consider alternative methods of assessing creditworthiness, beyond using automated Schufa scoring, in the decision-making processes.
- The European Court of Justice's ruling on the Schufa score has echoed across European legal jurisdictions, with the GDPR stipulating that decisions that have legal effects on people may not be made solely through the automated processing of data, which may result in similar cases emerging in European Consumer centers and advising on the legal implications.
Source: www.ntv.de
