Schufa score must not be the sole determinant of creditworthiness
The European Court of Justice has ruled that Schufa scoring is inadmissible. At least when customers of the credit agency - such as banks - decide on loans primarily on the basis of the Schufa score. In this case, the court ruled that this is a prohibited automated decision.
Companies may not 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 permitted 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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- Following the judgments of the European Court of Justice, companies in Europe are prohibited from solely relying on Schufa scores when determining creditworthiness, as this constitutes an automated decision in individual cases.
- The decision by the European Court of Justice in the case C-634/21 has established that Schufa scoring falls under the GDPR's prohibition of decisions made solely through the automated processing of data, with certain exceptions.
- Banks, telecommunications companies, landlords, and energy suppliers frequently use credit agencies like Schufa to assess a person's creditworthiness by providing a score value, which reflects their payment behavior.
- Legal issues arose in a German case where a loan applicant requested Schufa to remove an entry and disclose the precise calculation method for their score, as the GDPR stipulates that decisions with legal effects cannot be based solely on automated data processing.
- Schufa's customers, including banks and telecommunications providers, should not assign a decisive role to the Schufa score in the granting of credit, and the Wiesbaden Administrative Court is currently considering whether this prohibition is in line with the German Federal Data Protection Act.
Source: www.ntv.de
