What does the ruling on the Schufa score mean for consumers?

What was the case before the ECJ about?

European Court of Justice - What does the ruling on the Schufa score mean for consumers?

The specific case was referred to the European Court of Justice (ECJ) by the Wiesbaden Administrative Court: A customer had not been granted a loan because her Schufa rating was too poor. She had requested access to her data from Schufa, but only received the score value and general information on the calculation. This is because it is not known exactly how the score is calculated. The hearing therefore dealt with a fundamental question: to what extent does the scoring model violate EU data protection regulations?

Schufa Holding AG is a private company. The credit agency collects and stores consumer data and uses this as the basis for creating a credit score. According to its own information, Schufa has information on 68 million people in Germany. The score says something about a person's creditworthiness and often has a major influence on whether someone gets a contract or a loan - as in the case of the customer in question. Banks and savings banks require the score, as do other companies that offer energy and cell phone contracts, for example.

Consumers can hardly avoid scoring. In many cases, they have to agree to their creditworthiness being checked by Schufa before a contract can be concluded.

How did the ECJ rule?

Schufa's current scoring procedure violates the General Data Protection Regulation (GDPR) - on one condition: the Schufa score must be a decisive criterion in the contractual partner's decision, i.e. whether or not the bank grants a loan, for example. In the plaintiff's case, it must be assumed that the score was decisive, said the judges. The automated collection of data could discriminate against people and was therefore unlawful. This is because the EU General Data Protection Regulation prohibits precisely this automated collection if it has legal consequences for the individual.

The ECJ has therefore shown Schufa clear limits. The case described above must now be finally heard in Wiesbaden, as the ECJ's ruling initially relates to European law. However, it is likely that the German law is in breach of European law.

What does the ruling mean for consumers?

Until final clarification, the ruling has no concrete consequences for the time being. However, it is considered to point the way forward, as the basis for higher transparency requirements has now been created. It must now be explained how the processing of data works.

The German Federation of Consumer Organizations (Vzbv) is therefore generally positive about the ruling. "Until now, credit agencies only had to provide very limited information about their scoring procedure," Johannes Müller from the Vzbv told Capital. The ruling has now set the course for more transparency. "Consumers must now be informed about the logic of the procedure. The aim must be a comprehensibly presented scoring result." Müller does not believe that companies will become more suspicious as a result of the ruling and reject customer applications more frequently.

The Finanzwende association also believes that the ECJ's ruling is correct. "Schufa's power is crumbling - it's about time," says Michael Möller, consumer protection expert at Finanzwende. "Schufa only ever reveals parts of its scoring procedure and otherwise invokes business confidentiality," says Möller. This has little to do with the transparency offensive that the company has promised. "It follows from the court ruling that there are limits to the 'business secret' argument - namely where it affects the interests of consumers."

Schufa itself welcomes the ruling in principle because it provides clarity. However, it does not intend to restrict its business practice for the time being, it said in a statement. In it, it questions the assumption that the score plays a decisive role in corporate customers deciding whether or not to offer consumers certain services. "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," said Schufa.

How long can Schufa store entries?

In a second case, the ECJ also ruled on the question of how long credit agencies may store data from public directories such as insolvency registers. Previously, Schufa and the like often stored data on private insolvencies for up to three years. The judges had to decide whether Schufa was allowed to do this and store data for even longer than the courts. The lawyers' answer: no, it is against the GDPR for private credit agencies to store such data for longer than public insolvency registers. This is because the discharge of residual debt is intended to enable the person concerned to participate in economic life again; however, this is always used as a negative factor when assessing creditworthiness.

Schufa had already changed this practice in the spring of this year, after the Advocate General at the European Court of Justice had already made very critical comments on the storage period in his opinion in March. As a result, Schufa and Creditreform, another private credit agency, voluntarily reduced the storage period for entries from three years to six months.

This article first appeared on Capital

Read also:

Under the data protection law, Schufa's current scoring procedure might be considered unlawful if the Schufa score is a decisive factor in a bank's decision to grant a loan in Wiesbaden, as determined by the European Court of Justice.
The customer in question's case, referred to the ECJ by the Wiesbaden Administrative Court, involved a dispute over access to her credit data from Schufa, a credit agency based in Wiesbaden, whose scoring model was questioned for potentially violating EU data protection regulations.
The German Federation of Consumer Organizations (Vzbv) considers the ECJ's ruling against Schufa's scoring procedure to be a step towards higher transparency requirements, recommending that consumers should be informed about the logic behind the scoring result and how the processing of their data works.

Source: www.stern.de