28 October 2002
Our Ref: FIN/WKC/091

Mr Raymond Tang
Privacy Commissioner for Personal Data
Unit 2001, 20/F, Office Tower, Convention Plaza,
1 Harbour Road,
Wanchai, Hong Kong

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Dear Mr Tang

Consultation on the Sharing of Positive Credit Data

Thank you for inviting the Chamber to respond to the above consultation paper. We have consulted our members, especially of the Information Services Committee, SME Committee and Financial Services Committee, and would like to submit our comments as follows.

The proposal

We have examined the detailed proposals and the consequent changes necessary for the current Code of Practice on Consumer Credit Data. We do not have strong views on the proposals themselves. If sharing of positive credit data were to be pursued, then it would be reasonable to include the scope of credit data as suggested. The system should not be so restrictive as to defeat the purpose of credit information sharing, while at the same time respecting the individual's rights to privacy in accordance with the Data Protection Principles. In this regard, we find the safeguards as proposed ¡V measures regulating credit provider and credit reference agency, as well as the choice for consumers to opt out upon full repayment of the account ¡V reasonable and adequate.

We would, however, raise a concern which has been drawn to our attention by our SME members. This relates to the nature of information which is shared between the credit reference agency and the credit provider. As far as the consumer is concerned, the information collected by the credit reference agencies, as defined under the "scope of new credit data" in the consultation paper, should be matters of fact. The information provided by the credit reference agency to the credit provider will be a "value-added" form of the collected data but should still remain matters of fact. There is, however, a possibility that in the course of credit scoring, matters of opinion may be introduced, e.g. some form of profiling of the consumer arising from the data provided. Some explicit safeguards should be considered to ensure that the value-added elements on the credit data be accessible to the consumer. For example, a possible requirement to have the data cross-signed by the consumer could be examined.

The above comments were made with the assumption that the case for sharing of positive credit data has been established. But that is not a straightforward matter, as the lengthy discussion in the consultation paper testifies. The crux of the matter lies in the rationale for introducing sharing of positive credit data, rather than in the technicalities of privacy safeguards were this to be introduced.

The rationale

The arguments for and against the introduction of positive credit data sharing have been detailed in the consultation paper. We would like to highlight a concern which was briefly mentioned in the paper, namely, that banks might began to call in loans of customers they deem credit unworthy. The unintended consequence is that before preventing future bankruptcies, the new system will first trigger more bankruptcies. To address this, the consultation paper has proposed a two-year transition period during which financial institutions cannot access and use the newly available positive credit data for the purposes of considering any review or renewal of existing credit facilities (including increase in existing credit limits) except for the purposes of considering new credit applications. Nevertheless, some small and medium enterprises remain concerned, particularly those for which individual credit and company credit are closely related to each other.

In our consultation we noted a sentiment from some sectors that the present problem of over-extended credit is of the financial industry's own making, a result of their over-aggressive campaign to sign on credit card customers. If this were true, the primary effort in the prevention of bankruptcies should lie with the financial industry and the banking regulator, and the rationale for introduction of positive credit sharing might become questionable. The Chamber does not subscribe to the view that lenders are all to blame for the present problem, but it would appear that the sentiment described above should also be addressed.

Another ground for introducing the current proposals is to encourage better personal financial management. While there is little disagreement about promoting good personal financial management, a concern has been raised by our SME members regarding a possible impact of the current proposals. Although the current code on sharing of credit data applies to individual and not to commercial entities, in practice it is not uncommon among SMEs to borrow loans against their own personal assets, especially in the form of mortgage, to support their business. There is thus a link between personal borrowing and the SME's business operation ¡V the bigger issue is that of good corporate governance among SMEs. There is a view that until a good corporate governance regime is established, SMEs would benefit from flexibility in the interface between personal and commercial credit. Some SMEs have therefore expressed the view that they have not been totally convinced about the need for positive sharing of credit data.

Conclusion

The Chamber understands that there are different views on the merits or otherwise of the proposal to introduce positive credit data sharing, and some of the concerns have been described above. As an advocate of good business practice, we are inclined towards supporting the proposal. We believe it will help facilitate the functioning of credit reference agencies and eventually contribute towards good credit behaviour in the market place. At the same time, we recognise the concerns and would call for a strengthening of the regulatory oversight of the financial industry over their credit businesses.

I hope you will find the above comments useful.

Yours sincerely,

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Dr Eden Woon
CEO