The Privacy Commissioner for Personal Data, Mr Raymond Tang, today issues a consultation document to seek the public's views on a set of proposed provisions on consumer credit data protection in relation to the financial industry's  proposal on the sharing of positive credit data.  The industry's proposal suggests relaxation to certain provisions of the Code of Practice on Consumer Credit Data ("The Code") as a measure to contribute towards alleviating the problem of growing consumer indebtedness and personal bankruptcies.

"There are issues arising from the proposal that are of concern to consumers.  Consumer's credit information is personal and private to the individual concerned and therefore sharing of positive consumer credit data gives rise to significant impact in terms of personal data privacy.  However, privacy interests do not assume supremacy over all other societal interests.  We have to face the fact that bankruptcy is a real problem with serious social and economic implications for Hong Kong.  In considering the industry's proposal, a fair and reasonable balance has to be struck between public interest and privacy interest of the individual," Tang says.

The Code first took effect on 27 November 1998.  It regulates the use of recorded information relating to an individual's credit transactions consistent with the requirements of the Personal Data (Privacy) Ordinance ("The Ordinance").

The current provisions of the Code provide a framework for the sharing of consumer credit data in terms of account default, credit application, file activities and public record.

Over the past eighteen months, the default rate on loans and credit card spending has risen considerably.  The financial services industry, members of the Legislative Council and the public in general have expressed concerns over the trend of rising personal bankruptcies, in particular multiple delinquencies evident in credit card holders' failure to make repayments.  The Law Reform Commission has also commented on the situation in the context of debt collection practices.

In January 2002, the Government announced a high-level Roundtable Discussion amongst industry representatives and government officials to find ways to tackle the problem.  The Office of the Privacy Commissioner for Personal Data was invited to participate in the discussions.  The industry proposed to introduce a greater sharing of positive credit data via a credit reference agency as one of the measures to improve the current consumer-lending environment.  In June 2002, the Privacy Commissioner's Office set up a working group to study the industry's proposal.

"There are many factors contributing to the rising level of bankruptcy, which has significant social as well as economic impacts.  We do not regard the proposal for greater sharing of credit data as a cure for this problem but believe that credit information transparency benefits both credit providers and borrowers in facilitating an efficient credit environment and promoting a responsible lending/borrowing relationship.  Prudent lending policy, coupled with proper use of borrower's credit information could safeguard against over-extension of credit to those individuals who do not have sufficient repayment ability," Tang says.

"Co-operation and concerted efforts of all participants in the consumer credit market are necessary to tackle the problem.  From a public interest perspective, there is a disclosure obligation on the part of the borrower when he accesses market facilities to enable prudent lending to be exercised.  On the other hand, a credit provider has a responsibility to the market in terms of prudent credit assessment and an obligation to the borrower when using his data in accordance with the requirements of the Ordinance.  Moreover, fair and equal access to credit data also contributes towards a level playing field in the consumer credit market," Tang adds.

 "From a privacy perspective, the challenge is to ensure that information shared is necessary and not excessive for the purpose of prudent lending.  The scope of new credit data to be shared is therefore limited to the individual's current exposure, such as number of facilities, credit limits, outstanding amounts and monthly repayment record, other than residential mortgage loan.  Personal information such as personal income, deposits, other assets, and non-credit related information should not be shared," Tang says.

If the proposal is adopted after consultation, a credit report available to a lender may display a borrower's repayment record during the past 24 months.  Such repayment record may also be used to provide a credit score on the borrower.  Credit data to be used for the purpose of supporting consumer credit scoring model will be limited to the most recent 5 years.

When a loan account is terminated with full repayment with no default record exceeding 90 days during the most recent 5 years, the borrower is given an "opt-out" choice to decide whether he would allow the credit provider to continue sharing the repayment record data of the closed account.  This ensures that the borrower regains his privacy rights over the use of his credit data when he has fulfilled all his borrowing obligations without default.

Safeguards and restrictions are put in place to ensure consumers' personal data privacy is maintained.  The credit reference agency is required to implement a log record system for audit checking purposes and conduct investigation in case of any suspected abnormal access.  As a matter of good practice, the agency is also recommended to submit an independent compliance audit annually at its own expense.

"In light of the impact the implementation may have upon the data privacy interests of existing customers, a transition period of twenty-four months would be enforced, in which new positive data would be allowed for use in handling new credit applications only.  This would also ensure that a reliable picture of borrowers' repayment profiles would be established from the new data during the period prior to their use in considering renewal or review of credit facilities," Tang says.

"We are seeking the public's views to ensure that a proper balance between the broader public interest and privacy interest of the individual is struck whilst making credit assessment more efficient and rigorous," Tang concludes.

The public consultation period on the amendments to the Code will commence today for eight weeks.  Interested parties are invited to send their comments in writing to the Privacy Commissioner's Office by 25 October 2002.  Copies of the consultation paper are available at the Office of the Privacy Commissioner for Personal Data at Unit 2001, 20th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong; or at Public Enquiry Centres of district offices.  The consultation paper is also available on the PCPD website at http://www.pcpd.org.hk.