On the 7th of December, the European Financial Inclusion Network (EFIN) of which COFACE-Families Europe is a member, held a conference on personal indebtedness in the EU in the EU Parliament, in cooperation with the ALDE group, hosted by MEP Sylvie Goulard.
On this occasion, EFIN Director Olivier Jérusalmy, presented three working papers on key aspects related to over-indebtedness: Indicators, Early detection and helpful response to households’ financial difficulties, and Unfair lending practices and toxic products.
A representative from the EU Commission from DG Justice, Consumers and Gender Equality discussed the EU Commission’s work on insolvency. It is not yet clear at this stage whether this work will lead to “strong” proposals such as a Directive or only a Recommendation to Member States.
Martin Schmalzried, Senior Policy and Advocacy Officer at COFACE Families Europe, spoke at the event about the impact of an increased use of consumer data in financial services. The core recommendations put forward include:
-Fintechs’ business models need to be examined closely to find out where the “profits” come from. Ideally, these come, as advertised, through better efficiency/lower costs, but they may also come from hidden fees or surcharges for their services for the most vulnerable/poorest consumers.
-Algorithms on which Fintechs rely need to be subject to auditing to ensure they function properly/fairly and check them for human bias.
-The way consumer data is used by Fintechs and by banks in general has to be under closer scrutiny. (Targeted advertising, creditworthiness or rather individual risk based pricing, consumer “nudging” to adopt “safe” behaviours…).
-Instead of envisaging very technical and specific regulation, blanket type regulation need to be considered. Examples include cap on interest rates or cap on certain fees (late payment fees) as these will universally apply to all actors and contribute to creating a level playing field.
-A stronger cooperation and exchange between several regulatory bodies is necessary: Data protection authorities, EBA, FSUG, National regulators/enforcement bodies…
-Growing concerns such as cyber-security need to be monitored. It is clear that the Internet is not as “resilient” to attacks as we thought. This could mean, for instance, the failure of online payment services which rely on the Internet rather than on private networks.
-New technological developments will create new challenges and these also need to be considered in order to anticipate some of the problems they may cause 1) merging payment systems inside virtual environments like VR, which may be vulnerable to hacks or consumer manipulation and 2) Automatic/robo purchasing of items through Internet of Things (connected devices).
-Finally, closely examining new technologies which are developed as open source could greatly benefit consumers/users of financial services. Open source can also solve problems such as cyber-security, by allowing the entire online community to examine their codes/security solutions and check them for vulnerabilities, and also by allowing any provider to use their solutions free of charge. Cyber-security would thereby become a “common good” as opposed to a “private product” sold only to those who can afford it.
For more information about this presentation, please read the paper Assessment of current and future impact of Big Data on Financial Services.
Greens MEP Jan Albrecht, also underlined a number of key points linked to the GDPR (General Data Protection Regulation) and its application to financial services:
-Data processing in financial services is not always necessary for the provision of the service/product. There are clearly limits to the usefulness of such data processing as opposed to the risks in terms of privacy, data protection…
-Profiling could turn upside down the principle of non-discrimination and should therefore be monitored carefully. Ensuring access to basic/essential financial services has to be a priority.
-A level playing field for the incumbent financial service providers like banks and Fintechs has to be reached, and not by cutting back on the standards that we have but rather finding ways to apply them to new actors.
To finish, Anne Fily from BEUC presented a project to assess creditworthiness in a more ethical way, by looking at money management capabilities of borrowers based on their bank account data.
More information about the event here.