Bad news – technological progress could be severely hindered in creditworthiness assessments (and beyond)

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Credit reference agencies, like the German SCHUFA, produce credit scores and reports of natural persons that are, for instance, used by banks as an input to help decide whether or not to grant loans. The role of credit reference agencies is key for healthy lending and borrowing practices as they contribute to a bank’s assessment of whether a person’s willingness and ability to pay can be trusted. Traditional statistical techniques, but also Artificial Intelligence and other technological advances are being used by these companies to produce such scores. 

Nevertheless, technological progress in creditworthiness assessments (and beyond) could be severely hindered following a recent preliminary ruling by the European Court of Justice (ECJ) on 7 December 2023. This ruling could have very relevant ramifications for automated processes in the EU, not only shaking up SCHUFA and other credit reference agencies’ business model, but also spanning across a range of businesses that use algorithms as a basis for making decisions, such as healthcare, insurance and employment. 

In a context where the prevention of over-indebtedness and the protection of financial stability are public goods to safeguard, impeding the use of new technologies for creditworthiness assessments that feed into lenders’ decision is not good news.

Judith Arnal is Senior Research Fellow at ECRI and CEPS.