I am CEO of the Irish Credit Bureau, ICB, and I am here today with my colleague Gerry O'Neill, executive director of ICB. I thank the Joint Committee on Economic Regulatory Affairs for inviting us here today and I hope our presentation to it this afternoon will be beneficial. On previous visits to this committee it was necessary to emphasise that ICB is a credit reference agency and not in any way a credit ratings agency. The functions are completely different, a point on which I will expand if necessary.
Our presentation today will include background to the ICB, description of the information it holds and recent regulatory developments. Our slides include a sample ICB credit report for information purposes upon which, of course, the committee may seek clarification as to detail during questions. I suggest the committee examine the slide while I make my contribution and move on to the second slide, which covers the background of ICB including its history, objectives, structure and salient measurements regarding its current status.
It was formed in 1965 and is owned by its members which are mainly financial institutions. Its objectives, with the support of regulatory authorities and consumer groups, are to assist in lowering the cost of credit, enable faster decisions in providing credit, aid the avoidance of over indebtedness and assist in fraud prevention. It complies fully with the Council of Europe convention on data protection and subsequent Data Protection Acts 1988 and 2003. As such, private individuals may inspect their own reports and approximately 40,000 of our citizens every year so do.
ICB has an electronic library containing information on the performance of credit agreements between financial institutions and borrowers. Information is registered to ICB by its members. A credit agreement is broad and can include mortgages, car loans, personal loans, leasing agreements or hire purchases agreements, to mention the most popular types. Credit card details are included in the ICB library but not yet comprehensively. It is to be hoped we will reach that point within a year. Overdraft agreements are only provided on a negative basis, that is, where they are in the public domain and legal proceedings have issued. They are not structured credit types and are usually short term, therefore they do not lend themselves to being in the ICB database.
The information regarding account holders is held to ensure distinction between surname, forename, date of birth and address data. In respect of each loan held we have the information provided. The most important information is the repayment history indicators where we keep a rotating window for 24 months as to whether in each of the past 24 months repayments have been made on the day or if not what level of arrears have been encountered, namely, one, two or three months and so on, which the committee can see from the sample report.
On the database, there are more than 155 active members, the bulk of whom are credit unions. We anticipate that credit unions will be by far the largest participant in ICB. There are more than 5.5 million accounts. When the credit card information is completed the figure will be close to 6.5 million. It is a positive database, unlike most other countries who register only negative information. In ICB all information is registered, with consent.
During the recession which, it is to be hoped, we are moving away from, we received fewer than 5,000 inquiries per day but the average is some 5,500. In 2007, it was closer to 11,000 on certain days. It is now closer to 40,000 people per annum; I understand the exact figure is 38,500, but it is increasing. The service is 100% automated. The data is retained for five years once the loan is completed, paid off or another arrangement is made. It is important to stress that we do not make lending decisions, rather, we are merely electronic librarians and our primary role is to be a fair referee to the members on the one hand to assist fair lending and to the data subjects on the other to ensure their records are complete, accurate and up to date.
We have included a sample credit report and I apologise if the font sizes are too small, which I suspect they are. Our website, www.icb.ie, contains all the information. There is a covering letter and a sample of the identification information. The second slide on second page of the sample states that there are 24 indicators. In that instance there is a small tick beside 24 down to 1 which means that in each of the past 24 months the account has been paid on the nail. That is the most pertinent information. The individual has a second agreement and as the committee can see in the sample report in the most recent month it has been paid up to date. In the month before that it was in arrears for a month or two. It is open to lenders to assess, having regard to the multiplicity of accounts that may exist and the particular payment performances, whether an individual, to their minds, constitutes a good credit risk.
Scoring is a particularly sophisticated technology developed in America and is used internationally in most western economies. To try to condense the pattern of behaviour and borrowing information into a score which intimates whether, having regard to empirical evidence, the profile is high or low risk, or somewhere in between. On our website we explain how the score is calculated and its significance.
I would like to outline how recent regulatory developments impact on ICB. I have listed six, the sixth of which, thanks to some colleagues in the fifth estate, was issued at 3.30 p.m. today in the form of the mortgage arrears and personal debt review report, on which I will make some comments. On the discussion paper published by Central Bank entitled Banking Supervision: Our New Approach, we were not, unfortunately in communication with the Central Bank before its preparation or publication. The report states that ICB focuses solely on retail and SME sectors in terms of capturing data relating to credit activity. Such restricted activity does not fall within the objectives of ICB. We never set out to limit our scope in that sense.
We have multi-million loans registered by some banks and of course we are reliant upon individual banks and, moreover, their customers as to what is registered given that under our current data protection legal framework consents must be captured. Against this background, I ask the committee to please be aware of a statement made by the Data Protection Commissioner that "securing consent to register with ICB secures an obligation upon the Bank" to register credit agreements. As I understand it, the position the Data Protection Commissioner comes from is that it is only fair, if one intends to record data on a citizen, that one records all the data pertinent to that citizen and not a piecemeal version of it.
The ICB currently operates in a voluntary consent environment, not a mandatory data registration environment, and we must comply with current data protection laws. Therefore, I take issue with the statement within the report that the ICB as currently structured would fail to constitute a central credit register having regard to the voluntary reporting environment. The ICB holds over 5.5 million accounts. A mandatory reporting environment would clearly increase volumes significantly.
The Law Reform Commission report of 2009 and the recent interim recommendations in its interim report affects the ICB in several areas. First, it calls for review in the context of the ICB of mandatory reporting and mandatory inquiries to ensure fair and proper credit worthiness assessment; second, it recommends review of participation by utilities and telecommunication companies so that bodies such as MABS might have regard to the total indebtedness of an individual when it is assisting that individual in tackling such issues; third, it calls for alternative sanctions to imprisonment following the ruling by Mrs. Justice Laffoy in the McCann case, while in the French case, Mme Neiertz used the French central bureau as a sanction to balance the rights of debtors and creditors rather than imprisonment; and finally, it makes recommendations on the structure of the ICB ownership.
The Central Bank Governor, Professor Honohan, in his recent report of June 2010 emphasises the need for greater risk assessments and underwriting standards. The ICB strongly believes it can assist in this objective. Mr. Regling and Mr. Watson stress the need for a strong central credit reference agency across the spectrum as a means towards preventing the errors of the last decade, and they go into quite some detail on that issue. SI 281 of 2010 was transposed into Irish law on 11 June 2010. I would highlight Article 8, which refers to the need to have a database sufficient to enable creditworthiness assessments and states that this database should be consulted. Article 9 refers to making that database available to countries other than the State on a non-discriminatory basis and also requires that if an institution declines an application and has used a credit reference agency, the institution must at no cost write to the citizen stating that the application has been turned down and that it had consulted, for example, the ICB, giving its mail address, web address and telephone numbers, and explaining that the citizen is free to access the record and assess whether it is fair.
To correct a point I made earlier, the ICB has signed and forwarded a memorandum of understanding to the Department of Finance which has yet to be concluded but which we believe will assist the State meet the requirements of the EU consumer credit directive as transposed into Irish law.
Finally, as the report has just been published at 3.30 p.m., I have not had an opportunity to study it in detail. However, I understand it deals in several respects with Irish credit bureaux and the need for a centralised credit reference agency. I thank the committee for its time and attention.
