Managing Risks

The previous sections have shown how our products can lead to real social benefits. But there are also risks and negative impacts associated with some of the business areas which we, or our customers, are involved in. This section explains how we are managing these risks:

Responsible credit and over-indebtedness

One drawback of the wide availability of credit is the phenomenon of over-indebtedness; consumers borrowing more than they can afford to pay back, often from multiple credit sources. Over-indebtedness can lead to anxiety, stress, ill-health and even family breakdown as individuals struggle to manage and repay their borrowings. It also leads to bad debt and losses for lenders, so it is in the interest of neither the lender nor the borrower for the situation to occur.

In its most developed credit markets Experian is in the vanguard of developing ways to spot and manage the problem. Our systems look beyond the conventional indications of a consumer’s ability to service a debt, trying to find ways of predicting problems before they occur. We use statistical and other analyses to find patterns that might be early warnings of an individual’s debt rising too high, and make this available to credit granters before they lend, as many of the products illustrated elsewhere in this report demonstrate.

However, we have also taken a very direct route to the consumer to champion this issue. In the UK and US our marketing and press work has helped raise awareness, providing statistics for journalists and policy makers to illustrate the scale of the problem. We have also made our expertise available directly to consumers through consumer education publications, advice on websites and in the UK using a simple on-line Debt Test developed with the Financial Services Authority (FSA): www.moneymadeclear.fsa.gov.uk/debt_test. The test allows individual consumers to check directly whether they have any of the ‘early warning signs’ of debt problems.

Surveillance and privacy

We can only provide the services we do by having access to a wealth of consumer data, and we are aware that the collection and use of this information is seen by some to be an infringement of their societal rights to privacy. We believe that there is a constant balance to be struck between the commercial and social benefits of our work (explained in previous sections) with the individual consumer’s right to privacy. Finding this balance point is a job for the regulators and legislators in all the countries where we work. For our part, we are active in the debates making the case for the benefits where we see them. Once data protection and privacy rules have been agreed upon we adhere to them wholeheartedly, working both to the spirit and letter of the laws.

However, we are aware of these concerns, and we work closely with opinion-forming groups and consumer advocacy organisations to understand and respond to them. In the past year our Chairman presented the benefits of legitimate and balanced data sharing to an audience including many opinion formers at the International Conference of Data Protection and Privacy Commissioners. Overall our company leaders are engaged in a number of international organisations and industry councils, such as the Consumer Data Industry Association, the Association of Consumer Credit Information Suppliers, the Direct Marketing Association, and the Asia Pacific Economic Cooperation (APEC) council

Finally, we are committed to transparency in our positions and in terms of the data we hold. We put enormous effort into giving consumers the chance to view, challenge and – where appropriate – amend their data. Much of our leading-edge research is published, or developed with public bodies, and we aim constantly to be an active and responsible corporate citizen in the ongoing privacy debate.

Financial exclusion and sub-prime lending

A series of news stories in early 2007 has seen huge debate in the US over the ‘sub prime’ lending market; credit granted to those who are identified as a poor risk, often at higher cost than conventional markets. This is a complicated issue and there are positive and negative social arguments on both sides. Experian is not directly involved in the setting of interest rates and charges for any group of customers. Our role is to provide the best possible information to allow lenders to evaluate risk and make their own decisions on its tolerability or price.

In the UK, the debate has a different flavour, with the Government keen to address the issues around financial exclusion amid concerns that a growing social underclass has no access to banking, saving or credit facilities. This is widely seen as a divisive and disempowering situation, and runs alongside the long-standing challenge of responsible lending and borrowing with the UK accounting for over 30% of consumer credit, both secured and unsecured, in the European Union.. This contrast neatly illustrates the two sides of the debate.

Microlenders are a feature of the US economy; organisations that make small loans in their local communities, funded through a variety of government resources. The recipients of these loans are often low-income consumers and small business entrepreneurs. Working with Credit Builders Alliance, we have supported efforts to enable US microlenders to report client repayment history to Experian, relaxing some of the normal requirements that an organization needs to be able to report and customizing the process specifically for microlenders. Doing this will allow low-income families to access microloans more easily and, ultimately, individuals to build a better credit record. In a similar vein, we are encouraging utility companies to share fuller data on bill-payers, allowing low-income families to benefit from fuller credit files.

Widening the perspective still further, access to small amounts of capital can be life-transforming for those in the developing world, and micro-finance is one of the most promising routes out of poverty for millions of people, enabling them to buy the tools or materials they need to work independently. In this context, Experian has signed an agreement with PlaNet Finance to enable microfinance institutions, which offer financial services to those living in poverty and excluded from the standard financial system, to make more reliable decisions about applicants for credit. PlaNet Finance is an international charitable organisation, whose mission is to reduce poverty in the world by the development of microfinance in over 60 countries. Introducing a credit bureau to store and share information about microfinance customers will provide greater visibility of a borrower’s past and ongoing history, and will be very powerful in helping lending institutions to further develop microfinance activities.

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