2. The Legal and Regulatory Environment for Credit Reporting Systems Financial Sector Policy Global Dialogue Series # 7 Sponsored by the Financial Sector Vice Presidency and the World Bank Institute Washington, D.C. June 18, 2001

3. Organization of today’s event I. Introduction - Ms. Margaret Miller, Senior Economist, World Bank II. Presentation of Legal Issues for Credit Reporting - Ms. Peggy Twohig, Federal Trade Commission - Diputada Maria Teresa Gomez Mont y Ureta, Mexican Congress Short Break III. Importance of Credit Data and the Regulatory Framework - Mr. Michael Staten, Professor, Georgetown University - Mr. Vanio Aguiar, Director of Off-Site Supervision, Central Bank of Brazil

4. Elements of a Credit Reporting System the public credit registry, if one exists private credit registries, including chambers of commerce, and banking associations the legal framework for credit reporting the legal framework for privacy, as it relates to this activity the regulatory framework for credit reporting the characteristics of other pertinent borrower data available in the economy the use of credit data in the economy, by financial intermediaries and others the cultural context for credit reporting

5. Results of 1999-2000 World Bank survey of public and private credit registries

6. Survey sample by country

7. The credit reporting industry is in transition, with many new entrants The median age of private registries in the survey sample is 10 years. Thirty percent of the private registries were established since 1995. Latin America led all other regions in the 1990s in the establishment of public credit registries. Legal issues contributed to the creation of the public credit registry in approximately half of the countries – and legal issues are still pending in about half the countries with public registries

9. Public vs. Private Credit Registries

10. Institutional Arrangements for Private Credit Registries

11. Who submits information to public and private registries?

12. Firm data collected by public and private registries

13. Distribution of data by public and private registries

14. Consumer Attention: Comparing Private and Public Registries

15. Percentage of Banks which consult a credit registry for consumer loans

16. Percentage of Banks which consult a credit registry for small business loans

17. Importance of Registry information relative to other sources of creditworthiness

18. Emerging elements of “good practice” Legal and regulatory framework Legal framework should encourage information sharing among lenders –review bank secrecy laws which can constrict information flows Consideration of privacy issues important –broad privacy laws may unduly limit credit reporting Regulatory framework with enforcement –consumers have ability to bring complaints outside judicial system Competition policy aspects of credit info.

19. Emerging elements of “good practice” Data collected and maintained Open system, not closed network –ownership by a limited group of lenders, bank association, will discourage a broader database Collect both positive & negative information Maintain data for a reasonable time frame - 5 years minimum –do not delete data on non-payments when debt repaid

20. Emerging elements of “good practice” Data collected and maintained Data should be inaccessible after a certain amount of time –time limits may vary by size of loan, type of inquiry Credit reports should not include highly sensitive information such as sexual orientation, political or religious affiliation, etc. Other identifying information, such as gender, should be evaluated more carefully

21. Emerging elements of “good practice” Data distributed Integrity and transparency are paramount –special standing of any group, including owners or government, will discourage participation Open system preferable, reciprocity not necessary Access to detailed information preferable –loans described individually, not aggregates –institutions providing credit identified Restrictions to prevent “cherry-picking” Distribution reflects privacy considerations

22. Emerging elements of “good practice” Credit reporting and bank supervision Supervisors include financial institution’s use of credit information as part of inspections Require publicly (government) owned financial institutions to provide data to legitimate credit reporting firms, associations Encourage all financial institutions to participate in credit reporting

23. Emerging elements of “good practice” Public Credit Registry (PCR) Clear objectives for PCR –consult with financial institutions, private credit reporting firms Complement, not compete, with private firms Focus on larger loan sizes Provide customer service if data is distributed to financial system

24. Emerging elements of “good practice” Consumer Attention Borrowers should have access to their own data Consumer-friendly procedures in place to challenge erroneous information in reasonable time frame Record who has accessed data as part of report Clearly established privacy policy