The EU can reduce irresponsible consumer lending and data misuse

Brussels, 19 October 2020 – Finance Watch has published a discussion paper on ways that EU policymakers could help to reduce irresponsible consumer lending in the wake of the Covid-19 crisis and data misuse following recent changes in the EU payments industry.

The paper calls for a new regulatory approach to assessing creditworthiness, the process that drives millions of lending decisions. It argues that replacing the current credit scoring approach with a more focused household budget analysis could reduce levels of irresponsible lending, discrimination, financial exclusion and data abuse. The paper comes as levels of financial distress among consumers are expected to rise sharply in the wake of the Covid-19 pandemic.

Thierry Philipponnat, Head of Research and Advocacy of Finance Watch, said:

“When consumer credit providers and their algorithms decide who to lend to and how much, their decisions shape the lives of borrowers and their families for years. The credit scoring system that dominates consumer lending today is designed around the commercial interests of lenders. If the creditworthiness assessment process were required to consider also the interests of borrowers, it could become the cornerstone of a responsible consumer credit market in the EU.”

Benoît Lallemand, Secretary General at Finance Watch, said:

“The Covid-19 pandemic is putting millions of Europeans at risk of financial distress and exposing them to potentially exploitative lending. At the same time, changes in the payments industry following PSD2 mean lenders are capturing more personal data than ever and exploiting them in ways that are not always fair or transparent, or that challenge the principles of GDPR. We invite policymakers, especially from the European Commission’s DG JUST, the European Data Protection Board (EDPB) and the European Banking Authority (EBA), to consider how rules around consumer creditworthiness assessments could help to tackle both of these problems.”


For further information or interview requests, please contact Finance Watch’s Head of Communications and Networks, Charlotte Geiger, at or at 0032 / (0)474 33 10 31.


In a speech at a European Commission roundtable on tackling non-performing loans on 25 September 2020, Executive Vice-President Valdis Dombrovskis said the EC’s response to the expected increase in NPLs would focus on creating secondary markets for NPLs and reforming the insolvency and debt recovery frameworks. The roundtable did not focus on how to protect consumers from irresponsible lending or misuse of data. He said:

“While we can see the pandemic’s effects on asset quality only partially in the initial first-quarter data, we can already see signs of a worsening situation regarding NPLs. Consolidated European Central Bank data indicates a NPL ratio of 2.9% in the first quarter for EU banks, up from 2.6% in the last quarter of 2019. That ratio varies a great deal around the EU. However, in the coming years, the crisis could create a sizeable amount of new NPLs in all our countries.”

A recent note from McKinsey on the changes to credit risk management triggered by COVID-19 reported that “a large wave of nonperforming exposures is beginning”. It added that the conventional sources of data typically used in credit-risk assessments “became obsolete overnight” and forecast that the COVID-19 crisis would encourage lenders to use decision-making approaches based more on real-time business data and advanced analytics.

DG JUST carried out an evaluation and fitness check of the Consumer Credit Directive, including a public consultation that closed in 2019. The final results have not yet been published.

The European Data Protection Board (EDPB) draft Guidelines 4/2019 on Article 25 Data Protection by Design and by Default, which were adopted for public consultation in November 2019, have not yet been updated to clarify how the principles of necessity and data minimisation would apply to financial services and credit providers in light of changes introduced by PSD2.

The EU’s 2015 directive on payment services (PSD2) paved the way for customers to access and operate multiple payment accounts from different providers through third party aggregators, known as Account Information Service Providers and Payment Initiation Service Providers. These aggregators can retrieve data and supply it to lenders to make creditworthiness assessments, subject to the customer’s consent.

In May 2020, the EBA published its revised Guidelines on loan origination and monitoring.

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