EC: Lenders must tell borrowers why they have been rejected
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Lenders will be forced to disclose their reasons for refusing a customer a mortgage under proposed plans announced by the European Commission today.
In its Directive it says where an application has been rejected the lender must inform the consumer immediately and without charge as to the reasons for the refusal.
It says: “Where the application is rejected on the basis of an automated decision or a decision based on method such as automated credit scoring, the creditor must inform the consumer immediately and without charge and that the creditor explains the logic involved in the automated decision to the consumer.”
It says the consumer should have the opportunity to request for the decision to be reviewed manually.
The EC says when the applicant has been turned because the lender has consulted a database or credit agency the consumer must be told the name of the database and be given the right to rectify any information held on the database.
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Readers' comments (18)
Peter Ireland | 31 Mar 2011 12:52 pm
Its about time! Far too many applicants are left in the dark with only "they may care to look at their credit report" as an answer. Has to be good for consumers although expect years of legal wrangling to get this into law!
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Anonymous | 31 Mar 2011 12:53 pm
A good thing too. The data protection act suggests that this should already be the case!
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Simon Wilkinson | 31 Mar 2011 1:01 pm
Spot on and not before time. Too much "failed credit score" with no explanation as to how this has been derived
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Anonymous | 31 Mar 2011 1:03 pm
At Last!!!!
Mark this date down - March 31st 2011 - the first time the EU has come up with a sensible idea relating the the Mortgage Application process!!!
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Rob Roberts | 31 Mar 2011 1:08 pm
I wonder will you be so quick to praise thise move when interest rates and fees increase to take into account every customer who will request a manual review when they are declined, and will you be happy when processing times are doubled and tripled on new business applications because underwriters are all backed up doing manual underwriting on a guy with 45 CCJ's.
Automated decision systems are exceedingly complex and are used for a reason. If a client falls outside of the specified criteria, they should be declined, as that particular lender has set its parameters in line with what it wants in a borrower. If the borrower doesn't fit criteria, then it should be automatically kicked out because the lenders policies are what they are. If a lender sets its policies to reject people with a credit score of less than a certain cutoff point, that is their prerogative. Why should the prospective borrower insist that the company should have to manually underwrite their application when the company has put their policies in place in the automated service.
Absolute nonsense.
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Victoria | 31 Mar 2011 1:26 pm
About time!
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Andy Hall | 31 Mar 2011 1:27 pm
I kind of agree with Rob Roberts there:
A good broker should, to some degree, understand each lenders automated credit scoring system and have a good idea about whether a client will fit with that particular lender.
In cases where lenders suggest getting a credit report, it's only because the DPA prevents them telling the broker what's on there and you generally find out why the report has been requested as soon as you get to see a copy, if you actually do get to see a copy!!!
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John Forrester | 31 Mar 2011 1:35 pm
So tell me do you understand this reason for rejection:
You have been declined as your credit score provides a geo delphi categorisation of 400.
Or would the following not be ok:
You have been declined as you have failed the lender's credit score
I know which one I would rather explain to my clients.
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Anonymous | 31 Mar 2011 1:40 pm
How comfortable will brokers feel if a lender informed them that their client's application has been rejected because it was fraudulent?
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Bill Wells | 31 Mar 2011 1:43 pm
Rob Roberts - that's all well and good until Experian has been fed crap or attaches crap to an unsuspecting mortgage applicant's credit file. I have known 2 cases recently where squeaky clean clients have been 'mixed up' with someone with a similar name who lived in the same apartment block.
The ICO should sort out Experian and Equifax so that credit scoring and credit histories are reliable and accurate. The number of mistakes being made by these companies is a disgrace !
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