Banks are obliged under law and FIN-FSA regulations and guidelines to assess the consumer’s creditworthiness carefully
The Consumer Protection Act (38/1978) and requirements concerning banks’ credit risk management entail that credit is only granted to customers likely to be able to meet their obligations under the credit agreement. Banks must conduct the assessment of consumers’ creditworthiness on the basis of adequate and verified information concerning their income and other financial circumstances.
In the assessment of customers’ creditworthiness, banks also commonly apply statistical evaluation methods to estimate the customer’s repayment behaviour and credit repayment capacity. This estimation is made by assessing the customer against information on the actual payment behaviour of a statistically comparable reference group. According to the preparatory work of the Consumer Protection Act, the use of statistical methodologies for the purposes of assessing the customer’s financial position is, as a rule, allowed as complementary methodology. However, the FIN-FSA reminds that, in using statistical assessment methodologies, banks must ensure, in addition to the requirements posed by data protection legislation, that the assessment criteria used in the methodologies or the conclusions drawn based on them do not lead, directly or indirectly, to a discriminatory outcome concerning an individual customer or an entire group of customers.
Non-discrimination legislation poses restrictions on the information used in the assessment of creditworthiness
Non-discrimination is a fundamental right of citizens, protected by the Constitution of Finland. Equality and non-discrimination are provided on in several separate acts whose scope of application covers the provision of banks’ services.
The Non-Discrimination Act (1325/2014) provides that no one may be discriminated against on the basis of age, origin, nationality, language, religion, belief, opinion, political activity, trade union activity, family relationships, state of health, disability, sexual orientation or other personal characteristics. A prohibition on discrimination based on gender is separately provided in the Act on Equality between Women and Men (609/1986). Furthermore, the requirement of good banking practice provided in the Act on Credit Institutions (610/2014) entails that a bank may not reject a customer relationship based on discriminatory grounds.
Banks must consider the restrictions imposed by the abovementioned Acts on criteria applied to the granting of credit, which also have an impact on the assessment of the customer’s creditworthiness. Banks are themselves responsible for the statutory compliance of their credit granting process, regardless of whether they apply their internal methodologies or services provided by external credit rating agencies to the assessment of customers’ creditworthiness. If a bank nevertheless uses discrimination criteria prohibited by legislation as inputs in the credit decision, their use may only be allowed when a justification for different treatment based on the law applies.
In its decision 216/2017, the National Non-Discrimination and Equality Tribunal took a position in an individual case on prohibited discrimination in the process of assessment of a customer’s creditworthiness. In the decision, the Tribunal assessed the lender’s right to use the customer’s gender, age, native language and place of residence specifically as statistical factors affecting the outcome of the credit decision. In its decision, the Tribunal found that the use of the customer’s gender as a factor affecting the credit decision is prohibited without exceptions. The Tribunal also found the use of the customer’s native language particularly reprehensible as a factor affecting the credit decision. In the Tribunal’s view, it may be acceptable to take age into account in the assessment of creditworthiness mainly when applied to young persons.
Although the assessment of the National Non-Discrimination and Equality Tribunal was concerned with the acceptability and proportionality of the credit granting process of an individual lender, the FIN-FSA also recommends that other banks consider the Tribunal’s interpretations of the Non-Discrimination Act and the Act on Equality between Women and Men in their own credit granting process, as applicable.
Supervision of banks’ conduct in compliance with non-discrimination legislation
Compliance with the Non-Discrimination Act is supervised both by the Non-Discrimination Ombudsman and the National Non-Discrimination and Equality Tribunal. Compliance with the Act on Equality between Women and Men is supervised by the Ombudsman for Equality and the National Non-Discrimination and Equality Tribunal. Where necessary, the supervisory authorities will provide instructions and advice on the application of legislation supervised by them.
In its own activities, the FIN-FSA must also promote the realisation of equality and non-discrimination. As part of these efforts, through this release, the FIN-FSA points the attention of entities under its supervision on compliance with non-discrimination legislation and urges supervised entities to promote the realisation of non-discrimination in all aspects of their service provision.
For further information, please contact
- Sanna Atrila, Senior Legal Advisor, sanna.atrila(at)fiva.fi
- Anu Kettunen, Legal Advisor, anu.kettunen(at)fiva.fi