Concerns over fintech lenders’ use of consumer data
FINTECH lenders might be using personal data to ramp up interest rates on potential borrowers who visit their websites regularly, a new report has warned.
UK religion and society think tank Theos and financial ethics body St Paul’s Institute have launched a joint study into the ethics of borrowing and lending, called ‘Forgive Us Our Debts’.
The report said that new developments in fintech present “both attractive and potentially damaging possibilities” for indebted consumers and households.
It heralded fintech’s role in drawing attention to the link between mental health issues and personal finance problems, and the benefits of new money management apps.
“However the marriage between fintech and personal finance doesn’t always produce positive outcomes,” the report said. “The greatest fear is that the collection of personal data may permit lenders to personalise interest rates to the detriment of the borrower, much in the manner that some websites raise travel rates on flights or hotels that a computer is accessing regularly.
“Access to such data may also make lenders aware of personal spending habits or histories, resulting in lenders effectively blackballing such customers.
“It is too early to tell whether these products are simply ‘old wine in new bottles’ because, as these firms grow in size and importance they will have many of the same vulnerabilities as traditional lenders in terms of credit risk, managing their assets and liabilities, and risks of interest rate and credit demand cycles despite being posited as a more efficient alternative to banks.”
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The report called for the advertising of consumer credit – particularly credit cards and payday loans – to be restricted in the same way advertising is restricted for tobacco and gambling.
Despite its concerns about some aspects of fintech, the report went on to cite peer-to-peer lending as a more positive innovation.
“In many ways this is a return to the old friendly society or building society system of community lending,” the report said.
“It is most common among those without access to bank credit; at the localised level this concept works on relational principles so that savers are supporting their friendship group, family group or a particular community or social grouping.”
A survey commissioned by Theos and St Paul’s Institute, conducted by pollster YouGov, found that 68 per cent of people think lenders have too much power over borrowers.
Over a quarter of those surveyed that have been in debt in the last two years said they had been badly affected by it in their daily lives, while one third who had been in debt in the last two years said that it had a negative effect on their relationships with friends and family.
“Debt is ultimately a form of social interaction, so must be assessed as such,” said the report’s co-author Dr Nathan Mladin.
“There are debt relations that clearly harm individuals and communities (e.g. payday loans with excessive interest that trap people into debt), and others that contribute, directly or indirectly, to their wellbeing.”
The report comes hot on the heels of new statistics that showed personal insolvencies hit a seven-year high last year.
Personal insolvencies totalled 115,299, a 16.2 per cent rise on 2017, the Insolvency Service said.
“We expect insolvencies to remain at this high rate throughout 2019 and 2020, fuelled by high consumer lending and the forceful marketing of companies offering personal insolvency as a debt management solution,” said Richard Haymes, head of financial difficulties at TDX Group, an Equifax company.