Although the use of positive bureau data for credit decisions is quite new in Latin America, it’s gaining increased visibility.
In Brazil, a bill creating a positive bureau was signed by president Dilma Rousseff just months ago, after an eight-year fight. The bill will take time to be fully implemented, but as in other countries, the benefits will unquestionably be worth it—for both businesses and borrowers, as my colleague Rachel Bell points out in a previous post.
Now, the biggest challenge is to inform consumers about these benefits and their rights under the new bill. Consumer associations were (and still are) against the bill, citing privacy issues. But a closer look at the bill should help alleviate these concerns. Financial institutions can only use the data for credit purposes, and it can’t be sold or traded.
In addition, the bill specifies that each consumer must give full agreement to each financial institution to use his credit information, and can, at any time, ask them to remove data from the credit file. This is the most troubling aspect of the new bill. It greatly diminishes the effectiveness of a positive database if one can choose which institutions’ data will or will not be used, and for how long.
So if a consumer has credit problems, he can ask one or all financial institutions to disregard his credit information. Because of this, Brazilian financial institutions aren’t yet using positive data for their credit decisions. In the coming months, we expect these institutions will make adjustments in order to make best use of the positive data they are able to access.
In other countries where this is not a requirement, the positive bureau is quickly gaining acceptance. In Mexico, for instance, FICO is working with Círculo de Crédito, a major player in credit information. Círculo de Crédito will soon offer its banking clients FICO® Scores, which consider both positive and negative bureau data from its database of more than 1,200 credit institutions throughout Mexico. This combination of a credit score that’s available industry-wide and based on broad consumer credit data is a great blueprint for improving risk management and access to credit in any region.