– “Hello, I would like to buy an Xbox One S, a game console, and pay in installments”, I am asking in a large electronics store. A saleswoman guides me to the sales pit, sits in front of a computer and begins an interview. Who do I work for and how much do I earn? Where do I live and with whom? Am I single or married? The data is sent to Santander Consumer Bank, which processes loans for the store. When the interview is over, we are waiting. Less than a minute later, the saleswoman points at the screen.
– “I have a decision. You will get this credit”, she says, smiling.
This is the standard procedure when a consumer decides to pay in installments. However, have you ever wondered what happens within those few seconds, from the moment the data reaches the server until the moment the shop assistant joyfully announces that the bank has granted you a loan?
The bank's algorithm assesses our creditworthiness. To come to a decision, it uses the data obtained during the short interview conducted by the store’s salesperson, as well as information about our credit history.
All this determines whether I will leave the shop with my game console and pay for it in installments, or whether I will have to pay the 240 euros in cash before I can play. If the bank refuses to grant me the loan, will I find out why?
Until recently, customers (consumers and legal persons) in Poland were kept in the dark when it came to a bank’s lending decisions. In May 2019, this changed. The government amended Polish law to adapt to the General Data Protection Regulation, and introduced a new provision to the Banking Act – Article 70a.
According to the new law, “banks and other institutions legally authorized to grant loans at the request of the person applying for a loan (...) shall provide, in writing, an explanation of their assessment of the applicant's creditworthiness. The explanation (...) includes information on the factors, including the applicant's personal data, which affected the assessment of creditworthiness.” This goes slightly further than article 22 of the GDPR, which only requires such transparency for decisions that have a “legal impact”, such as large loans, and that are entirely automated.
Clients now have a right to explanation when a bank makes a loan decision. They just have to submit an application to the bank. The bank must then provide the list of criteria it used – no matter whether the decision was made automatically (using algorithms), or by a bank employee.
From theory to practice
I have checked how the law works in practice. It turns out that not all banks are willing to share information with customers about the reasons for granting loans. I experienced this first hand.
The new law was supposed to give customers more power, or at least more information. Did it indeed? More than a year after it came in force, in July 2020, the Polish Financial Supervision Committee (Urząd Komisji Nadzoru Finansowego - UKNF) published a report on how banks were complying with the new rules. UKNF writes: "[our] main concern about the explanations given [to the banks’ clients] are the quality of the information provided”.
UKNF notes that, despite the banks' nominal compliance with the new rules, in practice each financial institution informs its clients about its creditworthiness assessment procedures in a different way. UKNF further writes that banks "provide general statements (categories of data) without indicating specific and detailed data about the applicants and their financial situation". UKNF calls this situation inconsistent with the intention of the legislators who drafted the law.
While many banks claim that they follow the law, some experts argue that the current explanations provided fall short of their legal obligations. In an interview for Dziennik Gazeta Prawna, Wojciech Klicki, a lawyer for the non-profit Panoptykon foundation, said that banks only provide general information, but nothing that would let customers understand how a decision was taken.
Putting the law to the test
In September 2020, on the very day I bought my Xbox One, I sent a request to Santander Consumer Bank to ask for an explanation of their credit decision. Because the loan was approved, I thought, there would be no problem with sharing the information.
The new law does not impose any obligation on the bank as to when to reply. Although my case was about a small loan, it took the bank three months to send me a 1.5-page answer. The bank's representative first apologized for the delay, then enumerated eight general 'factors which affected the bank's creditworthiness assessment'. These include: data on the household (marital status, dependants), data on the history of cooperation with banks (including loans taken from banks) and the source of income.
This wide and general catalogue of variables does not give me any insight into the decision-making process of the bank. I suppose that my earnings were sufficient to grant a loan, but what If I earned a few hundred zlotys less? Would it mean that I should say goodbye to my console game dreams? Or maybe I was granted credit because I have no wife or children? If I did, would it be more difficult? Easier? Maybe it is because I live in the centre of Warsaw? Do suburban residents have more difficulties?
Unfortunately, and contrary to the obligation to provide detailed information, the bank leaves me without answers.
How often do customers in Poland use the new law? I asked the 10 largest banks in Poland how many requests for explanations of credit decisions they received. Not all banks are willing to share such information. Only 5 financial institutions answered my questions. Including 3 in the following way:
- Iwona Jarzębska, Millennium Bank PR specialist: "We do not publish such data".
- Krzysztof Olszewski, spokesperson for mBank: "We do not provide such statistics".
- Karolina Kozakiewicz, bank relations specialist at BNP Paribas: "We are sorry but we are not able to provide the data you are asking for".
Only two banks shared their numbers. Including the largest in Poland, state-owned PKO Bank Polski. "The bank received 859 applications to explain its credit decisions. The possibility to submit an application concerns all credit products for an individual customer: loans and mortgages, cash loans, credit cards, revolving limits and credit products addressed to companies and entrepreneurs,” said Iwona Radomska, from the bank’s Corporate Communication Department.
Przemysław Przybylski, a spokesperson for Credit Agricole said that "in 2020, [the bank] received 443 such requests, and since May 2019, a total of 1025".
This is not a lot. According to information provided by the Credit Information Bureau, banks in Poland granted almost 6.8 million installment loans to consumers between April 2019 and November 2020.