Key words:   information , public/private credit registry , database , data , firm , management , credit bureau , credit reporting 

A basic credit-reporting system is made up of a public credit registry and/or private credit-reporting firms that function within the necessary legal and regulatory framework for credit reporting and privacy. Many countries have public credit registries, normally operated by a central bank or bank supervisor. Alternatively, some have chosen not to operate a public credit registry but rather leave credit reporting services to private firms.

When comparing the utility of public and private credit registries, it is often believed that a public credit registry can better protect the privacy of consumer/firm data from private firms that sometimes cross legal boundaries. On the other hand, private credit registries have proved more effective in collecting a broader spectrum of information and providing more comprehensive services for customers.

Credit reporting in the United States is almost exclusively handled by private reporting firms. It is dominated by the "three bureaus" - Equifax, TransUnion and Experian - while Dun & Bradstreet captures the small-business credit-reporting market. These firms purchase and unify data collected from independent reporting bureaus and then make this extensive credit information available inexpensively to all individuals and business entities. Creditors are regulated by the 1990 Equal Credit Opportunity Act, whereas consumer-credit borrowers are protected by the 1997 Fair Credit Reporting Act.

The US model is considered one of the most sophisticated credit-reporting systems, but not necessarily one that the Chinese would adopt. Aside from the obvious absence of the sophisticated legislation and dispute-resolution mechanisms necessary to support such a system, Chinese firms have yet to achieve the expertise of their US counterparts in this area.

Ideologically, too, the dominance of private credit-reporting firms in the US model conflicts with Beijing's need to retain majority control over its financial system; even the most advanced reforms unfolding in the Chinese banking sector have yet to result in any significant foreign majority ownership. This means that even if China were to encourage private credit-reporting firms to capture the market, it remains uncertain whether foreign players such as Equifax or TransUnion would be allowed much prominence. Without an initial framework to support the growth of private credit bureaus, Beijing is not ready to relegate the industry to market forces at such an early stage.

On the opposite end of the spectrum is the French model, in which the public credit registry, Service Central des Risques, is the single compiler and disseminator of all data received from reporting institutions. Banque de France supervises separate registries for enterprises and individuals that abide by the same regulations that prevent data and ratings compiled by the central bank to be published or communicated to third parties. The emphasis on privacy and non-discrimination is particularly significant in Europe, which recalls the use of business and personal data by the Nazi regime during World War II to seek out and persecute Jews, not just in Germany but in occupied France and the Netherlands .

However, experts have pointed out that this restricted use of data has economic tradeoffs. By limiting access to borrower information, lenders are less able to tailor services distinctively to the consumer-lending market. Nonetheless, the French government has remained firm on its strict policy of data protection. Chinese regulators are unlikely to restrict the use of data that would inhibit economic growth, given that China 's credit culture has not blossomed to its fullest potential and the government does not face similar privacy pressures. More important, PBoC officials have not completely discarded the notion of an active private sector within the credit-reporting system. There are inherent worries about a single overbearing public credit registry that will perpetuate price monopolization of product services and management malaise as the central database grows.

The Italian model, on the other hand, reflects the integration of the private and public sectors while retaining a significant measure of government control. Italy's credit-reporting system, considered one of the most complete and accurate registries in Europe, requires all commercial banks and other financial institutions under the supervision of the Banca d'Italia and branches of foreign banks operating in Italy to participate. Information on large loans valued above a certain amount is reported to the public credit registry, Centrale dei Rischi, while data on smaller loans are left to private credit-reporting firms and later sent to the public registry. The Centrale dei Rischi also disseminates compiled data, at no cost, to credit institutions.

Given the Chinese government's preference for government control over the financial sector, this model would allow room to maneuver while permitting increased entry of private credit bureaus to improve the efficiency of the overall credit-reporting system. Chinese regulators expect strict regulation over the commercial use of the information contained in the public credit registry - a significant control mechanism. Also, the Chinese are aware that "private credit reform" is not a substitute for a public credit registry, but rather plays a complementary role within the system. Hence the government would be open to a mixed model that accommodates both public credit registries and private reporting firms. The challenge lies in striking the right balance.

Source: http://www.atimes.com/atimes/China_Business/HC16Cb01.html 

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