Opinion | Why reporting student loan default data to credit reference agencies is a doubtful deterrent

The Ombudsman recently reviewed the procedures for approval of loan applications and recovery of debts under the non-means-tested loan scheme of the Working Family and Student Financial Assistance Agency (“WFSFAA”). One major recommendation in her review report is to deter default loan repayment by reporting the students’ loan default data to credit reference agencies in Hong Kong (the “Proposal”).

There is only one consumer credit reference agency in Hong Kong, namely, TransUnion. The Proposal in effect envisages the transfer of the borrowers’ very private and sensitive data from a Government agency to this commercial enterprise. Under the Code of Practice on Consumer Credit Data, TransUnion is regulated by us in relation to data collection, accuracy, use, security and access and correction. Importantly, it is not subject to the direct oversight of the Hong Kong Monetary Authority as the financial regulator. TransUnion's majority shareholder is the US-based multinational company, TransUnion group, while the major local banks are the minority shareholder.

All along, TransUnion serves the banks and licensed money lenders in Hong Kong almost exclusively in assessing consumer credit worthiness. Individually they contribute consumer credit data (gained through their daily consumer transactions) to the central database maintained by TransUnion and use the pooled data to facilitate decisions on providing credit facilities to consumers. At present, TransUnion operates as a closed system in that generally it does not accept credit data provision or access from entities other than banks and licensed money lenders.

Some commentators have spoken in favour of the Proposal. While we appreciate that the gravity of the problem of loan default must be addressed and deterrent measures have to be found, we cannot, from a privacy and data protection perspective, support the Proposal. We have found that many of the arguments in support of the Proposal are based on some common misconceptions.

Misconception 1: the Proposal is the only option available to achieve a greater deterrent effect

There are many ways to skin a cat. One obvious option is for the debt collection team to get tough on the defaulters. We have no knowledge of the present efficiency of WFSFAA’s debt recovery procedures as we are not the regulator with a performance audit role. But it does appear that WFSFAA had adopted a pretty tolerant approach towards students in default. It seems that no proactive action is taken to collect outstanding debts until they are six months in arrears. Even if legal proceedings were instituted by the Department of Justice, we doubt if bankruptcy proceedings are invariably used as a last resort to recover the debt.