It just hadn’t worked. A man had failed on his way to self-employment in 2013 with a personal bankruptcy. In addition to the many problems that such a thing entails, there was another name: Schufa, The credit agency saved the fact that the man’s remaining debt was waived for years – although the corresponding entry from the public register is deleted after just six months. However, the storage of the data is not legally regulated in detail, which is why the storage practice of the Schufa is now increasingly being legally questioned. This was also the case this Tuesday in a hearing at the Federal Court of Justice (BGH) in Karlsruhe.
Schufa, Germany’s best-known credit agency, is an institution that likes to stay in the background. As a discreet servant of capital, it hoards a treasure trove of information about financial failures and business failures and uses them to generate assessments that either mean admission to the world of banking or online trading – or the opposite, temporary exclusion from important parts of economic life. The credit agency has data on more than 60 million people in Germany, making it by far the most powerful of its kind in Germany.
After a bankruptcy, the person concerned must do penance, so to speak, behave humbly and do everything possible to pay off his debt. This is called the good conduct phase, and it used to last up to six years. Debtors can now have their remaining debt released after just three years, provided the insolvency proceedings were opened after December 17, 2020. If a debtor has fulfilled all the conditions, then after this phase the remaining debts will be waived, which means that nothing would stand in the way of a new start in economic life – if it weren’t for the Schufa.
She absolutely wants to have such data and be able to store it for as long as possible. Because for the credit agency, this “residual debt exemption” is just as important information as the number of credit cards, the number of current accounts, loans and whether someone has recently moved once or even several times. From all this information, the algorithms in the credit agency draw conclusions about whether someone will be able to pay their debts in the future. The more likely this is in your opinion, the higher the so-called “Schufa score”. If it registers misconduct, the negative affects the score, the calculation basis for which Schufa does not want to disclose to this day. She has already fought this through to the highest courts.
How long the Schufa is allowed to store information is a sticking point
It is therefore logical that she also staunchly defends her data basis up to the highest German court. So the Schufa has so far taken the message about the misstep from the directory called “insolvency-announcements.de” and saved it in its files. She can, the information is public.
But how long can she use this information? This question is the focus of the current proceedings before the BGH. So far, Schufa has stored the discharge of residual debt for three years, according to the “rules of conduct” of the Association of Credit Bureaus. Although these have been approved by the state data protection officer in North Rhine-Westphalia, they are not subject to statutory regulations. The law has a different deadline, namely six months, after which the entry is removed from the public register.
The judges at the BGH seemed a bit perplexed
The BGH is now faced with a question that is of existential importance for debtors. Is the “good behavior phase” actually extended by a further three years after insolvency because the toxic bankruptcy information is available from the ubiquitous Schufa? Or is it over after six more months, is the path clear for a new beginning? This is how the Higher Regional Court (OLG) Schleswig, the lower court in this case, saw it.
The answer, as the BGH Senate Chairman Stephan Seiters noticed, is not that easy. Because the six-month period is in a law that is coined for public registers, but – as indicated by Seiters – probably cannot be transferred to the Schufa. Can the BGH simply set a general deadline itself? Or do you have to weigh it up in each individual case? Seiters pointed a little at a loss in the direction of the legislature: “A general regulation would certainly make sense.”
The GDPR bothers credit bureaus and helps people
The case makes it clear that a legal readjustment of the credit agency business model may be imminent in the courts. Further proceedings are pending at the BGH, one of which deals with the question of whether a court enforcement order may be stored for three years even though the debt has long since been paid. The European Court of Justice (ECJ) also recently negotiated two submissions from the Administrative Court of Wiesbaden. On the one hand, it is about the legally problematic automated processing of data. And secondly, the issue of “freeing up residual debt”, i.e. the problem now being negotiated in Karlsruhe. Seiters indicated that the BGH will probably wait for the answer from Luxembourg, which should postpone its judgment until late in the year.
The legal disputes, as illustrated by the reference to the ECJ, play against the background of the General Data Protection Regulation, which has been the be-all and end-all of all questions relating to the storage of personal data since 2018 – and which has repeatedly brought the German credit bureaus into the parade. According to the new set of rules, data storage for the “protection of legitimate interests” may be permitted. But where do these interests begin and end? This is hotly debated. In the past, credit bureaus such as Schufa collected mobile phone contract data from telecommunications providers, for example, citing a legitimate interest. Consumer advocates did not want to accept this and are currently suing the major mobile phone providers from Telekom to Telefónica.
Financial participation is hardly possible without positive credit bureau information
This question will also become very important when storing the remaining debt: How far do the interests behind the Schufa reach – the needs of the banks and trading companies? Do they justify three years of retention? At the Schleswig Higher Regional Court, the Schufa had submitted that in the first three years after the end of the insolvency proceedings, “payment problems” occurred three to six times more frequently. Axel Rinkler, the plaintiff’s lawyer, called this a “circular argument”: A negative Schufa entry makes people more susceptible to financial difficulties.
Because, the Schufa cannot deny that: With a positive Schufa entry, it is almost impossible to get a loan for a car, a property or even a mobile phone contract. The evaluation of the credit agency is considered the most important data basis for almost all decisions in everyday life. If you come with a negative Schufa entry, you usually have to resort to dubious or high-priced alternatives, for example credit: if you need one, for example to buy a car for your new job, you can only do that with a Schufa entry at significantly higher interest rates. It is then much more difficult to pay off this loan, of all people, who is trying to make a financial start.
It is obvious that Schufa would still like to stick to the storage. If the remaining debt is only allowed to flow into the Wiesbaden company’s data records in a shortened form, hundreds of thousands of data would have to be deleted. For a company that is as valuable as its wealth of data is large and good, that would be a bitter loss.