exclusive
Many companies use the credit rating from Schufa, Germany’s largest credit reporting agency, as research by NDR and SZ resulted. The European Court of Justice could now significantly restrict its use.
It’s just a number, but it apparently determines whether you get something or not more often than previously known: the so-called Schufa score. The credit rating from Germany’s largest credit reporting agency is based on research by NDR and “Süddeutscher Zeitung” (SZ) are used by numerous large companies in various industries to decide whether to enter into a contractual relationship with customers and under what conditions.
This is particularly interesting in light of an upcoming ruling by the European Court of Justice (ECJ), which is announced for Thursday: The judges could significantly restrict the use of the Schufa score and comparable credit ratings.
Schufa score decides on electricity and gas contracts
NDR and SZ asked almost a hundred large companies in Germany before this decision how important such consumer reviews were for them when entering into contractual relationships.
In the survey, several large energy suppliers confirmed that they use the Schufa score in particular to assess new customers. Anyone who is certified by Schufa as having good solvency will receive an attractive special contract with more favorable conditions from the energy supplier. Those who are rated less well are only offered the comparatively expensive basic care. Schufa expressly advertises the use of its scores in the energy supply industry on its website. They are important for “optimal risk management during onboarding”, i.e. when assessing the creditworthiness of previously unknown customers.
Michaela Engelmeier from the German Social Association (SoVD) sharply criticizes the energy suppliers’ actions: “We find offering favorable conditions only to those who can already afford it to be highly anti-social and lacking in solidarity,” said Engelmeier.
How fair is the application? Energy suppliers?
Scoring expert Matthias Spielkamp from the non-governmental organization Algorithmwatch is also critical of the use of scores by energy suppliers: “One can certainly ask oneself how fair it is if the poorest in society in particular are at a disadvantage when it comes to basic things such as energy supply. After all, it’s not about whether you buy a second car, but about getting your apartment warm.”
Johannes Müller from the Federal Association of Consumer Organizations particularly criticizes the lack of transparency: “Providers have to say how the score was incorporated into the decision as to who the score came from. And the providers of the scores have to say what information was included and with what weighting. So Consumers can understand their scores.”
Many companies rely on Schufa scores
According to research, the Schufa score is also crucial for larger transport companies when it comes to whether or not certain subscriptions are taken out, as is the case for mail order companies, especially in order to assess the creditworthiness of new customers.
Two large payment service providers also stated that the Schufa score was an important criterion for them. The companies surveyed mostly asked not to be named. The answers from banks and savings banks suggest that the Schufa score alone is often not decisive for them and that a lot of other information is taken into account when making a credit decision. Only in some cases is the Schufa rating crucial.
ECJ could restrict scoring
In his closing argument in March 2023, the Advocate General at the ECJ stated that the Schufa score should not be decisive when companies decide on contractual relationships. So it cannot be a knockout criterion. The score is a probability value that is calculated from customer data using mathematical and statistical methods and is intended to predict whether someone can pay bills or repay loans.
However, according to the Advocate General, it is not permissible for such a number to be used to make decisions about consumers almost automatically. The European General Data Protection Regulation (GDPR) expressly excludes this. In the vast majority of cases, the European Court of Justice follows the closing arguments of the Advocates General in its judgments.
Schufa is preparing restrictions before
NDR and SZ had already reported in September 2023 that Schufa had tried to get contracting companies to provide a written statement in advance of the ECJ decision. Accordingly, companies should confirm that the Schufa score is not a knock-out criterion for their contract decisions. This was initially met with irritation and surprise by some companies.
However, the customers had confirmed “in the vast majority” that the score was “important, but not decisive,” said Schufa boss Tanja Birkholz in the “Tagesspiegel” last week. Nevertheless, the Wiesbaden credit agency says it is preparing for scoring to be restricted by the ECJ ruling.
In this case, Schufa is working together with other credit agencies to change the Federal Data Protection Act (BDSG), which should continue to enable the use of such assessments. Until then, consumers would like to be asked to expressly agree if a decision is to be made based on a score.
Score is difficult to communicate
How such a score is calculated in detail remained unclear for a long time. Schufa liked to use the term “Coca-Cola formula”, i.e. a secret mixture of unknown ingredients. But research from NDR and SZ now suggest that the creation of consumer reviews in the company was seen more as a communication problem than as a business secret that should be carefully guarded.
Accordingly, the individual score characteristics were arranged in an internal Schufa list according to how well they could be communicated to the public. The components from which the consumer rating is calculated were marked with five colors: dark green (“good for consumer communication”), light green (“may be suitable”), yellow (“difficult to communicate”), orange (“hardly communicable”) and red (“not suitable for communication”).
Of 70 features in the list, only 17 were rated as unconditionally “good for consumer communication.” However, in most cases it is unclear why Schufa did not consider the characteristics to be communicable. There are only indications for the characteristics “age” (“possibly problematic due to anti-discrimination”) and “postal code of the person’s current address” (“regional debate”).
Several features were apparently only considered transferable if they had a positive effect on the Schufa calculations, such as the “existence of a checking account”, the “number of properly settled installment loans” as a “co-applicant” and the “existence of a mail order account”.
A Schufa spokeswoman explained that it was not possible to understand which internal documents were involved. The company can therefore neither check nor comment on the information. Schufa recently disclosed parts of its score as part of a so-called transparency offensive. However, most of the features remained obscure due to trade secrets.