November 14, 2006

The fact that another international credit bureau is entering the Canadian market should make life easier for consumers.

Stealthy credit facilitators

By Peter Diekmeyer • Bankrate.com

By all appearances most Canadians greeted with a big yawn the announcement that Experian, a global provider of consumer credit information to businesses, has decided to expand operations here. News editors played down the story and those who did report it, gave it low priority.

However although credit bureaus often operate below the radar, they play a huge role in facilitating the financial dealings of millions of Canadians. So it’s worth paying attention when a new player enters the fray, as Experian did several weeks ago, when it acquired the Canadian operations of Northern Credit Bureau.

Like its primary competitors Equifax and TransUnion, Experian helps lenders make more informed and reliable credit decisions, by providing them with information about the personal finances about the millions of consumers whose profiles are maintained in the company’s databases. The relatively open market for this type of information is a big reason that consumers can get pre-qualified for credit products ranging from an online loan to an on-the-spot car lease, seemingly without much verification being done.

Big opportunities from expanded borrowing
According to one of its key executives, Experian sees significant opportunities in the Canadian market. “Consumer borrowing levels have increased substantially in recent years,” said Hiq Lee, the company’s executive vice-president (credit information systems). “With total consumer debt now exceeding total personal disposable income, financial institutions, credit grantors and retailers need better alternatives for data and tools to manage their businesses.”

Experian already had a foothold here in Canada through its Experian-Scorex subsidiary, which provides scoring and software tools to Canadian lenders. However the Northern Credit Bureau acquisition, which brings to 13 the number of countries in which Experian operates a consumer credit bureau, gives it a solid base from which to build its domestic credit reporting business.

Not surprisingly, the increased globalization of consumer and financial markets is a big reason for the London Stock Exchange listed company’s move into Canada. “Our international customers were asking us to provide them with services throughout a number of countries and Canada appeared to be a good fit,” said Tony Canapini, Experian Canada’s country manager.

Like all of Canada’s major credit bureaus, Experian, which collects credit information about consumers from businesses and then resells it to clients ranging from retailers to financial services organizations, generally operates below the radar of most consumers. However according Canapini, the company’s move into Canada will be a net plus for local consumers.

“Although consumer borrowing levels have gone up here in Canada, debt isn’t necessarily a bad thing unless it is managed poorly. However smart borrowing can give consumers access to product which they would otherwise have to wait a long time for,” said Canapini.

Does Canada really need another credit bureau?
However according to one consumer affairs activist, it remains unclear what advantages the entry of a new player into the Canadian market will bring. “Do we really need another credit bureau here?” asked Jannick Deforges, a lawyer with Quebec-based Option Consommateurs. “Credit usage is already fairly widespread. In fact many consumers have borrowed too much. Is it really a good thing to make it easier for people to borrow more?”

Nor is Desforges impressed with the credit bureaus’ claims that they are striving for better accuracy. “Numerous studies ranging from those by Consumer Reports in the United States to Proteger-Vous here in Quebec, show that errors are widespread in the information collected by credit bureaus.

“We are already telling consumers, particularly those who are having trouble with their credit planning, that they are entitled to a free copy of their credit report and they should request a copy from all of the bureaus each year,” said Desforges. “However if there is another player in the Canadian market, consumers will have to keep track of three credit reports instead of just two.”

In a sense, this would benefit the credit bureaus just fine. Both Equifax and Trans Union sell services that enable consumers to monitor changes in their own credit profiles, in exchange for a small monthly fee. Experian offers a similar product to its U.S. customers and is thinking about making the services available to Canadians too. The more credit bureaus that Canadians who want to track their credit records have to worry about, the easier it will be for them to sell those credit monitoring services.

The bottom line is that although Canadians as group tend not to focus too much on the operations of credit bureaus, there is a lot going on below the surface. Credit bureaus clearly bring a lot to the table in terms of speeding the granting of loans, which in turn speeds economic growth. Yet for many consumers, especially the increasing numbers of those who are loading up on debt, it remains unclear whether the benefits exceed the costs. As a result, at a bare minimum, keeping abreast of industry developments is more than worthwhile.

Peter Diekmeyer (www.peterdiekmeyer.com) is a freelance business and economics writer.

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