Hard Look / Oh, for an Alternative to the Gray Market

Americans allow their financial information to be bandied about, and by private companies, no less, which actually trade in it.

How do you feel about your personal data - salary, credit card charges, mortgage payments being available to corporate Israel? Hate the idea? Yet that's precisely the situation in the U.S.

Americans allow their financial information to be bandied about, and by private companies, no less, which actually trade in it. Americans know that the availability of their personal data on pay, credit card usage and monthly expenses is an invasion of privacy. But they see the bright side, which is competition: in exchange, they get wooed by dozens of consumer credit companies, through enticing offers for cheap credit delivered to their mailboxes.

Actually, there's also the European model, which protects credit card and salary data. In Europe, private companies do not have free access to financial data. But state agencies, and in some cases even the country's central bank, make sure that only certified businesses with special authorization can access the data.

Nevertheless, Europeans also permit trade in basic historical information relating to its citizens' loan repayment history. They realize this is fundamental to maintaining a competitive credit market.

It is a stark choice between privacy or competition. If you want to withhold disclosure of the fact that your home finances are well managed and you always pay loans on time, you forgo the option of competition for your business. If you are willing to accept the dissemination of your data, you will also enjoy the fruits, including competing offers of credit.

The professional term for this is "positive information," or information about "positive" people, who manage their bank account well and pay their debts on time. The vast majority of the population belongs in this category. But the vast majority of the population receives no benefit for this, because in Israel, positive information is absolutely private.

This positive information is available only to you who repays your debts on time, and to your banker.

As a result, only your banker knows that you are an excellent customer worth doing business with, so only your banker is in a position to offer you credit terms.

Because your banker has the playing field to himself, he does not of course allow you to benefit from your exemplary behavior. In negotiating with you, your banker takes advantage of his monopoly on credit and offers credit at a far higher price than you would be paying if other sources were competing for your business.

But there are no other such sources, because no other credit provider can know for sure that you are such a good customer, and none can take the risk of offering you attractive, inexpensive credit terms. Far cheaper than what your banker is offering.

If you were to allow your positive information to be circulated, credit providers would be knocking at your door. But you allow no such thing. Or more precisely, the Israeli Knesset won't allow it, since it surrendered to the pressures of the banks in 2002, passing a law that allows only 'negative information' to be made available to others.

Thus information on delinquent customers or are simply crooks, can be accessed. Since no credit supplier wants to work with crooks or those in bankruptcy, little competition results from such information.

As a consequence, six years after the law passed, there is no competition among credit providers in Israel. You want a loan? Call your banker. The only alternative to bank credit is the gray market, and you don't want to go there.

The fact that the gray market is the only alternative to banks available in Israel for consumer credit is due to the campaign of fear conducted by the banks in 2002. They argued that access to positive information would give Big Brother access to all your financial details. This fear has protected the privacy of Israeli citizens magnificently. But it has buried competition for consumer credit deep underground.