Information on Personal bank loans with bad credit

These days firms can compile detailed portraits of our personal lives. The commercial and social consequences are alarming, warns Perri 6

We live in a personal information economy, and information is money. The assumption about the digital age has always been that greater access to information will create new opportunities and forms of wealth. If every citizen had an e-mail address and net access, the argument goes, the digital divide would be bridged. Thus the government has concentrated its efforts on rolling out internet kiosks in shopping arcades and library computing centres in the hope of widening access to online information.

But these initiatives target the wrong issue. In the long run the dangers to society implicit in exclusion from information will be far exceeded by the dangers of exclusion by information. This raises fundamental questions about who takes responsibility for the social consequences when companies that control the flow of cash and credit classify people as "bad risks".

One of the principal uses of global communications networks is to develop and exchange detailed personal profiles which organisations use to make decisions about us. To an extent this is constrained by data protection laws, at least in Europe, but in practice these laws cannot wholly prevent this exchange. Many of these decisions are explicitly about our financial status. Personalised information is the fuel on which the modem economy runs: decisions about employment, insurance, lending, risk assessment and benefit entitlement are made according to specific data, produced and manipulated on an industrial scale.

Companies gather huge volumes of personalised data from us all at the point of sale, through surveys and by buying it from other information-gatherers. Through the use of increasingly sophisticated data-matching techniques, particular pieces of information that you may have supplied to one company on an anonymous basis can be pieced back together with your personal identity by another organisation.

Businesses use databanks of this kind to target new customers, tailor new services for existing ones and decide which categories are not profitable to serve at all. The spectre here is that information technology may be used as an engine of social exclusion.

It is entirely rational that businesses, from airlines to retailers, should want to take advantage of electronic tools allowing them to make finely tuned decisions about which customers represent the best long-term revenue streams; and to weed Out or charge higher rates to others who are "bad risks".

The flip side of this coin is that data systems may be accurate enough to target the worst-off customers and heavily market services that worsen their position. There has already been a series of exposes of some companies in the "sub-prime" lending market that use sophisticated data analysis in order to persuade people on low incomes to take forms of debt, including mortgages, consumer credit and certain forms of insurance, that are extremely expensive.

As the mainstream banks begin to stake their interest in the sub-prime market by offering products with much higher price tags, they argue that they are providing opportunities for excluded people to join or rejoin the mainstream credit system and reduce their dependence on loan sharks. But if for individuals the financial price of overcoming their bad risk rating is too high, then the cumulative effect is still persistent exclusion. What may be actuarially fair for a particular business can look far less desirable for a whole society.

Consider, for example, the recent announcement by some of the British high-street retail banks that they intend to set interest rates for overdrafts and credit cards on an individual basis. The information on which they will make these decisions will, for the most part, be true and relevant. However, higher interest rates will relate to higher risk customers who, in practice, will be on low and irregular incomes.

The problem goes beyond a legitimate attempt to identify which individuals will default on loans or cost businesses money. It is that many people's custom, especially in banking and financial services, is just not that profitable. Up to now, however, it has been hard for companies to predict which customers were going to make money for them. Thus the profits from the most lucrative transactions have had to subsidise other consumer relationships with little value. Information technology allows companies to change this, and to argue that customers who are "good risks" should be able to benefit from lower interest rates or charges rather than paying the price for this subsidy.

In itself, matching interest rates to risk is not unfair. But in the short-term, it increases the cost of servicing debt, and people's credit profiles will retain these decisions for the rest of their lives.

Thus the new forms of risk profiling threaten the ability of an individual, a household or even a neighbourhood to improve their lot. In a world in which nothing is ever erased from one's data profile -- there is no legal equivalent of a "spent offence" in personal finance -- it becomes very difficult for a transgressor to clear their name and be rehabilitated into the mainstream.

Although banking and the financial industries provide the most graphic illustrations of how risk is becoming individualised, the same process is happening in many other areas, from allocation of job opportunities to university entry. More and more, organisations make decisions about individuals based on personal "merit". In practice, merit means the best available personal information that an organisation can access about the risks individuals represent.

If the broad effect is to create or consolidate exclusion, then the trend to a more meritocratic society may end up hindering social mobility. This conclusion runs counter to conventional wisdom and directly against the government's recent claim that meritocracy should be society's central goal. A society that organises itself exclusively on the meritocratic principle offers little or no protection to those whose characteristics as customers -- not all of which are within their control -- do not enable them to qualify. Qualification for a range of basic services and opportunities is arguably part of a decent quality of life.

Although more of us than ever before have bank accounts, the poorest people are clearly not profitable customers. Banks privately admit that roughly 20 per cent of their customers generate 80 per cent of profits, and that at any point a majority of customers may be loss-making. In future, as banks get closer to predicting accurately which customers fall within the profitable 20 per cent, they can target their products far more closely. As mainstream banks and insurers retreat, the bottom end of the commercial market, serviced only by the least scrupulous sub-prime lenders, could grow steadily.

So should the responsibility for ensuring a basic standard of living for "bad risks" fall to the state? For 30 years the trend among governments has been to target social spending, restricting universal entitlements and using means testing and time limits to contain pressure on the public purse. By consensus, this strategy has been seen as the best way to make social spending both affordable and legitimate among taxpayers.

The argument outlined here could make the continuation of such an approach very difficult. Harnessing the power of personalised electronic information, market forces will add continuously to the numbers (and unmet needs) of those citizens classified as bad risks -- because it makes straightforward business sense to do so. The state could find it less and less viable, not to mention politically dangerous, to continue to take final responsibility for offering services and opportunities to the excluded.

We urgently need a public debate about the social implications of the personal information economy. Over the next ten years, reconciling increased corporate efficiency with a wider sense of fairness could become a hugely significant political dilemma.

Perri 6 is a senior research fellow at Demos. Divided By Information? by Perri 6 with Ben Jupp, is sponsored by EDS and is available from Central Books on 0208 986 5488, [pound]6.95.