Information Exchanges and the Consumer Interest

Case C-238/05 Asnef-Equifax v. Ausbanc judgment of 26 November 2006

Spanish banks agreed to set up an electronic register of credit information that would disclose the credit history of potential customers. The effect is that each bank is aware of each potential client’s credit history and takes this into account when negotiating further loans. A horizontal agreement no doubt, but was it contrary to Article 81? The Spanish Court was in doubt and asked two questions of the ECJ.

Does the agreement restrict competition?
Wisely the Court noted that prima facie the agreement made for more competitive markets, since lenders were now better placed to offer loans based on a more informed understanding of each client’s credit risk (so the solvent client would get preferential loans, and the very risky clients no loans at all, thus preventing him from accumulating even more debt). Moreover, clients can now obtain credit more easily from financial institutions other than the ones from which they have borrowed historically, since all banks have their credit histories.

However, an anticompetitive effect might arise, said the Court, and three factors were relevant (this is not a cumulative test):
(1) The degree of market concentration (that is, how many banks are there, a few or many?)
(2) Whether the register discloses information that allows competitors to see the business strategy of other lenders (accordingly it is imperative that the names of lenders be invisible)
(3) Whether all lenders are able to have access to the register

Condition 3: making markets work better?
The ECJ rightly noted that the agreement, if anything, was more likely to benefit consumers than to harm them. Nevertheless, it is troubling that the Court said that the agreement was lawful only because any lender could join the scheme set up by the parties. The condition makes sense for all lenders because the more lenders join, the more information all have about the credit history of clients. But the Court’s analysis is slightly troubling because even if the first two criteria are met (the market is not concentrated and the information does not allow for parties to understand each other’s business strategies) the exchange of information is lawful only if it is open for newcomers, but the first two conditions are sufficient to prove that the agreement does not restrict competition. The third condition is designed to allow the market to grow, providing opportunities for new lenders to enter. But this is regulation, not the application of competition law.

The Consumer interest
Should the national court find (highly unlikely given the above reasoning) that the agreement restricts competition, the Court offered some guidance on how the consumer benefit test in Article 81(3) might be applied. The Court did not refer to the Guidelines on Article 81(3) that roughly have the same as the judgment: Paragraph 87: ‘The decisive factor is the overall impact on consumers of the products within the relevant market and not the impact on individual members of this group of consumers.’

But after stating that one should look at the benefits for consumers generally, the Court muddies the water, saying that two groups of consumers benefit: those who get better loans, and those who do not get loans because of their bad credit scores, and this is a benefit because it avoids over indebtedness. It is a little patronising for the Court to say that, but also one wonders why a private agreement is necessary to avoid over indebtedness, as surely this is a task for the legislature, not competitors. But this wider conception of consumer interest is part of the Commission’s practice – recall how reduced electricity consumption benefited all members of society in CECED.

In sum, this judgment shows the Court in full regulatory mode: it designs markets to ensure they facilitate the entry of new players, and suggests that agreements can be exempted if big spenders are denied loans, competition law as a device to protect improvident consumers. Real antitrust law shoudl be more humble about its capacities and its scope.