Stakeholder view: Finance & Leasing Association

Introduction

1. FLA (Finance & Leasing Association), the leading representative organisation for the UK consumer credit, motor finance and asset finance sectors, welcomes much in this Bill which will further help the lending industry continue to combat fraud.

2. FLA members achieved £93.4 billion of new business in 2004.  Of this £25.0 billion was provided to the business sector and £68.4 billion was provided to the consumer sector.  In the above total is £18.3 billion of finance provided to the motor sector. FLA members financed at least 50% of all new car registrations in the UK in 2004.

3. Fraud represents a huge loss to members’ businesses across consumer, motor and asset finance. For example, motor fraud (i.e. the total value of balances outstanding on vehicles involved in fraudulent activity) cost FLA members approximately £15m each year. The introduction of ID cards will further assist in dealing with this problem.

4. Of principal importance, however, is how the cards will be used. We hope that the system will be watertight to minimise scope for fraud (e.g. change of address) so that the cards can be used as a secure, reliable means of identity verification. There are a number of issues we wish to highlight in this connection, notably:

• Practical implications of ID Cards
• Verification of lost / stolen / forged cards
• Integrity and accessibility of the data contained in the National Register
• Systems and technology requirements and associated costs

Practical implications of ID cards 

5. The key to the success of the scheme depends on whether ID cards will have sufficient status and be of practical use.  If the card were adopted by the credit and financial service industry, the status of the card would be considerably enhanced.   

6. ID cards could also assist the financially excluded to access mainstream financial services which would ought to help further the Government’s Social Inclusion agenda. Currently, due to the information sources available, the main one being the electoral roll, individuals may find it difficult to access these services. 

Many individuals do not have access to other documents which could potentially be used to verify address or identity. Alternative ‘proofs’ such as utility bills, bank statements and driving licences are less reliable.

If the ID card was available for applications then it will be open to all those wishing to access financial services either at the point of sale or remotely. The key advantage is that the core information on the identity card could be free-standing in that it will not relate or be based on other benefits or services which an individual has already acquired.

7. The cost of readers will determine the scale of the take-up: if costs exceed a few pounds, then take-up by the finance industry will be low, if non-existent. In the absence of biometrics, a reader similar to that used for credit cards (Chip & PIN) could be used to read data at low cost and provide an affirmative or negative indication as to whether the card is genuine.

We would like more information on these costs and would like to get involved in the Home Office’s discussions with stakeholders on how card readers could best be deployed.

8. We would see the ID Card scheme working on the basis that lenders adopt a risk-based approach to identification. At a basic level, lenders may verify that the customer’s face matches the photograph on the identity card.

A more rigorous approach would involve checking the card against a reader or even checking the national register database (for a fee). We would like to see a consistency of approach between the FSA’s verification requirements and the national identity card scheme.

9. It would be beneficial if the Government mapped out a practical step-by-step procedure as to how the identity cards will work when customers request credit eg at a motor dealership.  We would welcome some sort of pilot scheme with a retailer and would like to be involved at the early stages.

10. Whilst Clause 6 gives the Secretary of State power to require registration, it needs to be made clearer at whom ID cards are initially aimed. 

During the time when the scheme is still voluntary, the take up of ID cards will not be universal, and until the cards become universally accepted both by the general public and financial institutions, the benefits of the cards as ID verification tools will be minimal. 

Furthermore, we believe that registration should not be made compulsory until sufficient public and private outlets are technologically competent to ensure that the system works effectively.  Their usefulness will be more effective when the cards become compulsory.

11. It is also unclear precisely which information is to be contained on the cards.  Clause 3 and Schedule 1 provides for regulations to specify what information is contained on a card.  For the purpose of Clause 1(3) (a) (a “convenient method” of identification), is it intended that the card will include at least the information in Schedule 1, paragraph 1, plus a photograph?  We seek clarification on this.

Verification of lost/stolen/forged ID cards

12. Clause 13 provides that the Home Office must be notified if a card is lost or stolen and that the card may then be cancelled.

13. There needs to be a mechanism available to a person wanting to rely on a card proffered to him for identification purposes, for that person to check that card against the Register and established whether or not it has been cancelled.  This should be a separate process from any access to the Register for identity verification purposes.  Unless there is available to the general public a mechanism for checking that cards do match the Register, they will be of limited benefit for the purposes of Clause 1 (3) (a).

14. Whilst we welcome the fact that the Home Office is aligning penalties for fraudulent applications for passports and driving licences, we see little evidence that these and other Government agencies accord the detection of fraud with the due weight that it deserves. 

We feel that the civil penalty not exceeding £1000 as proposed in Clause 12 (6) is too lenient to ensure its effectiveness in minimising abuse and request that this is reviewed.  We would also be interested to hear how the Government intends to communicate and enforce this penalty to the general public.
 

Integrity and accessibility of the National Identity Register

15. FLA members, including credit reference agencies, would need appropriate accessibility and comfort in the integrity of the data contained therein in order to be able to rely on it for identity verification purposes.

16. We question whether the register is able to be accessed by commercial organisations in this manner.  We ask whether Clause 1(4b) is intended to be available for the purposes of commercial organisations taking steps to prevent or forestall fraud and money-laundering or is it intended to be restricted to police authorities and similar. 

 Since Clause 1 (3) (b) applies only as specified in Clause 1 (4) this would surely contradict the true essence of the ID Cards scheme to combat fraud and money laundering.

17. Those FLA members who are regulated would like an undertaking from the FSA that reliance on the identity card will be sufficient to meet Know Your Customer (KYC) requirements.

18. The integrity of the database is key to how effectively the identity card scheme will help to combat fraud.  Our concern is that the information captured on the national register from the outset will only be as secure as the information gathering and updating process: the biometric technology production, storage, transfer, initial capture and update of information must be complete, transparent and, above all, totally secure.

19. The Bill does not address a number of key issues regarding the data contained on the Register.  We would like to know the source of the data and the official “owner” of the register. 

We would like more information on where the data is coming from and the mechanisms in place to ensure that the data is accurate in order for the industry to feel confident in their use in identity verification.

20. FLA’s present reservations about linking the driving licence database to the national identity card scheme stem from having insufficient faith in the verification and security procedures of the DVLA: there is much work to be done to improve the accuracy of the DVLA’s records.

Similarly, the passport database is susceptible to fraud and there is no requirement for the holder to provide any change of address.

21. The information gathering procedure and the subsequent data amendment process must be carefully thought out before implementation of the scheme.

22. We presume that our members have access to it in the interests of the public to prevent money laundering and fraud to enable the apprehension of offenders. 

23. We need to ensure that financial institutions are able to access the Register under the proposed legislation and how this will work in practice.

24. We are particularly concerned with Clauses 14 and 18. These concerns focus on when the information required for primary identification is not readily available from the card, and the Register needs to be accessed either to match the card with Register (to ensure that the card is genuine) or obtain further detail about the person’s identity (to confirm identity).

25. Clause 14 (1) provides that the Register may only be accessed with the authority or consent of the individual.  This causes problems in relation to applications for credit, especially when the authority or consent of the individual is not given when the application is made.

26. What is more, Clause 18 makes it unlawful for financial institutions to require the individual to give authority or consent as a condition of, e.g., entering into an agreement with the individual e.g. making a loan or opening a bank account. Indeed Clause 18 makes it unlawful to require production of the card, with or without reference to the Register. 

This would mean that the industry would not adopt a standard which enabled ID cards to be used as a primary source of identification. Clause 18 (2) details those cases where ID cards must be produced. The clause does not make reference to financial institutions.

27. Commercial companies will therefore be forced to take other forms of identification (e.g. passports), which may be more “unreliable” and prone to fraud.  This would seem to conflict with the Governments wish to prevent money laundering and fraud.  This would seem to open up a loophole for potential fraud. 

28. Also, we seek clarification of clause 18 (2) (b). As drafted, the provision makes it lawful (for the purposes of Clause 18 (1)) to require consent to access the Register or production of a card if there is an alternative method of establishing the individual’s identity. It is hard to understand the logic of this.

Systems and technology requirements and associated costs

29. We have concerns about the technology and associated costs required to validate the biometrics. There will need to be a huge amount of investment in new technology, which will need to be totally secure. 

This technology will affect not only a companies’ integral systems but there will also be a requirement for some form of scanning apparatus to be able to read the biometric information electronically. 

We seek clarification as to the format of the ID cards’ data, especially the biometric information.  Will this be in an encrypted format for instance? 

This obviously has huge implications for systems development.  This technology will need to be universally accepted by the financial services industry.

30. The costs of this technology will determine the scale of the take up by the industry especially given the large number of outlets that this will affect.

31. We would like to be included in the Home Offices consultation on the technology developments. 

There will need to be adequate lead times for implementation of this new technology and systems integration which will affect a large number of outlets.

Conclusion

32. FLA welcomes the Bill in principal and supports the introduction of identity cards as a means to combat identity fraud which costs the industry millions of pounds every year.

33. We would like to be closely involved with the Home Office on the practicalities of implementation of the scheme, notably access to the register for specific purposes and how the register will operate.

We would like to see the fullest possible data-sharing between the public and private sectors to ensure the accuracy of the register.

It is important that our members have access to readers via an accredited licensing system.

Furthermore, our members favour an informal arrangement with the authorities to ensure that they are never knowingly provided with false information which impacted adversely on the business. The key to the success of the scheme lies in how well the data is gathered and its integrity for it to become a reliable tool in identity verification over and above the existing forms of ID which are currently being used by our members.

34. FLA seeks clarification on the specific uses of the cards and whether financial institutions will able to accept them at all.