Harnessing the credit culture through debt management

Lanstraust Malta General Manager Karl Xuereb speaks to DAVID LINDSAY about the company’s unique emergence onto the market and the services it provides to clients looking to streamline their debt management operations

The launch of Lanstraust Malta in November last year caused something of a culture shock but now that the initial flurry has subsided, Lanstraust Malta General Manager Karl Xuereb explains that there has been a good response to the services offered, which are now becoming widely accepted.

Xuereb gives a brief overview of Lanstraust’s scope of operations, "We gather credit information fairly and disseminate it to people who need it to make credit decisions. Our objective is to help people manage their debt and most information we offer is derived from the public domain. What we’ve done is go through the lengthy process of filtering data that could otherwise take weeks for a company to gather.

"If you are a bone fide individual or company, you need not be concerned. We are a very friendly, open company with nothing to hide. People are free to phone us and we’ll help them as much as we possibly can. We’re not dying to put debtors into our database - contrary to the idea some people may have - we are here to protect legitimate business interests.

"The Data Protection Act is, of course, fully respected. As such the people on our database have a right to be notified that we hold such data, they have a right to access the data and a right to correct the data, but they do not have a right to say that we cannot hold it if is correct."

Lanstraust Malta is a fully owned subsidiary of the Icelandic company, which was set up in 1997 to provide the type of business information the Malta office provides through the use of new technology.

While the establishment of the Icelandic company had also been greeted with a certain degree of scepticism, today it is the leading and only provider of such business information in Iceland.

The mother company has been very successful, to such an extent that in 1999 a group of Icelandic banks and financial institutions bought 90 per cent of its shareholding, which reflects their confidence and trust in the operation.

Now the Icelandic company has consolidated itself to such an extent at home that it has taken up an internationalisation strategy, of which the Malta office is the first offshoot. But Malta was merely the first step in this direction and the Malta office is expected to be closely involved in rollouts in other jurisdictions, using the Maltese experience as a model on how to best achieve this.

And despite the fact that Malta is generally regarded as a small jurisdiction, it is in fact very similar in size to that of Iceland, and a mammoth effort was required to get the operation off the ground.

Xuereb explains, "The actual preparation of the database required large amounts of staff. What we did was process about 30,000 warrants from the courts, starting from 1 January 1999. These of course were all the warrants issued since then and what needed to be done was to gather the information from the files and filter out only what concerned us – outstanding executive warrants related to non-payment.

"The process of viewing such a large amount of records and extracting the information we needed was painstaking and time-consuming.

"There is an extensive filtering process involved and we have an obligation to ensure that the data we hold is fair and updated. For example, one of the first things we look at is whether the warrant in question is an executive or precautionary warrant. We do not act upon a precautionary warrant, while an executive warrant qualifies for entry into our database, with some exceptions. So the process involves identifying which warrants are executive, which are garnishees or mandati ta’ qbidetc.

"What we are interested in knowing is whether the debts in question have been paid and there are a number of procedures we go through to establish that. One is that we have listed all debtors by creditor and, where possible, we go to the creditor to obtain a confirmation of payment or non-payment.

"Then in the case of certain creditors that could not provide a confirmation, normally due to confidentiality measures, we go back to the court records, sift through all the files again to try and identify if there is any evidence of payment.

"Then finally we send a letter to the individual debtor or company in question. In the letter we inform the debtor of the information we have, state where it’s been sourced from, the name of the plaintiff and the type of warrant - without mentioning the sum. We also say that if we do not receive information to the contrary within a specified period of time, they may be entered into a database. The letter also stipulates exactly what people can do to avoid being listed and how we can be contacted for more information or assistance.

"However, if there is a warrant then a letter has to go out but if a letter is received it doesn’t mean that they are actually included in the database. It simply means they may be placed in the database - it’s more a warning, or a chance to clarify their position.

"We need to be fully satisfied that entry into the database is justified and part of that process is sending them this letter and getting, or not getting, a response."

Lanstraust had at first sent out a considerable number of letters, several thousand, which had prompted some 3,000 phone calls to the office.

Xuereb explains, "For a period of time we had a mini call centre set up through which people could call, quote their letter number and be given an avenue by which to correct any erroneous data from the initial filtering process. We found that between 15 and 20 per cent of the records we had listed had been paid up.

"We trained our staff to take the calls, which were sometimes very irate in the beginning but now those receiving letters are beginning to realise that we are there to help them, to help them solve the problem and to set the record straight.

"We do not want to put anyone in the database with negative payment information if they shouldn’t be there. Only when there is clear, indisputable evidence that a warrant for payment has not been heeded does anyone qualify for entry into our database."

Although the banks and the larger companies maintain their own credit information databases, Lanstraust is the only commercial operation of this type being run in Malta on a professional basis and in line with all legal requirements such as the Data Protection Act, which is fully adhered to.

Xuereb explains, "The whole idea of the Data Protection Act is to ensure not only that the data is fair, but also that you do not have access to data that you don’t necessarily need. For example, our contracts stipulate restricted use, meaning that users have to have a valid business reason for looking up a particular person or company.

But how do you police that, I ask?

"We make it a condition in the contract and we log all entries into the database so that if someone brings a complaint forward we can determine when someone accessed information on a person and what information they accessed. Our system does not include a complete list of defaulting debtors, a list of warrants, or any other such comprehensive list of the data we have. All users can do on the site is look up an individual or a company and see what relates to them. As such, users cannot go through an entire list and see everything that there is.

"The reason that is done is to safeguard privacy. If there was a complete list and a user is scrolling down looking for an individual, they would inevitably also see everyone else along the way – information they should not have access to if they are not doing business with them. The system is designed for users to see only what they need to see, while that also makes the system extremely practical to use."

Lanstraust’s operations encountered certain criticisms when it first entered the market, how does Xuereb reply to those levelled at the company?

"I think that whenever you do something radically different and when it impacts the culture the way it is doing here, you are always going to encounter resistance. I believe that any concerns expressed over our operations have been resolved.

"The main sticking point was that some people had interpreted the letters we send out as threats. The letters are part of a process of establishing that there is a debt and are in no way to be interpreted as threats. It could be that we send a letter to someone, the debt has been paid and we wouldn’t have known about it, which is the precise reason for sending out such letters as part of our verification process.

"We are not in the business of debt collection. Our scope is the management, the processing and the distribution of information useful to decision making when it comes to debt management. But still sometimes we send a letter out and a reply comes with a cheque enclosed. In that case we phone whoever may be concerned and inform them that we have a cheque for them.

"Now it’s come to the stage at which many are becoming familiar with exactly what we are doing here and what we can offer to help people. We have a significant number of individuals and companies using the system such as top law firms, accountancy firms and those in the business of granting credit. The types of services that we would supply to certain companies are far more complex than others. Banks could make use of it or someone with a small shop could also use it to run a check before accepting a cheque.

"There are a number of levels of service offered by Lanstraust but at the end of the day what it is doing is helping people to manage debt portfolios."

The most basic service is a subscription that includes a secure user name and password, which allows users to enter the system, which appeared very user friendly and included a vast array of information - including all pending warrants, information from registry of companies and the electoral registry - from the demonstration I was given.

A monitoring service is also offered, which effectively informs a user when any particular record has been updated, while a CD or file relating to particular records can be downloaded periodically and integrated within a company’s accounts system.

The Malta office is expected to play a large part in Lanstraust’s internationalisation process.

Xuereb explains the dynamics, "Business is growing and apart from setting up the Malta subsidiary, we are looking at other countries in the region and also outside the region. The Malta office is the first in a number of projects and we have a team of people looking at a large market but we need to look deeper at the market conditions.

"We intend to use the experience, both negative and positive, to understand how we should be setting up and carrying out the same operations in other countries and spread out from there."