Credit, Collections & Insolvency News
The Financial Conduct Authority (FCA) has set out proposals to improve the credit information sector so it can deliver higher quality and more comprehensive information for consumers and firms.
Credit reference agencies (CRAs) build financial profiles of consumers which they sell to credit information users to inform lending and other decisions.
The FCA wants to see a higher quality of credit information, so that lending decisions better reflect people’s underlying financial circumstances. This should help make sure that consumers are not denied credit they could afford or given credit they can’t afford.
The FCA market study proposes a range of measures to improve the market, such as:
establishing a new, more representative and accountable industry body to oversee arrangements about sharing of credit information
improving the quality and coverage of credit information
enabling greater competition and innovation through potential changes to data access arrangements and more timely data reporting
simplifying ways for consumers to access their credit file and dispute any inaccurate information held about them
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said “It is vital that the credit information market works effectively for firms and consumers. We want to see industry reform to help deliver the changes, but in the meantime, it is important consumers know how to access their credit information and talk to their lenders if they are facing difficulties.”
“Our proposals will help consumers get better decisions from lenders and lenders to have confidence that the information they have access to is sufficiently comprehensive.”
The FCA says that lenders have said that they are largely happy with the breadth of information they have access to, but there are differences in the information held by different credit reference agencies.
While 90% of consumers are aware of the existence of credit scores and files, the FCA’s borrowers in financial difficulty research revealed that 47% of borrowers in financial difficulty mistakenly believed that the simple act of contacting lenders would have an adverse impact on their credit file – with 16% ignoring contact from lenders as a result.
Commenting on the FCA’s credit information study released this morning, Emma Steeley, CEO of Freedom Finance, said “Increasing access to affordable credit by helping lenders make better decisions will play a significant role in supporting consumers through the cost-of-living crisis.”
“Technologies like open banking are developing at pace to allow lenders to build up a more accurate picture of borrowers. Regulatory intervention will further empower industry participants to innovate, particularly benefiting those with limiting access to credit because their credit risk is over‑stated or poorly understood.”
“Widening the scope of information gathered by reporting agencies to include Buy Now Pay Later would further reflect progress, especially for younger borrowers who may have had less time to build up their credit score.”
“We strongly support the call to improve consumers’ understanding of their credit score to help all potential borrowers be in the best possible position to access the lending market at the lowest cost.”