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.'
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.
Further research by the FCA about how consumers use credit
information, found that 43% of consumers did not realise they
have a right to access their statutory credit report for free.
The FCA has asked the industry to set up a new representative
body in 2023 and will then work with the industry to agree
further improvements.
The current cost of living pressures means consumers may be more
worried about their credit file than usual. Credit reference
agencies and those offering credit information services should
consider the proposals alongside the forthcoming Consumer Duty,
to see if their processes and communications with customers could
be improved.
The report is part of the FCA’s strategy to promote competition
and positive change in the UK’s world leading financial services
industry, which has widely recognised and respected high
standards.
Notes to editors
- The interim report is
available. This is part of the FCA’s wider work set out in
our business
plan to make sure consumer credit markets work well
and our commitment to putting consumers’ needs first.
- The FCA will seek feedback on its findings and proposed
remedies for three months before publishing a final report in
2023 Q3. The deadline for comments is 24 February 2023.
- The FCA’s Vulnerable Customer Guidance (VCG) sets out how
firms should follow their obligations under our principles and
make sure they treat customers in vulnerable circumstances
fairly.
- The FCA has already helped consumers dealing with the cost of
living squeeze by:
- reminding 3,500 lenders of how they should be supporting
borrowers in financial difficulty. 32 firms have been told to
make changes to improve the way they treat customers and so
far, seven of these firms have voluntarily agreed to pay £12
million in compensation to nearly 60,000 customers.
- engaging with Buy Now Pay Later providers to secure
improvements to unfair terms and conditions, ahead of
regulating the market
- telling banks to improve the way they treat struggling
small business owners when collecting and recovering debts
- urging insurers to support struggling customers and to
make sure customers are protected from unnecessary products
and unfair penalties
- warning firms about unsuitable credit promotions. As a
result of the FCA’s work nearly 8,000 adverts have been
amended or withdrawn, helping to protect consumers from being
misled.
- The FCA has set out ways that customers can
get advice about dealing with cost of living
pressures.
