FCA to crack down on credit information market
The Financial Conduct Authority (FCA) intends to crack down on the credit information market as part of its plan to encourage better lending decisions for borrowers.
The City regulator has announced that it will set up a new industry body to oversee arrangements about the sharing of credit information and improve the quality and coverage of credit information.
The new industry body will be established in 2023, and will look at all regulated lending activities, including peer-to-peer lending.
The FCA said that its aim is to “see a higher quality of credit information, so that lending decisions better reflect people’s underlying financial circumstances.”
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This should help make sure that consumers are not denied credit they could afford or given credit they can’t afford, the regulator added.
“It is vital that the credit information market works effectively for firms and consumers,” said Sheldon Mills, executive director, consumers and competition at the FCA.
“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.”
According to FCA research, 90 per cent of consumers are aware of the existence of credit scores and files, but there was less clarity among those borrowers who were already in financial difficulty.
The research found that 47 per cent of borrowers in difficulty mistakenly believed that the simple act of contacting lenders would have an adverse impact on their credit file. As a result, 16 per cent of these borrowers ignore contact from their lenders.
Furthermore, 43 per cent of consumers did not realise that they have a right to access their statutory credit report for free.
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As the cost of living crisis continues, the FCA said that access and awareness of credit information has become even more important.
It has urged credit reference agencies and those offering credit information services to consider the proposals alongside the forthcoming Consumer Duty, to see if their processes and communications with customers could be improved
The credit review has been welcomed by the lending industry.
Emma Steeley, chief executive of digital lending marketplace Freedom Finance, said that 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,” Steeley added.
“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.
“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.”
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