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The UK’s 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.
An FCA market study into credit information providers has concluded that credit reference agencies (CRAs) could deliver better outcomes for those it serves.
In response, the FCA has requested that the CRA industry set up a new more accountable and representative body in 2023 to oversee arrangements for sharing of credit information. It has also stated it wants to work with the sector on other improvements.
"It is vital that the credit information market works effectively for firms and consumers,” said Sheldon Mills, consumers and competition chief at the watchdog.
“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.”
The market study proposes a wide range of changes. This includes an industry led initiative to reform governance arrangements and agree to a set of priorities for the industry over the next three years.
It is hoped that a system like this will ensure that key measures are delivered, and that enhanced transparency and accountability is provided for.
The FCA has also outlined measures to improve the coverage, quality and consistency of credit information to help deliver better customer outcomes.
Suggestions here include better incentives for consumers to engage with their lender (or lenders) and agree meaningful payment arrangements, as well as certainty for consumers about the length of impact on their credit file where they engage with their lender and maintain payment arrangements.
The FCA has also called for more flexibility in exceptional circumstances, for example, to prevent consumers being flagged consistently across industry for an issue that has no long-term impact.
The regulator has also said that it wants to enable greater competition and innovation through potential changes to data access arrangements and more timely data reporting.
“The emergence of new products with higher usage frequencies and shorter repayment schedules may now raise a significant question around whether reporting to CRAs on a monthly basis remains appropriate,” the FCA suggests in its market study.
This, the FCA says, means that there is now an opportunity to consider whether more timely reporting of certain key data to designated CRAs could help facilitate a more accurate and up-to-date view of consumers’ existing credit commitments.
The regulator also wants the ways that consumers can access their credit file and dispute any inaccurate information held about them to be simplified.
“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,” said Mills.
Respondents now have until February 2023 to give the FCA feedback on its proposals.
The FCA’s intervention comes after the regulator’s research discovered that 47 percent 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 percent ignoring contact from lenders as a result.
Further research by the FCA about how consumers use credit information found that 43 percent of consumers did not realise they have a right to access their statutory credit report for free.
