The Financial Conduct Authority (FCA) sees the need to improve the credit information sector, and has set out proposals in order to deliver higher quality and more comprehensive information for consumers and firms. The FCA wants to improve information for borrowers, so that lending decisions can better reflect people’s financial circumstances, and to make sure that consumers are not given credit they can’t afford or denied credit they could afford.

The financial regulator has asked the industry to set up a new representative body in 2023, and will work with the industry to agree further improvements. The FCA’s market study proposes a range of measures, including:

• 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; and
• simplifying ways for consumers to access their credit file and dispute any inaccurate information held about them.

“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,” said Sheldon Mills, Executive Director, Consumers and Competition at the FCA.

Financial worries

In the current time of higher costs and living pressures, the FCA suspects that consumers may be more worried about their credit file than usual. Therefore, it believes that credit reference agencies and those who offer credit information services should consider the proposals alongside the forthcoming Consumer Duty, to see if processes and customer communications can improve.

Today, lenders have said that they are largely happy with the range of information they have access to, however, there are differences in what different credit reference agencies hold.

According to the FCA’s borrowers in financial difficulty research, 90% of consumers know of the existence of credit scores and files, but “47% of borrowers in financial difficulty have 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”.

The research also found that 43% of consumers did also not realise that they have the right to access their statutory credit report for free.

“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.

Create positive change

This action is part of the FCA’s strategy to promote competition and positive change in the financial services industry. The FCA will seek feedback on its findings and proposed remedies for three months before publishing a final report in Q3 2023. Deadline for comments is February 24, 2023.

Other measures to help consumers deal with the cost of living have been:

• Reminding 3,500 lenders of how they should be supporting borrowers in financial difficulty. Some 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 £12m ($15.22) 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, nearly 8,000 adverts have been amended or withdrawn, helping to protect consumers from being misled.