Improvements needed to the credit information market to deliver better lending decisions for borrowers

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[1] 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[2] 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

1. The interim report[1] is available. This is part of the FCA’s wider work set out in our business plan[3] to make sure consumer credit markets work well and our commitment to putting consumers’ needs first.
2. 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.
3. 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.
4. 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.
5. The FCA has set out ways that customers can get advice about dealing with [4]cost of living pressures.
6. Find out more information about the FCA[5].