Out-Law News 2 min. read
11 Dec 2023, 10:28 am
The UK’s Financial Conduct Authority (FCA) has announced proposals to ensure that consumer credit scores will now better reflect individuals’ financial situations.
The proposals set out a range of measures aiming to improve the information collected by credit reference agencies (CRAs) as well as bettering the consumer experience. The information collected by CRAs allows for credit reports to be produced, with these reports used for various purposes - for example by lenders when deciding whether someone can afford to take out a loan.
The proposed changes follow a long running study that examined how the credit information market operates and its impact on consumers, with the report revealing several areas where reports could be working better. Identified issues included the differences in data being used by CRAs as well as a lack of consumer awareness of how to access and dispute credit information.
To address these issues, a package of both FCA-led remedies and industry-led remedies has been announced, including mandatory data sharing with designated CRAs. This means that all FCA-regulated data contributors, such as lenders, will be required to share credit information with CRAs that meet certain criteria to improve comprehensiveness and consistency.
A new reporting framework will be implemented to monitor this data sharing requirement, providing insights into potential issues as they arise. Data contributors will also be required to take proportionate measures to correct errors to enhance the accuracy of credit information.
The industry-led remedies include increasing consumer awareness of the availability of free credit information as well as operating a common data reporting format to improve the consistency of credit information across CRAs. These changes overall aim to streamline access to credit information, providing a ‘one stop shop’ for consumers to engage with.
The remedies also incorporate a more streamlined process for dispute resolution to allow for any errors on reports to be identified and fixed, more timely reporting of key data to make sure reports are up to date and helping to improve the overall experience for consumers by operating a more inclusive, transparent and accountable process.
Consumer credit and payment services expert of Pinsent Masons Andrew Barber said the remedies should allow for greater transparency but added: "There will be some challenges for authorised lenders in implementing a mandatory data provision requirement and we wait to see what the FCA's proposed rules on this are.”
Financial services regulation expert Venetia Jackson said that consumers should see real benefits due to the clearer signposting of their right to see credit information without the need to subscribe to a paid service. “Streamlining the request and dispute process should also help consumers engage better with their credit information," she said.
"With the new designated CRA regulatory reporting we can expect to see increased focus and engagement by the FCA in this area, which is often an important aspect of the data used by lenders in reaching their lending decisions."
Following the proposals, the FCA is set to publish several consultation papers to analyse element such as cost and competition, before setting out full details of its proposed new rules.
An interim working group made up of industry and consumer representatives has been formed to lead on the industry-led remedies, with work expected to start in January 2024.