FCA’s credit information market study interim report

What is the credit information market study about and who is it aimed at?

The FCA launched the credit information market study in 2019 after identifying concerns about: the coverage and quality of credit information; the effectiveness of competition between credit reference agencies; and the extent of consumer engagement.

The study was paused during the pandemic and restarted in July 2021.

The interim report and discussion paper will be of interest to: new and existing credit reference agencies; credit information service providers; lenders; and consumer organisations.

What are the key findings?

The FCA says that the sector needs to work well to support retail lending and to help make sure that credit is offered only where appropriate and at a fair price. The credit information market study found a few ways in which the sector works well, but also aspects that are not working well:

• Credit reference agencies offer a range of products and services to meet clients’ needs, and many firms that use credit information appear to be sophisticated buyers able to negotiate with the agencies.
• There is some evidence of innovation both from large credit reference agencies and smaller challengers, such as investment in cloud‑based services and using Open Banking.
• Over 90% of individuals are aware of the existence of credit information and credit scores.
• Governance arrangements set up in the 1990s appear slow to respond to emerging issues in a co‑ordinated way, and may hinder improvements to the credit reporting framework.
• There are significant differences in the credit information held on individuals across the three large credit reference agencies. Market failures and inherent difficulties in matching new credit information can lead to poor outcomes, through: the over‑supply of credit to individuals whose credit risk is under‑stated; and limiting access to credit for individuals whose credit risk is over‑stated or not understood.
• The market is concentrated and barriers to entry are high. Switching between agencies can be difficult. Challenger agencies say that they need access to historic credit performance data to compete effectively.
• Consumer understanding of credit information is relatively low. It can be difficult for individuals to access their credit information through the statutory process and also dispute information.

Potential remedies and approach

Stakeholder feedback is requested by 24 February 2023 on the interim findings and potential measures to:

• Reform industry governance arrangements and agree a set of priorities for the industry over the next three years;
• Improve the quality and coverage of credit information;
• Enable greater competition and innovation through potential changes to data access arrangements and more timely reporting of key metrics; and
• Support consumers to access and dispute credit information.

Specific questions are set out in Annex 6 to the report.

The remedies are designed to work together, but the FCA says it needs to consider the importance of each one and the extent of the interdependencies between them. It wants to prioritise those with potential to deliver benefits for consumers most affected by the current crisis. It also recognises that the final approach will need to be considered in the context of developments such as: the challenging lending environment; the new Consumer Duty; and the Financial Services and Markets Bill.

While some of the remedies can be implemented voluntarily by industry, and some by FCA rules, the FCA’s approach at this stage seems to be very much focused around industry-led change. It proposes prioritising and phasing the remedies. This would start with industry’s agreement to the broad proposals around improving governance, and lead to a profile of work for the next three years agreed between the FCA and industry to support strong recovery from the cost of living challenges. The need for FCA rules would be considered as the process develops.

Credit information market study – what happens next?

A final report is expected in Q3 of 2023. This will set out the FCA’s final findings and report on progress made towards the revised governance arrangements.

How we can help

If you have any queries about the credit information market study, or would like advice or assistance in responding to the interim report and discussion paper, please contact Jeanette, who will be very happy to help.