The FCA has issued a formal call to the credit information sector to alter its approach to the provision of information to UK banks and lenders. Regulators have proposed new measures aimed at enabling lenders to make better lending decisions based on the broader financial circumstances of applicants.
Proposals presented by the FCA to benefit borrowers and lenders alike include the following:
- Establishing a new, more representative, and accountable industry body to oversee arrangements for the 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 files and dispute any inaccurate information held about them
Speaking on behalf of the FCA, Executive Director of Consumers and Competition, Sheldon Mills, emphasised the importance of a fair, effective, and accountable credit information market.
“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,” he said.
“Our proposals will help consumers get better decisions from lenders, and lenders will have confidence that the information they have access to is sufficiently comprehensive.”
Research suggests that while 90% of people have a basic understanding of what a credit score is, there is widespread confusion about the kinds of activities that can affect a consumer’s credit rating. For example, almost 50% of borrowers facing financial difficulties believe that simply contacting their lenders to discuss their issues will have an adverse effect on their credit score.
Meanwhile, 43% of people are not aware of the fact that they have the legal right to access their credit reports for free.
One in three consumers does not know their credit score
Elsewhere, a study conducted by the Post Office found that as many as one in three people do not know their credit scores. The poll was carried out to determine the extent to which the average person understands financial jargon and the impact complex terminology can have on a typical consumer.
One in five of those polled admitted that their lack of confidence regarding financial jargon had discouraged them from applying for financial products at some point in the past.
Commenting on the findings, the director of financial services products at Post Office, Ed Dutton, said that the figures illustrate just how important it is for banks and lenders to cut out the complexities when dealing with customers.
“We believe it’s important to speak to customers using straightforward language so that they feel confident in their decisions when borrowing,” he said.
“Personal loans can be used for a variety of reasons, such as buying a car or extending a home, and offer people a different option to other products, such as credit cards.”
“It’s always worth taking the time to read about any financial product you are considering and taking the time to seek help on jargon if anything is unclear.”
40% of those polled stated that while they have consulted with finance experts in the past, they felt confused or even intimidated due to the presence of complex terminology. Among them, 20% said they lacked the confidence to request clarification of such terms.
Worryingly, 22% said that even if they did not fully understand the language it contained, they would still sign a financial agreement or contract.