FCA Credit Information Market Study – how best to counter a dysfunctional credit sphere?

Credit is intrinsic to modern society and requires effective regulation and control, including credit providers ensuring consumers are aware of the risks and penalties for non-payment.

Due to concerns that the credit system is dysfunctional and unfit for purpose, on 27 June 2019, the Financial Conduct Authority (FCA) launched a review of the credit information market to examine how it operates and the impact on consumers.

Background

Credit information is used to help assess the financial standing of consumers and plays a key role in enabling access to a range of financial and non-financial services.

In 2014, the government fundamentally reformed the consumer credit market by transferring regulation from the Office of Fair Trading (OFT) to the FCA, along with repealing some existing provisions and replacing with FCA consumer protection rules, aiming to offer better protection than before. Consequently, credit providers must now be authorised by the FCA to offer credit to consumers and must show they meet the FCA minimum standards. This includes ensuring a firm has a suitable business model, is managed effectively and run by ‘fit and proper’ people.

Despite these changes, there are concerns that certain practices are continuing, such as credit providers offering credit to those who are already in financial difficulty, thus exacerbating their situation, which is particularly concerning for vulnerable customers.

FCA study

The FCA, therefore, have suggested they would like consumers to gain a better understanding of the implications regarding non-payment, and the potential knock-on effects it can have on financial difficulties. For those providing credit, there are concerns that this could result in an increase in consumers who rely on credit and who are not in financial difficulty being refused credit.  

The FCA Credit Information Market Study (MS19) will focus on the following themes:

  • The purpose, quality and accessibility of credit information
  • Market structure, business models and competition
  • Consumers’ engagement and understanding of credit information and how it impacts their behaviour
  • The future evolution of the credit information market

The MS19 will review how the credit information market functions, including the role of credit reference agencies and the effectiveness of competition between them, as well as the roles of data contributors and credit information users. It will also consider how the credit information market impacts consumers, including those who are vulnerable or may face access challenges, and the various consumer-facing markets that use, or may benefit from using, credit information.

Although there will be no formal consultation to the study, the FCA did provide an opportunity for views to be expressed up until the end of July 2019 and in addition have welcomed ‘experts’ to participate in exploring how the credit information market might evolve in the future.

Comment

The credit information market is undergoing a period of significant change with regulatory and technological developments presenting new opportunities for consumers to engage with credit information, but it may also create risks or raise ethical considerations. The MS19 is the latest in a series of initiatives in this area with vulnerability being a key theme underpinning the FCA’s work.

For now, credit providers should be aware of the trajectory of the proposals and consider whether their organisations are already complying with the potentially new requirements if they are later put in place. Also, be aware of the requisite information to be provided to customers ahead of entering into credit agreements to ensure compliance with existing and any future regulations.

The FCA have begun to gather information and are planning to report their preliminary conclusions in Spring 2020, and if appropriate discuss potential remedies.

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