The Financial Conduct Authority (FCA) is concerned that lenders could either over-lend or under-lend as a result of not having a sufficient amount of credit data.

The regulator has today launched a market study to examine how the credit information market operates and the impact this has on consumers, explaining that lenders are often unable to make appropriate lending decisions about consumer risk without access to quality credit information.

Commenting on the launch of the study, FCA director of strategy and competition Christopher Woolard said: “We have launched this market study as we have identified concerns about the coverage and quality of credit information, the effectiveness of competition between credit reference agencies, and the extent of consumer engagement.”

Lenders use credit information when assessing credit risk and affordability, therefore impacting how likely consumers are to be able to access a range of financial services, including mortgages, loans and credit cards and, in some cases, how much they pay for them.

In its Financial Lives Survey, the watchdog found that almost 4 in 5 adults hold at least one credit or loan product, and those that are considered to be vulnerable customers are more likely to be affected if the credit information market “is not working well”, the FCA said.

Reflecting on concerns that have been raised, the market study will focus on; the purpose, quality and accessibility of credit information; market structure, business models and competition; and consumers’ engagement and understanding of credit information and how it impacts their behaviour.

The FCA believes that by exploring these themes, the market study will assess how the sector is working now and how it may develop in the future, while also looking at how the markets for credit information work in some other countries and that the UK can learn from them.

“Through the study we will seek to get a better understanding of how this vital market works and will identify remedies, where appropriate, to make it work more effectively for credit information users and individual consumers. This includes considering whether vulnerable customers are disproportionately affected by the way credit information is used, and whether any alternative approaches might deliver better outcomes for consumers,” Woolard added.

The FCA will report on its preliminary conclusions on these themes in Spring 2020 and, if appropriate, will open a discussion of potential remedies.

The regulator is not formally consulting on the Terms of Reference, but welcome any views on them by the end of July.

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