The UK’s Financial Conduct Authority (FCA) has called for the establishment of a new industry body to enhance the functioning of Britain’s “highly concentrated” consumer credit ratings market, which it says is currently not serving consumers well, Reuters has reported.
The consumer credit ratings market, dominated by Experian, Equifax, and TransUnion, is valued at 800 million pounds ($946.32 million). The FCA highlighted difficulties in switching between these agencies and noted the lack of competition within the sector, although it found no competition concerns that necessitate immediate action.
Credit agencies play a crucial role in verifying consumer identities to combat fraud and assist with affordability assessments for loans.
“The credit information sector needs to work well to support retail lending and to help ensure that credit is offered only where appropriate and at a fair price,” the FCA stated.
However, the industry committee known as SCOR, which allows lenders and raters to share consumer credit information, has been criticized for its narrow focus, lacking representation from consumers or ‘challenger’ companies.
Significant differences in the credit information held by the three major agencies could influence lending decisions, the FCA suggested.
Reuters said responses from the agencies have been proactive. Equifax is reviewing the report, Experian has expressed support for improving credit information coverage, and a TransUnion UK spokesperson emphasized the company’s commitment to collaborating with the FCA and the broader industry to maintain a fair and robust credit ecosystem.
UK Finance, a member of SCOR and representative of banks, remarked that ratings were just one tool for assessing customer loan affordability.
The FCA proposes that a combination of industry-led change and regulatory intervention over the next three years is essential to provide better services to consumers. This includes the establishment of a broader industry body to oversee these changes.
“We see reform to industry governance arrangements as a key precursor to many of the other potential remedies we are proposing,” the watchdog said.
Additionally, the FCA plans to potentially expand the range of data reported to rating agencies to improve the quality, consistency, and speed of data.
Emma Steeley, CEO of Freedom Finance, supports this expansion, noting that including data from buy-now-pay-later services could benefit younger borrowers who are still building their credit histories.
A public consultation on the FCA’s proposals is set to end in February, with a final report due in the third quarter of next year. This report will outline the final findings and provide an update on progress towards revising how the industry operates collectively.
