Credit Searches - Treasury Contents


Summary



We began this inquiry because of fears that by shopping around for credit, especially for unsecured credit such as personal loans and credit cards, consumers were building up credit application searches on their credit reference files which would in fact make it harder for them to obtain further credit.

Credit reference files are an important part of our financial system, and regulatory changes to prevent irresponsible lending may make them still more significant. This means that it is vital they should be accurate and accessible. Our Report suggests that the Office of Fair Trading and the Information Commissioner's Office should assess whether the current rules are appropriate.

There are complex tradeoffs between the need to prevent irresponsible lending, and the need to ensure consumers feel free to search for the best deals on unsecured credit. In responding to this Report, we recommend that the OFT explicitly considers those trade-offs. The use of application search data in credit scoring has clearly been sensible in the past as a means to detect fraud or demonstrate potential inability to pay. However, it is not clear that this remains the case now that shopping around has become more common and credit is harder to obtain, even for those who may be able to repay it. There is a fine balance of public interest between ensuring that fraud is prevented, and consumers are protected from reckless lending, and ensuring that the market is subject to the disciplines of informed consumer choice. We have not been presented with unequivocal evidence that application search data is essential for loan providers, who have, as they themselves say over 400 indicators that they may use. Nor have we been given overwhelming evidence that it is a major source of direct consumer detriment, although the number of consumers making multiple application searches seems likely to rise. However, we are extremely concerned about the effect of the use of credit searches on market mechanisms, since, in principle, we believe the ability to shop around is not only an important means for consumers to assess the market, but also provides a key discipline on providers. We have been presented with some solutions which would reduce the adverse effects of the use of credit application search data in credit reference files; we consider that any acceptable solution must strike an appropriate balance between minimising fraud and over borrowing and ensuring the market is subject to normal disciplines. We recommend that the OFT look at this in its assessment of the credit market.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 22 December 2009