Credit Searches - Treasury Contents

1  Introduction

1. We undertook this short inquiry as part of a wider look at the impact of the banking crisis on the consumer. The availability of consumer credit and the terms on which that credit is offered have come under increasing scrutiny over the last two years. Our inquiry focussed on a concern 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. As the inquiry progressed, we also took evidence on the provision of information to consumers.

2. Since the main focus of our work was on the unsecured lending market, under the Consumer Credit Act 1974 as amended in 2006, the Office of Fair Trading (OFT) is the main body responsible for the matters discussed in this report.[1] The OFT welcomed our inquiry, and stated that "We are still alive to this issue and the potential for consumers' credit ratings to be unfairly affected by sensible testing of the market—or shopping around".[2] However, in evidence to us, Mr Cates, Deputy Director, of the OFT's Consumer Credit Group, stated that:

we have not looked at [the issue of multiple searches] proactively but it is because we have looked at other things which we consider to be more important, proactively, where we consider there to be more harm. For issues such as debt collection, such as debt management and high cost credit, we have seen a particular rise in debt over the past 18 months, and that has led to real actual harm and we have focused on that.[3]

While it is right that the OFT works on issues such as debt management and high cost credit, it must also ensure a fair market. There are complex trade-offs 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.

Conduct of this inquiry

3. We announced our inquiry on 22 September and invited written evidence on:

  • The effect of multiple credit searches on individuals' credit ratings including the size of the change in credit scores;
  • The extent to which lenders offer best practice quotation searches.

4. On Tuesday 27 October we took oral evidence from Martin Lewis,, Toby Van der Meer, MD for Money,, Steve Martin, External & Regulatory Affairs Manager, Equifax, Gillian Key-Vice, Head of Government Affairs and Regulatory Policy, Experian, Eric Leenders, Executive Director of Retail, British Bankers' Association, Fiona Hoyle, Head of Consumer Finance & Fraud, Finance and Leasing Association, Jan Smith, Industry Relations Director, Callcredit Information Group, Vivienne Dews, Executive Director, Corporate Services, Nigel Cates, Deputy Director, Consumer Credit Group, Office of Fair Trading, and Jonathan Holbrook, Head of Data Protection Practice-Private Sector, Office of the Information Commissioner. We received 14 pieces of written evidence and also called on Martin Lewis to ask his subscribers for their experiences and difficulties in searching for and obtaining credit. We received valuable evidence and the posts on attracted over 6,000 hits. We are grateful to all those who provided evidence and who wrote to the Committee unprompted. We would also like to thank those who responded to our request for information on the web.

Regulatory environment


5. The regulatory landscape is changing, and increasing emphasis is being placed on the need for responsible lending. These changes are likely to increase the use of credit reference files; it is accordingly important that the information they contain is accurate and relevant.. The Office of Fair Trading is preparing statutory guidance on 'irresponsible lending', with which all lenders will need to comply. This guidance will be released, according to the Finance and Leasing Association (FLA), in January 2010, and will include the need for lenders to undertake a credit reference search.[4] In June 2010, the EU's Consumer Credit Directive will be introduced in the UK, and with it, according to the FLA, a "statutory requirement on lenders to assess a prospective borrower's creditworthiness".[5] As part of those requirements, "When looking at creditworthiness, the lender will refer to information obtained from the customer, as well as via a credit search".[6]


6. There are safeguards to ensure that information collected by companies is held and used in a fair manner. The information held by the Credit Reference Agencies comes under the Data Protection Act 1998, and is therefore of interest to the Information Commissioner's Office (ICO). In determining whether or not information can be held, in its evidence the ICO stated that a key principle would be that "that personal information must be processed fairly and lawfully".[7] As such, organisations such as credit reference agencies must:

  • have legitimate grounds for collecting and using personal information;
  • not use it in ways that have unjustified adverse effects on the individuals concerned;
  • be transparent about how they intend to use the information, and give individuals appropriate privacy notices when collecting their personal information;
  • handle people's personal information only in ways they would reasonably expect; and
  • not do anything unlawful with it.

The ICO went on to note that other principles that might apply included that "personal information must be adequate, relevant and not excessive for the organisation's purpose"; and that information "must not be kept for longer than necessary".[8] As such, the ICO must make a determination as to whether "the process of making and recording a credit search is basically 'fair' (there is no doubt that it is generally lawful), both in terms of its purpose and effect, and also in terms of what consumers are told about the process".[9]

1   Ev 64 Back

2   Ev 65 Back

3   Q 190 Back

4   Ev 66 Back

5   Ev 66 Back

6   Ev 66 Back

7   Ev 37 Back

8   Ev 37 Back

9   Ev 37 Back

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Prepared 22 December 2009