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.
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 marketor
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.
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
4. On Tuesday 27 October we took oral evidence from
Martin Lewis, moneysavingexpert.com, Toby Van der Meer, MD for
Money, moneysupermarket.com, 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 moneysavingexpert.com 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.
CREDIT REFERENCE FILES
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. 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".
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".
THE DATA PROTECTION ACT
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".
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".
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".
1 Ev 64 Back
Ev 65 Back
Q 190 Back
Ev 66 Back
Ev 66 Back
Ev 66 Back
Ev 37 Back
Ev 37 Back
Ev 37 Back