Credit ratings need reform, warns FCA

BRITAIN’S “highly concentrated” consumer credit ratings market is not working well and needs to improve the quality of scores, the Financial Conduct Authority has warned.

Experian, Equifax and Transunion make up almost all of Britain’s £800m credit reference agencies (CRAS) sector, which is relied upon by banks and other lenders when making loan decisions.

Switching between ratings agencies is difficult, the FCA said in an interim report, which called for a new industry body to help improve scores.

“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 watchdog said.

An industry committee for lenders and raters to share credit information on consumers is too narrow, the FCA said, with no representatives from consumers or “challenger” companies.

There are significant differences in credit information held by the three big companies, which are “very likely” to affect lending decisions by banks, the FCA said. In the absence of “significant disruptive entry”, a combination of industry-led change and regulatory intervention over three years was needed to give consumers a better service by creating a new, broader sector body.

Once a new industry body is in place, the watchdog would agree on a threeyear programme of reform, including potentially widening the range of data reported to rating agencies to improve quality, consistency and speed of data.

Equifax said it was reviewing the FCA report, and Experian said it supported a recommendation to improve coverage of credit information. A Transunion UK spokesperson said that the company will work with the FCA and wider industry to sustain a fair and robust credit ecosystem.

UK Finance, which represents banks, said that ratings were just one tool for assessing customer loan affordability.