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The Consumer Credit Market the FSA‟S Current Approach in the Retail Deposit Market

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The Consumer Credit Market the FSA‟S Current Approach in the Retail Deposit Market Callcredit response to HM Treasury and BIS joint consultation paper: “A new approach to financial regulation: consultation on reforming the consumer credit regime” One Park Lane, Leeds LS3 1EP | t: +44 (0) 113 244 1555 | f: +44 (0) 113 234 0050 | e: [email protected] | www.callcredit.co.uk ABOUT CALLCREDIT Callcredit is one of the UK’s three consumer credit reference agencies, which facilitate the sharing of data on how people manage their repayment commitments. We offer solutions to business to establish the creditworthiness and verify the identity of individuals, alongside other related products and services. Services offered to the UK financial services industry include: Credit Risk Solutions Fraud and ID Solutions Marketing Solutions Consumer Solutions Consumers have statutory access to the data held on their ‘credit report’ and we make optional online services available to meet more advanced consumer needs. In the last few years the majority of the UK’s sizeable lenders have moved to implement Callcredit products and services. The rate of growth of Callcredit’s client base underlines the success of our approach. Some areas where Callcredit has particular interests: Identity Verification and Anti-Money Laundering – Callcredit assists firms to meet their obligations to prevent money laundering, and to protect against fraud through identity verification. Data Sharing - Greater data sharing has been proposed as an important step in the detection and prevention of crime. Sharing can also support responsible lending, and combats financial exclusion by providing increased evidence of creditworthiness. Over-Indebtedness – Callcredit’s unique consumer indebtedness initiative uses consolidated income and debt data to form a picture of personal affordability. It helps lenders to avoid extending new credit to consumers who may find it unsustainable. It also identifies where existing customers are taking on excessive commitments elsewhere, allowing early intervention and provision of suitable support. Fairness in Collections - Callcredit seeks to provide the best available tools to enable responsibility in collection activity. These assist creditors to correctly identify and treat consumers who fall into arrears. © Callcredit Information Group 2011 Page 1 of 6 March 2011 All Rights Reserved CONTACT DETAILS Jan Smith Louise Galloway External Affairs Director Head of Industry Relations Callcredit Information Group Callcredit Information Group One Park Lane One Park Lane Leeds Leeds LS3 1EP LS3 1EP Tel: 01132 441555 Tel: 01132 441555 Mobile: 07912 120994 Mobile: 07793 882040 Email: [email protected] Email: [email protected] © Callcredit Information Group 2011 Page 2 of 6 March 2011 All Rights Reserved RESPONSE TO CONSULTATION Summary Callcredit welcomes the opportunity to respond to the consultation paper jointly issued by HM Treasury and the Department for Business, Innovation and Skills, “A new approach to financial regulation: consultation on reforming the consumer credit regime”. We do not provide a direct response to the questions presented in the paper. Although Callcredit currently holds a consumer credit licence, most of the areas discussed have little relevance to our operations as a consumer1 credit reference agency. This provides an initial basis to question whether consumer credit reference agencies (CCRAs) should, in future, be regulated by the Financial Conduct Authority (FCA). Consumer credit referencing is the relevant and proportionate sharing of personal information. Much of this information relates to the handling of consumer credit commitments – but a significant part of it does not. Similarly, legitimate use of the shared information is not confined to the organisations which are proposed to be regulated by the FCA. The need for consumer protection in credit referencing is very clear, but does not relate to consumers being charged for the provision of financial services. Neither is the impact of credit referencing limited to borrowing. It can extend to many other aspects of personal life, such as identity and residency verification, age verification, employment and tenancy checks. Consumers deserve to have oversight of the security, accuracy and use of their personal data placed wholly and unambiguously with a dedicated regulator that has an unobstructed remit to ensure the protection of their information. This entity already exists – it is the Information Commissioner’s Office. Credit referencing – an overview Effective credit referencing is vital for the ongoing flow of lending to individuals. Its importance manifests both from the perspective of the creditor (in creditworthiness assessment to ensure risk is correctly accounted for) and the borrower (in ensuring the responsible extension of credit appropriate to personal affordability). The UK system of credit referencing is considered to be one of the best in the world, as has been acknowledged by the World Bank. This position has been reached as a result of a number of factors. Arguably the strongest asset to the industry has been the proven and effective self- regulatory regime controlling the sharing of payment performance information. Use of shared account performance data in the UK is controlled by the Principles of Reciprocity, which provide guidance to ensure that data sharing is conducted on a non-competitive, non- discriminatory basis for a specific set of purposes which mirror the public interest. This guidance is under regular review to address changing needs and innovation. Ongoing development and 1 Please note that, in the context of our response, “consumers” should be taken to mean individual persons, and not partnerships or other unincorporated bodies. This is a different meaning to that taken by the Consumer Credit Act. © Callcredit Information Group 2011 Page 3 of 6 March 2011 All Rights Reserved policing is controlled by the Steering Committee on Reciprocity (SCOR), an industry body comprised of relevant experts from trade associations and the CCRAs. Shared account data is not only unsecured credit data Shared account performance data is central to effective credit referencing. It is not limited to data on Consumer Credit Act (CCA) regulated credit agreements and mortgage lending, but includes non-CCA regulated commitments such as telecommunications accounts and some student loans. Increasingly, energy and water utilities providers are beginning to share payment performance data. There have also been suggestions that records from other sources, such as Council Tax payments, could potentially be shared in the future. Credit reports are not limited to shared account data Shared account performance data is not the only information which is recorded on an individual’s credit file. Records of personal insolvency, county court judgements and electoral roll history, amongst other indicators, are also highly pertinent to creditworthiness. The rights of individuals in respect of the treatment and accuracy of this data are no less compelling than those in respect of their ongoing financial commitments. For example, access to the full Electoral Roll is highly restricted and it can only be used for specified purposes by CCRAs. Principal legislation on credit referencing is about data protection, not credit The CCA encompasses only a minority of the legislation which controls the overall activity of credit referencing. In its guide “Do you need a credit licence?” the OFT specifies the key material provisions with which it would expect applicants for the credit reference agency category of licensing to demonstrate compliance. Examining these: Section 158 of the Consumer Credit Act 1974 discusses the duty of CCRAs to disclose filed information for a statutory fee of £2 and the preconditions for this duty to apply. This is a variation of the right of all individuals to request a copy of information held on them by any organisation for a statutory fee of £10. Section 159 addresses the correction of information found to be wrong for individuals, while section 160 addresses the alternative procedure for “business consumers”. The Consumer Credit (Credit Reference Agency) Regulations 2000 supplement the original provisions of sections 157–160 of the CCA discussed above. They again deal with the disclosure to consumers of the contents of their ‘credit report’. The Data Protection Act is also specified. All these provisions relate primarily to data protection, as governed by the Information Commissioner’s Office (ICO). To put this in context, it should be recalled that the Consumer Credit Act pre-dated the Data Protection Act, where these matters might otherwise have been addressed. The future of data protection and the powers of the Information Commissioner’s Office Legislative proposals are expected from the European Commission in respect of an update of the Data Protection Directive before the end of 2011. While these proposals are currently in formation, there has been discussion of concepts including mandatory security breach notification and © Callcredit Information Group 2011 Page 4 of 6 March 2011 All Rights Reserved collective redress mechanisms. A high profile has also been given to increasing the enforcement powers of data protection authorities such as the ICO. The European Commission has, separately, already presented demands to the UK in respect of strengthening the existing powers of the ICO under the current Data Protection Directive. These would add to the new powers that were made available to the ICO domestically
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