The Financial Conduct Authority’s chief executive has called for greater transparency in the way lenders communicate the reasons for credit refusals to applicants.
In an exclusive interview with Credit Strategy, Bailey said consumers need to be properly informed why the refusal has been made when customers’ applications for mortgages, loans and credit cards are declined.
His comments follow an FCA paper last year which mentioned there is a confusing void of information for consumers as to why they’ve been refused a certain product.
When questioned on the issue by Credit Strategy, Bailey mooted the reasons that could be given to consumers for the refusal, stating: “Is it as straightforward as their credit reference? Is it something about the nature of the product that doesn’t fit with their information? It may be in some cases the credit reference precludes a lot of products. Is it about credit, or is it about some other aspect of the customer’s profile?”
He added: “It’s wrong to think the only thing that matters is the credit score. I think it’s likely, inevitable and sensible that the credit scoring process becomes more transparent to people. I think people deserve greater transparency.
“It’ll be interesting if you see the work that’s building up on open access; this question that comes out of the Competition and Markets Authority report, this desire for the broad access to information to allow people to have greater choice of products and how that will play out.”
Bailey added that the FCA has looked at, and will continue to make statements on, the use of big data because “some of it is undoubtedly beneficial and some of it isn’t.”
He said: “Information which is used to increase choice of products and improve risk pricing – that’s a good thing. There’s another set of information where we take a slightly different view, where firms use information about people to, in a sense, exploit their characteristics.”
The topic of credit refusals will be touched upon during Credit Week as part of Credit Strategy’s Credit Awareness Week campaign.
A debate at the Credit Summit, the flagship event of Credit Week, will cover how consumers can empower their financial futures. It will focus on the reasons behind credit refusals and the use of the Standard Financial Statement.
You can read the full interview with Andrew Bailey in the April issue of Credit Strategy.