A few months ago we launched the Improve Money Rules In 50 words campaign asking for must-change suggestions. I led with my four big bugbears, one of which was…
The “right to know the rate you’ll get before applications go on credit files.
Apply for a product and it puts a search on your credit file which hits your credit score, yet many products are rate-for-risk, without applying you can’t know the rate. This vicious circle thats hurts comparing products should be stopped. See Credit Rating guide.”
Well I’ve decided to do something about that, so joining with Ed Mayo, the head of the official watchdog Consumer Focus, we’ve today sent this open letter to the industry body that looks after data sharing; the rather sexily named ‘standing committee on reciprocity’. Here it is:
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“Dear Chris
Data sharing by financial companies is becoming a more public issue of concern, in particular there is a worry people’s data is used for the benefit of companies rather than consumers and potentially penalises people for trying to get cheaper products.
We are writing an open email to you as Chair of the Standing Committee on Reciprocity (SCOR) to ask you to look at how to improve consumer representation in the work of the committee.
Data sharing, with proper consent and proper handling, can be good for competition and innovation and a way to help prevent irresponsible lending.
Yet given the sensitivity of the issue, present industry systems and industry solutions don’t seem to place a premium on assurance to the public about the integrity of the process.
Consumers need to have the guarantee that sharing more of their data does not mean they are scored down because they behave well and are thus less profitable.
An example is the way in which multiple searches by consumers may affect people’s credit ratings. This is an issue highlighted over time by MoneySavingExpert.com and evidenced over some time by contributors to its forums as detrimental.
The rate for risk pricing model means, consumers may only know the true price of a loan if they apply. Yet if the rate offered is poor and worse than the typical rate advertised, and they then choose to apply elsewhere they are potentially penalised due to footprints on their credit file. This means consumers are worse off by shopping around, this is surely unacceptable.
Moving to quotation searches, which don’t leave a footprint, as a default across the industry rather than as a rarely exercised option is an obvious solution – though we recognise this may be more than SCOR can insist on.
Even so, it needs to be moved forward much faster and given that this is, after all, shared data, it is something SCOR will have some leverage over. At heart, this is an issue that has dragged on for far too long and is affecting public trust in the data sharing, based on the principles of reciprocity.
SCOR was founded with a worthy aim to limit irresponsible lending, but those involved should not expect to trade off this past if they are not seen to address contemporary consumer concerns on the use of data.
Given that the governance at SCOR seems to be focused on industry interests, we would ask that SCOR gives consideration to bringing on board and resourcing some level of consumer representation at governance level, so that consumer issues can be integrated more effectively into your work in future.
We look forward to hearing from you on this.
Yours,
Ed Mayo, Consumer Focus
Martin Lewis, MoneySavingExpert.com”
This is just a toe in the water, in this current credit crunch climate, while we all need to manage our credit history better, we also need the industry to play fair. Expect more.
