Bank of England - Should the availability of UK credit data be improved?
Response to discussion paper
While credit unions have been permitted to admit into membership and serve corporate bodies since 2012, the main business of the credit union sector is in serving individuals and therefore we focus our response on issues related to personal lending. We appreciate that the discussion paper primarily seeks input in relation to business lending but we believe the issues raised are equally relevant to the availability of credit to individuals.
We would like to express our full support for measures to increase the availability of credit data for UK lenders and support in principle for the creation of a central credit register as is being pursued in many other countries. Better access to credit data would help British credit unions arrest some concerning trends in credit unions’ lending activity
Since 2008 we have seen credit union lending fall as a proportion of assets across the credit union sector from 74% to 58% in 2013. This is an acceleration of a decline in lending as a proportion of assets from around 80% at which the ratio hovered until 2000. Of course, this is in the context of fairly rapid growth in both lending and assets but the changing profile of credit union assets is of some concern given that credit unions face strict limitations in how they may invest funds not lent out to members. Similarly, in a recent survey of both ABCUL member and non-member credit unions, 56% of respondents cited rising levels of bad debt as the number one challenge facing their business.
While these trends are not surprising in a context of depressed economic activity and rising indebtedness, credit unions face unique challenges in the mission they set themselves to help support the financial resilience of society by providing inclusive and affordable financial services. For many years both government and wider society have encouraged and supported credit unions to provide credit to hard-to-reach groups and while the sector relishes this challenge, their task is not made easier by the paucity of credit information available, particularly in relation to alternative credit products and non-credit debts which are more prevalent in this market.
Key areas which are in need of urgent improvement in order for credit unions to better manage loan delinquency and unlock unduly restricted credit are in the scope of credit information available and the time lags which are inherent in the current system. For instance, many alternative creditors such as payday lenders, rent-to-own retailers, pawnbrokers and doorstep lenders do not or inadequately report credit data on their borrowers. Similarly, many non-credit debts such as unpaid utilities, council and other tax or rent, are not currently adequately reported. Furthermore, since particularly payday lenders (but not exclusively) tend to operate on very short-term repayment schedules while loans can be accumulated in multiple very quickly, often credit unions can be unsighted of multiple outstanding agreements when they are approached for credit.
This dearth of information not only limits credit unions’ ability to lend at the volumes they otherwise might or to manage bad debt effectively but also it perverts their attempts to pursue a more ethical and value-driven financial service since making responsible lending decisions is made impossible where relevant information is unavailable to the lender. Indeed, given that FCA has now incorporated the OFT’s Irresponsible Lending Guidance into the new CONC consumer credit sourcebook, the lack of available credit data is limiting creditors’ ability to comply with regulation.
We are of course conscious that measures to improve the availability of data carry inherent risks and costs. However, we are firmly of the belief that incremental improvements from the current position – with a long-term goal of creating a central credit register – are long overdue and have great potential for transforming the availability of credit, particularly from providers such as credit unions which are seeking to provide much-needed competition in lending markets.
This would also assist credit unions and in fulfilling their social commitments and, in relation to business lending, help to alleviate knowledge and information deficits which are limiting credit unions’ capacity to enter new markets and to innovate.
The full response is available to download on the right hand side.