Improving data transparency: The Woolard Review of the credit market

The FCA is reviewing changes across the unsecured credit market. The review of the role of CRAs and CIS providers has pushed their scrutiny back up the regulatory agenda. In this article, we look at the findings from the Woolard Review and share our view into how to increase data transparency.

The central focus of the Woolard Review, published by the FCA in 2021, sheds light on the credit information provided to lenders and shortcomings in how it’s shared, used, and regulated.

Here at PurplePatch, we welcome the FCA’s decision to review the market. Through our experience as a credit risk data benchmarking consultancy, we are aware of a number of issues linked to a lack of transparency when it comes to credit data pricing, quality, and accuracy.

For example, in our insight article bridging the gap between data pricing, quality, and accuracy, we talked about how some credit providers are being charged vastly different rates for the same footprint of services from the same Bureau. 

Credit providers are also locked into platforms that are expensive to move from and the Bureaux have been taking advantage of this, charging higher pricing for data and license fees than they charge others.

The difference in onboarding costs, including soft or quotation searches, is giving one competitor an unfair advantage over another, enabling more extensive marketing and lead generation from the aggregators. This could end up with consumers not being offered a competitive product in some of the channels.

The importance of credit information

The Woolard review highlights the importance of credit information, which is largely provided by Credit Reference Agencies (CRA’s), and how it is vital to the functioning of the credit market. After all, data credit information has a central role in dictating access to mainstream credit; firms rely on this data in tandem with their own automation solutions to make the right lending decisions.

🔎Quick fact: FCA-regulated credit information providers collectively control or process the data of more than 50 million UK consumers - almost all the UK adult population. 

FCA-regulated credit information providers, therefore, play a significant role in the market, particularly in times of economic uncertainty when more consumers face financial difficulties and seek credit.

Deficiencies in how credit information is shared, used and regulated

Although the FCA's Credit Information Market Study was put on hold during the pandemic, the regulator has continued to engage with (at least) the larger CRAs.

The conclusion of the review is that Covid-19 has highlighted very real deficiencies in how credit information is shared, used, and regulated, and a clear path to remedying those deficiencies needs to be drawn.

The review says that the credit information market must play a role in delivering the right outcomes in healthy credit markets and, crucially, that the CRA's role is too important to be left to market forces. 

Limitations on data transparency and availability

There are several specific and damning concerns about CRAs raised in the review:

●     some may have underinvested in their systems infrastructure;

●     they are often slow to implement change;

●     there are often limitations on data transparency and availability; and

●     the information available from CRAs is inconsistent.

As ex-directors of the Bureaux, PurplePatch was set up to drive transparency in this area, and whilst it may take years to drive equality in pricing and more portable multi-Bureau decision systems, we welcome the FCA investigation that is taking place.

What’s next?

Firms should keep an eye out for the interim report in the Credit Information Market Study, which is due to be published during Q1 2022.

It is highly likely that the market study will be the vehicle through which the FCA seeks to implement the recommendations in the Woolard Review. We are also likely to see a more proactive focus on outcomes and the facilitation of innovation, which will affect not just CRAs but any firm which interacts with the CRAs.

We will be publishing further articles covering the themes from the Woolard Review. In case you missed it, see our previous piece on the FCA review into the BNPL market here