Written evidence submitted by Equifax Limited (CAF0043)

Treasury Committee inquiry: Consumers’ access to financial services

Written evidence submitted by Equifax Limited

Summary

• Although we are primarily a business-to-business company, Equifax has high standards to identify and respond to vulnerability so all consumers can access the services we offer.
• Through financial education and community support programmes, we also help consumers to understand their financial capability so they can access financial services more broadly.
• Thin credit files and lower credit scores can prevent many people from accessing affordable credit. Vulnerable consumers are more likely to be affected.
• Consumer outcomes in credit markets improve when the financial system shares relevant data with credit reference agencies. Policy-makers could lead the way by exploring the potential to share more public data with credit reference agencies to improve consumers’ access to affordable and appropriate credit.

About Equifax

Equifax is a global data, analytics and technology company. Headquartered in Atlanta, Georgia, Equifax operates in 24 countries. It is a member of Standard & Poor's 500 Index, and its common stock is traded on the New York Stock Exchange. Equifax employs approximately 11,000 people worldwide.

In the UK, Equifax Ltd is authorised and regulated by the Financial Conduct Authority (FCA) and is one of the three main credit reference agencies (CRAs).

TDX Group Limited, which is a debt collection provider, is also an Equifax group company authorised and regulated by the FCA. TDX combines innovative data and analytics with a strong consumer focus to provide flexible, responsible, and sustainable debt collection services to creditors.

TDX operates a joint venture with the Cabinet Office, called Indesser, which offers the public sector a single route to access best in class debt management services.

Equifax employs more than 800 staff in the UK and Ireland. We are a Living Wage Employer, a Military Covenant signatory and the first CRA to join the Women in Finance Charter.

Equifax Limited is registered in England with Registered No. 2425920. Registered Office: Capital House, 25 Chapel Street, London NW1 5DS. 

How we define ‘vulnerability’

We design and manage our services to adhere to the FCA’s definition of vulnerability. We find the FCA’s definition of vulnerability is appropriate and it is helpful that the definition has not changed. Consistency enables us to focus on continually improving the service we give to all consumers.

How we enable vulnerable consumers to access Equifax’s services

We have high standards across our business to ensure all consumers can access our services and to identify and respond to vulnerability.

Below are some examples of the steps we take to ensure vulnerable consumers can access our services:

• Everyone working in our consumer service team is trained to recognise and respond to vulnerability.
• Equifax provides credit reports in accessible formats, including for people with sight loss.
• Equifax has processes in place to provide credit reports to consumers covered by a power of attorney or protection order, and to ease the provision of credit reports to a range of disadvantaged groups, including people getting debt advice, victims of domestic abuse, people in mental distress and people in prison.
• Equifax supports the introduction of the Government’s breathing space scheme and believes this initiative, if implemented effectively, will create safeguards for people with problem debt.
• Equifax and all credit reference agencies have common processes in place so people covered by the Gender Recognition Act can change the data held about them.
• TDX uses its leading edge data and analytics capability to form a rounded picture of consumers who are at risk of problem debt, including any vulnerability. TDX combines this data with sensitive and proactive interviewing techniques[1] to empower call handlers to use their judgement and sensitivity to agree flexible resolutions with consumers.
• TDX has a set of vulnerability standards and works closely with all suppliers to monitor services and ensure the standards are met across its services. TDX audits its services’ vulnerability processes and outcomes to quickly identify issues as they emerge and track trends in performance.

We help improve consumers’ access to financial services through financial education and community programmes

Equifax has range of initiatives focussed on improving financial education and capability across society. 

By working closely with consumer groups and debt charities we share and learn from each other. Globally, we partner with a range of other organisations to maximise the shared value of our expertise in data and advanced analytics. In the UK, we are active members of a number of leading debt and consumer advice organisations, including the Money Advice Service and the Money Advice Liaison Group, with whom we seek to collaborate and understand changing consumer needs and expectations

Our online Knowledge Centre brings together a wealth of information to help consumers understand their credit file, protect themselves from fraud and access financial services. It covers a wide range of topics, from how to get a mobile phone contract if you have had problem debt, to how to get your first mortgage and how to manage debt problems[2]. The reach of our Knowledge Centre is growing quickly and it currently gets about 45,000 hits a month.

We also support financial inclusion through our corporate social responsibility programme. This year we have delivered financial education to children and young people in partnership with Young Enterprise.

Enabling vulnerable consumers to access appropriate and affordable credit: unlocking the power of data

There is strong evidence that many consumers are unable to access mainstream credit service because they have a thin credit file or lower credit score[3]. When this becomes a barrier to accessing mainstream credit, consumers can be forced to turn to high cost or informal lending. That means they pay more for a mobile phone contract, school uniforms, to replace white goods, or to furnish their home. That can exacerbate their financial and emotional difficulties and in turn make it harder to access mainstream credit in future.

Vulnerable consumers are more likely to have a thin credit file or lower credit score:

• People with mental health problems are three times as likely to be in problem debt, as highlighted by The Money and Mental Health Policy Institute in its oral evidence to the Committee.
• People in the poorest fifth of households are more than 1.5 times as likely to have problem debt than the second poorest fifth, and they are more likely to have mental and physical health problems[4].
• Roughly 25 percent of the UK adult population have a ‘near prime’ credit file that leaves them “underserved” by financial services[5].
• 53 percent of local authority tenants use prepayment meters for both gas and electricity, compared to fewer than one in ten owner occupiers[6].

One way to enable more consumers, including vulnerable consumers, to access affordable credit therefore is to unlock the value of new data they can share with lenders to demonstrate their creditworthiness. The UK has made considerable progress in this area compared to most other European countries[7] but additional data sharing would further improve financial inclusion and lending decisions.

Open Banking is beginning to allow consumers to safely and securely share their income and expenditure data. It has great potential to stimulate innovation and improve credit market outcomes. For example, East Sussex Credit Union became the first credit union to use an Open Banking solution that gives its members a smoother, faster customer journey[8]. This is delivered in partnership with a FinTech called consents.online.

The Creditworthiness Assessment Bill has shone a spotlight on the power of data to improve financial inclusion and make credit markets work more fairly. It would oblige lenders to consider rental and council tax payment data in creditworthiness assessments where that data was available.

Box 1: How rental data affects the credit scores of people in social and affordable housing

Currently, relatively few tenants are able to share their rental data but Equifax analysis shows it could have a powerful positive impact, especially for people with the lowest credit scores.

Equifax analysed over 27,000 real life credit files belonging to people who rent social or affordable housing. We modelled the impact on their credit scores if their rental payment data was included and they paid their rent on time. Our analysis showed that including rental payment data improved the credit scores of 33% of tenants and made no material difference to the remainder.

Within our sample, around 6,600 tenants had two or fewer credit accounts in their name, which we would class as a thin credit file and a potential barrier to accessing credit. This thin file group benefited most from including rental payment data – the credit scores of 69% of tenants paying social or affordable rent improved when rental payment data was included, with no material difference to the remainder.

Within the thin file group, the benefits were biggest for people with lower credit scores. Credit scores can be broadly grouped in to three levels: prime (high scores), near-prime and subprime (low scores). Consumers with subprime scores typically have the fewest options in the market and pay the most for credit if they can access it.

When rental data was paid and included in credit files, 22% of renters with sub-prime scores moved to near-prime scores, 11% of renters with near-prime scores moved closer to prime scores, and 7% of ‘prime’ renters saw their score improve. Moving towards a prime score opens up consumers’ choice of lenders and can lower the cost of credit.

Rental data would also help creditors lend more responsibly and protect consumers from taking on credit they cannot afford.

Whether or not the Creditworthiness Assessment Bill is passed, the Government could take action to enable more people to share their rental and council tax data by allowing credit reference agencies to access payment data directly from local authorities.  Credit reference agencies already access data from the full electoral roll this way[9].
 

Working with local and central government, affordable lenders and consumer groups, Equifax would welcome the opportunity to develop a pilot that shares local authority rental and council tax payment data with all credit reference agencies. The pilot could be designed in a separate research area so it carried no risk to consumers’ credit scores or files.

Rental and council tax payment data are not the only financial information that could be shared safely with credit reference agencies to improve financial inclusion and responsible lending. In its final report, the Financial Inclusion Commission called for the Government to enable large public datasets (including HMRC tax receipt data and pension payment data) to be shared with credit reference agencies “to help people to build their credit scores and promote access to financial services for excluded groups”[10].

Since that report was published, the UK has led the world on open data. Unlocking the value of data and opening up public data are now key components of the UK Digital Strategy. HM Treasury has taken positive steps to improve data sharing as a way to improve access to affordable credit[11] and “strengthen the UK’s position as a world leader in data-driven innovation”[12].

We would encourage policy-makers to work in partnership with credit reference agencies, affordable lenders, consumer groups and FinTechs to agree ambitious next steps to ensure more public data is shared where it can improve financial inclusion and consumers’ access to affordable and responsible credit.

Submitted December 2018