The House of Commons Treasury Select
Committee has been examining the issue of “footprints” left by
multiple credit applications when consumers shop around for credit
offers.
As the Office of Fair Trading (OFT)
commented in its own evidence to the Committee: “Multiple
applications can be indicative of the consumer having some
difficulty in obtaining credit or could be a [fraud] warning.”
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The OFT added that consumers should
not de disadvantaged as a result of shopping around. However, it
said that consumer concerns about application footprints had yet
registered as a high priority for OFT investigation.
The growth of risk-based credit
pricing has added to the number of credit applications as the
advertised rates are not applicable to all customers, but merely
representative of the majority of those eventually accepted – under
the “66 percent rule” in the Consumer Credit Act (CCA).
In the mortgage market, the Financial
Services Authority now requires lenders to offer “quotation
searches” wherever risk-based pricing is used. These do not
generate a footprint to be notified to other lenders, until the
consumer proceeds to a formal credit application.
The strongest critics of footprint
effects in evidence to the Parliamentary Committee were price
comparison website agencies. MoneySavingExpert.com presented 57
case studies of critical comments by its consumer users. Of these,
only three involved point-of-sale motor finance, while four others
had sought personal loans for car purchase.
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By GlobalDataOnly two cases mentioned involved
point-of-sale car finance. One said that the dealer had put through
two applications due to an initial error in identifying the car.
The other alleged that the dealer initiated an unauthorised finance
application while the customer was seeking an alternative personal
loan.
The credit reference agencies (CRAs)
and lenders’ trade bodies stressed to the Committee that footprints
are likely to have a material outcome only on borderline credit
scores, and where more than five applications had been registered
with the same CRA within 3 months.
In its oral hearing, the Committee
seemed likely to broaden its inquiry from the notified subject of
credit searches towards a general review of risk-based pricing.
However, there may not be a great
regulatory threat on that front. For the 66 percent rule is to be
replaced by June 2010 by a less rigorous 51 percent rule through
the EU Consumer Credit Directive. This is a maximum harmonisation
provision and member states cannot go further.
The Select Committee is due to produce
its report by the end of January.
Andy Thompson
