By Huw Jones
LONDON (Reuters) - Britain's 'highly concentrated' consumer credit ratings market used for obtaining loans is not working well, and a new industry body to help improve the quality of scores is needed, the Financial Conduct Authority said on Tuesday.
Experian, Equifax and TransUnion make up almost all of the Britain's 800 million pound ($946.32 million) credit reference agencies (CRAs) sector.
Switching between them is difficult, the FCA said in an interim report, which found no competition concerns that require immediate action.
Credit agencies also help verify the identity of consumers to combat fraud and help with affordability assessments.
"The credit information sector needs to work well to support retail lending and to help ensure that credit is offered only where appropriate and at a fair price," the watchdog said,
An industry committee, known as SCOR for lenders and raters to share credit information on consumers is too narrow, with no representatives from consumers or 'challenger' companies.
There are significant differences in credit information held by the three big companies, which are "very likely" to affect lending decisions by banks, the FCA said.
Equifax said it was reviewing the FCA report, and Experian said it supported a recommendation to improve coverage of credit information. A TransUnion UK spokesperson said that the company will work with the FCA and wider industry to sustain a fair and robust credit ecosystem.
SCOR member UK Finance, which represents banks, said that ratings were just one tool for assessing customer loan affordability.
SCOR had no immediate comment.
In the absence of "significant disruptive entry", a combination of industry-led change and regulatory intervention over three years is needed to give consumers a better service by creating a new, broader sector body, the FCA said.
"We see reform to industry governance arrangements as a key precursor to many of the other potential remedies we are proposing."
(Graphic: FCA Graphic on Consumer Credit Raters - https://fingfx.thomsonreuters.com/gfx/mkt/akpeqzeedpr/FCA%20Graphic%20on%20Consumer%20Credit%20Raters.PNG)
Once a new industry body is in place, the watchdog would agree on a three-year programme of reform, including potentially widening the range of data reported to rating agencies to improve quality, consistency and speed of data.
Emma Steeley, chief executive of Freedom Finance, a digital lending marketplace, said widening the scope of information to include buy-now-pay-later would help young borrowers who may have had less time to build up their credit score.
A public consultation on the FCA's proposals ends in February, with a final report in the third quarter of next year setting out final findings, and giving an update on progress towards revising how the industry operates collectively.
($1 = 0.8454 pounds)