The Financial Conduct Authority’s (FCA) Consumer Duty, which took effect in July 2023, has prompted many headlines and discussions about how financial services providers can best meet these new regulatory requirements.

The new principles require financial firms to act in good faith, avoid causing foreseeable harm to consumers, and help consumers achieve their financial goals. It builds on previous rules, but sets a higher expectation for the standard of care that firms provide to consumers.

Precisely how the industry meets these new requirements is not prescribed. It is up to each firm to decide how best to proceed and demonstrate compliance with the new requirements. What is clear, however, is that the clock is ticking, and the FCA will soon start auditing how firms are performing.

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In this, the first of two blogs, we’ll look at why the issue of data quality is important, and why it might be a ‘blind spot’ for firms responding to the Duty.

In our second blog we’ll share our thinking on the 4 steps you need to take to deliver better data quality and minimise the risk of poor outcomes for consumers.

Why the Consumer Duty? Why now?

The FCA’s new rules arrive at a time of significant economic uncertainty. The cost-of-living crisis, higher inflation and higher interest rates has put more pressure on borrowers’ disposable incomes and ability to afford credit. Whilst wages have now overtaken inflation the pressure on household budgets remains.

The credit industry and wider financial services sectors are under greater scrutiny in this environment.

Consumers struggling financially often seek credit they can ill afford, which places greater demands on lenders to make fair and appropriate credit decisions. The FCA is alive to the potential for harm to increasingly stressed consumers from sub-optimal credit and customer decisions and will expect lenders to use every tool at their disposal to ensure they get this right.

Lenders need to do everything possible to ensure credit and customer management decisions are as accurate as possible, including basing those decisions using the latest and most accurate data.

Poor data quality has repercussions across the credit lifecycle, touching many of the operational elements of businesses from contacting and communicating with consumers, to accurately understanding their credit risk and affordability, monitoring and managing vulnerability and personalising collections. There compliance rules to consider to ensure in alignment with GDPR, and finally there’s the question of accuracy in the reporting of capital adequacy from your risk decisions.

Experian’s responsibilities under Consumer Duty rules

As a credit reference agency, Experian has obligations to fulfil in response to Consumer Duty. This includes taking actions to ensure its activities avoid causing foreseeable harm. One risk identified as having potential to cause harm is the submission of poor-quality data to the credit bureau.

Lenders share significant amounts of information with Experian each month, ranging from simple customer attributes such as name, address and date of birth, to more detailed information relating to credit utilisation, type of credit product, length of agreement, monthly repayments and defaults.

Finally, it captures and seeks to resolve complaints from consumers and businesses about the accuracy of personal and financial data held on the bureau.

Data quality is an issue that lenders, who are all responsible for the accuracy of the information they submit to Experian, need to take notice of.

Poor data quality is not simply an internal problem. Yes, inaccurate, and incomplete data is detrimental to the organisation that originates it, but it can (and does) lead to poor outcomes for consumers and other lenders that use shared data to inform their credit and affordability assessments.

Inaccurate data affects the everyday lives of consumers and businesses and can limit their access to finance. In the case of a small business (SME) this affect is amplified where barriers to sourcing finance can affect the health of small business, its ability survive and grow and the job security of its employees.

Although Experian is not itself permitted to complete missing information or correct data submitted to us, we’ve sought to assess and improve the quality of credit data for as long as we’ve been sharing it:

  • Consumers and businesses have the opportunity to see and query their credit reports.
  • We have employees dedicated to helping people understand the information on their reports and liaising with lenders to help correct inaccuracies.
  • We run hundreds of checks to validate the format and quality of data submitted to us, including critical pieces of information required to meet Know Your Customer (KYC) guidelines.
  • And when we do become aware of anomalies, we flag them to the lender that supplied the data so they can be corrected.
  • We monitor complaints from consumers, and flag time taken to resolve complaints by lenders in an effort to resolve inaccuracies quickly.

Accuracy levels are high, but every inaccurate or incomplete data point supplied to the bureau creates potential for harm. There is an opportunity to improve credit data quality further, and Consumer Duty now obligates us to do so.

It is likely that in the future, we will be required to show the regulator how we and the lenders who submit information to us are performing on improving data quality.

How can we help?

We are already in discussions with leading lenders about how they plan to improve the quality of data they submit to the bureau, and we see the industry making great progress in shaping best practices for meeting these new regulatory requirements.

There is a significant opportunity for everyone to improve performance to deliver good outcomes for consumers, themselves, and the broader credit ecosystem. Some lenders have further to go than others, but even the best will need to show they are committed to achieving the highest standards of data quality.

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Understand how your organisation performs on credit data quality and where you should focus to improve it.

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