The Story of Our Lives
by Craig Warner
Imagine that the story of your life has been written down, and you know that others will be reading it.
It’s the story of your finances. You know it’s not a particularly enthralling story, but you would like it to be presentable… or at the very least, correct.
This document is referred to as your credit report. And if there’s one thing you aren’t worried about, it’s that the facts laid out in your story will be true. The main Credit Reference Agencies — Equifax, Experian, and TransUnion — couldn’t really report incorrect information. They are operating in a regulated space — aren’t they?
But as you read on, you notice things aren’t quite as they should be. You recently applied for a current account, and the bank swore that only one hard search would appear on your credit report. (Multiple searches make you look like you’re seeking loans in a panic, so it discouranges creditors, and is often the reason they decline to lend money.)
In fact, you notice that there are not one but four hard searches from this bank. You ring the CRAs directly, believing that they will have to correct any false information they publish about you.
But the CRAs tell you there’s nothing they can do. They tell you they are ‘merely a middleman between you and a lender.’ They offer you the opportunity to raise a dispute — a bureaucratic process that can take weeks — and you agree to do this, but it merely causes a note to appear in the margins of your report, alerting readers to your concern.
You feel compelled to ask: Do the CRA’s vet information for accuracy?
Well… Do they sanction businesses that repeatedly report inaccurate information to them, causing customer to raise endless disputes?
No. There’s no process for sanctioning the reporting company. It’s just not the way the system is set up.
Then you notice that the lender of your hire purchase vehicle lists your balloon payment as a debt. This figure was the price you were quoted when you took out the contract, which you would have to pay if you wished to buy the car and own it outright at the end of your contract. But since you have no obligation to buy the car when the contract is exhausted, you can’t be said to ‘owe’ that figure, you tell them. It seems absurd to report it as a debt.
And not only do they report it as a debt — they report it as unsecured debt, even though it’s very obviously secured against the car itself.
This will have serious consequences, and you feel you should have been made aware of this at the time of signing — especially since the salesperson made a point of reading out some FCA-required material which never seemed to end, and which was far less relevant that this.
Because the more unsecured debt you owe, the more likely lenders will decline to lend you money. A large amount of unsecured debt, especially when that figure is high against your regular income, makes you appear dangerous to a lender.
One of the major lenders of automotive finance in the UK say, if you ask them the question separately, that their loans are absolutely secured against the vehicles —indeed, they will repossess your car if payments are not kept up.
Why, then, is the loan listed as ‘unsecured’ on a public document that paints the more important picture of your financial reliability available to lenders in the UK?
Some customers have been told that the loans are listed as unsecured ‘merely for the purposes of the Consumer Credit Act’. This appears, on the face of it, plainly contradictory. In fact, if you ask for further details about this, you may not find that any illumination is offered at all.
One lender has said that the loan is listed as unsecured debt because the customer does not actually own the vehicle during the purchase period, and a loan cannot be secured against something the customer does not own. But this is precisely the situation with mortgages, and mortgages for homes are not listed as unsecured debt on credit reports.
Furthermore, an HP vehicle loan is less risky that an unsecured debt precisely because there are goods that can be reacquired if the customer cannot keep up their payments, so the lender’s losses will be mitigated when they reacquire the car.
This is not the case with genuine unsecured debt — credit card debt, for example. If the customer cannot pay it back, it is simply lost. This is why the amount of unsecured debt is taken so seriously in determining a customer’s risk profile.
Many people seeking loans will simply not get past the first stages of an application when a machine is assessing their risk — and oftentimes a human being does not enter the lending process unless a loan is recommended first by a machine.
But often we don’t have time to be turned down and appeal the outcome of a machine, even if the lender does allow an appeal to be made. Someone, for instance, may have a brief window of opportunity to take over a business or to buy a flat. They may need the money to save a loved one who is in need of urgent medical care. And the lender’s machine, or their human being, are misreporting the risk you represent if they claim you owe too much unsecured debt — even if you owe none at all. The consequences of misreporting can be extremely grievous for the consumer, so it is imperative that it be accurate, and that we can agree on fundamental contractual terms. In fact, under GDPR, it is unlawful for a data controller knowingly to report false or inaccurate information, and it is more grievous still if the data controller knows that the false information causes damage to a customer’s reputation — even if only for a day.
The FCA agree that there are complexities in the way that lenders report to CRAs — complexities which do not always yield the most just outcome for the customer. In fact, they are aware that inaccurate reporting can cause distress and serious losses to customers. But the FCA have not yet used their enforcement powers to compel Credit Reporting Agencies to fill out reports in a manner which does not worsen the customer’s risk profile, and do things differently, despite the fact that false information on a Credit Report can lower a customer’s opportunities for advancement, enjoyment, or to compete fairly in the marketplace.
Furthermore, though lenders commonly state that they merely hand over the figures the CRAs ask them to provide each month, and that they have no further interaction with the numbers, the FCA have said that this is not quite accurate. There is a reciprocity agreement between the lenders and the CRAs and they determine together what figures to report, and how to report them. And lenders can gain advantages if money is categorised one way rather than another.
If lenders themselves influence what is written in credit reports, and how money is categorised, it could be in their interest to publish the highest possible figure as a cash debt owing to the company, as this increases the company’s published net worth. They might, if asked, be glad to list a balloon payment as a cash debt — even if it’s not technically a debt at all.
Though the FCA can be frustratingly sparing in exercising their powers of enforcement, they do publish guidelines which require the financial sector to meet ethical standards. They require that conduct be fair and information accurate. Fairness has become an important term in the regulatory lexicon.
And the credit report system can yield situations which are plainly unfair. There is one young couple whose mortgage quotation was £25,000 higher than it should have been because several years earlier, her ex-boyfriend failed to pay a parking ticket worth £30.
The FCA, and we as a society, must ask ourselves if this is reasonable — and if this is the sort of problem people should be grappling with as a result of the Credit Reporting system.
The FCA have recently performed a year-long research project to determine if credit reports were ‘working for consumers’. But it’s difficult to see how they could be. The FCA acknowledges that the Credit Report is a business-to-business tool. It’s a way businesses talk to each other about potential borrowers. It is not designed to help the consumer. It either restricts their progress in life — fairly or unfairly — or it does not. But it is not designed to endorse them as potential customers, no matter how well they have conducted themselves financially.
There is a story by Maupassant called La Parure, in which a young lady borrows what she believes to be an expensive necklace to wear to a dance. She loses it, has it replaced, and spends literally the rest of her life paying it off. Decades later, hunched over and shopworn from performing years of menial toil, she comes upon the owner of the necklace and tells her about her life, what a mess it has been, how tragic and meaningless because she had to throw it away paying back money she never had the chance to enjoy.
Of course the necklace’s owner tells her that the irony goes deeper than this. The necklace was fake. Her life was ruined for nothing.
What happens to many members of the public bears an uncomfortable resemblance to this story. We believe, and we work. We give our lives to society, and we trust that it is watching over us and keeping us safe from terrible ironies such as this.
But so many of us are fighting now to pay off a falsehood — because we were decent enough to believe it when they told us it was true.
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