Let’s end this credit rip off, and puncture the poverty premium, together
The Creditworthiness Assessment Bill will increase fairer, more affordable credit opportunities for those who need it the most, preventing people from falling into the high-cost credit trap, says Lord Bird.
I know the real cost of high-cost credit all too well. The crippling effect of paying double - sometimes triple - the retail price can have on families. My mother, amongst the poorest in society, was forced to resort to the same doorstep lender time, and time, again.
There is an indisputable urgent need for action to get the poorest out of the sticky stuff - and away from the doorstep lenders, pay day loans and rent-to-own stores; the BrightHouses of the world.
The FCA’s recent high-cost credit review has shone a light on over three million consumers in the UK using high-cost credit, with many coming from the most vulnerable parts of society. The FCA’s consultation may provide a step forward in addressing this biggest of big issues, but if we’re serious about helping people escape lives of precarity, we need to use the full arsenal at our disposal.
That’s why today I’m proud that my private member’s bill, the Creditworthiness Assessment Bill, will have its Report stage in the House of Lords, bringing it one step closer to becoming law. It will increase fairer, more affordable credit opportunities for those who need it the most, preventing people from falling into the high-cost credit trap.
Our credit scores determine so much of our lives. How much we pay for basics such as white goods and energy, and whether we can get a mortgage. But today, Britain’s 11 million renters - and that number’s fast rising - are being discriminated against when it comes to access to credit. This is because rental data isn’t used in calculating credit scores in the same way as mortgage payments. The result? Those who can least afford it pay the most. It’s estimated that this ‘poverty premium’, the additional amounts paid by the poorest, stands at £490 every year.
At the same time, it’s thought that over two-thirds of renters - in both private and social housing - are paying their rent in full, and on time. Rent undoubtedly constitutes the largest outgoing for most households, but at the moment, tenants can’t use their rental data to help improve their credit score, get digitally authenticated and enter the mainstream marketplace. My bill, via the clout of the FCA, will ensure that every lender takes rent and council tax payment history data into account when assessing a borrower’s creditworthiness.
Big Issue Invest has already tested a version of this scheme and found that 83% of social tenants stand to see their credit scores boosted because of their rent data. Just as importantly, the evidence also shows a jump from 39% to 84% in digital identity authentication. Digital authentication is vital in helping the most disenfranchised, as without a digital footprint, it can be extremely difficult to access not only suitable credit, but also basic government services.
Open Banking and the UK Government’s ‘Rent Recognition Challenge’ - which seeks to build the capacity of UK fintechs by collecting tenants’ data - are welcomed developments. But the challenge ahead lies in ensuring that lenders use tenants’ rent data in their assessments. Without this part of the equation, we’ll have more data, but no change in practice. As was mentioned from all sides of the House at Committee stage, it’s the intelligent use of financially-inclusive data that’s the key.
We need to give Generation Rent every possible prospect of improving their financial position. We need to empower those people who are currently financially excluded from our economy. That’s why, today, I continue to call on the Government to embrace my (cross-party supported) bill, and join the campaign to #makerentcount.
Let’s end this credit rip off, and puncture the poverty premium, together.